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The Alternative for Germany party (AfD) in Germany has asked the Federal Government to file a lawsuit against all decisions of European Central Bank (ECB) regarding the purchase of government bonds and corporate bonds as well as derivatives since 2015. They are petitioning to file in the European Court of Justice asserting that the policies of the European Treaties and by the Federal Constitutional Court were being violated.

Effectively, the ECB “stimulus” policy (QE) has completely failed and instead has become a life-support system subsidizing the debt of Eurozone member states. Even reducing the amount bought per month is an attempt to see if the marketplace takes up the debt. But the Eurozone governments never cut back spending or reformed. They never had to. The QE program was merely targeting to support the government – not the average person in the economy.

Meanwhile, the former leader of the nationalist AfD, Frauke Petry, was formally charged with perjury and was accused of lying under oath about the party’s finances. If found guilty she would face a minimum sentence of six months in jail, but it would be the end of her political career. This seems to be another political-prosecution.

Frauke Petry resigned from the AfD and has plans to form a new political group in the German parliament that will be distant from the far-right Alternative for Germany (AfD). For this reason, she is a threat politically.

Why are all politicians not prosecuted for lying to the public to win an election and then do the opposite? The charges against Petry are intended to stop her political career.

“This Is Where The Next Financial Crisis Will Come From”

September 19, 2017

“This Is Where The Next Financial Crisis Will Come From”

In an extensive, must-read report published on Monday by Deutsche Bank’s Jim Reid, the credit strategist unveiled an extensive analysis of the “Next Financial Crisis”, and specifically what may cause it, when it may happen, and how the world could respond assuming it still has means to counteract the next economic and financial crash. In our first take on the report yesterday, we showed one key aspect of the “crash” calculus: between bonds and stocks, global asset prices are the most elevated they have ever been.

With that baseline in mind, what happens next should be obvious: unless one assumes that the laws of economics and finance are irreparably broken, a deep recession and a market crash are inevitable, especially after the third biggest and second longest central bank-sponsored bull market in history.

But what will cause it, and when will it happen?

Needless to say, these are the questions that everyone in capital markets today wants answered. And while nobody can claim to know the right answer, here are some excerpts from what DB’s Jim Reid, one of the best strategists on Wall Street, thinks will take place.

Below we present the key excerpts from his must read report;

* * *

We think that the post Bretton Woods (1971-) global financial system remains vulnerable to financial crises. A simple internet search of financial crises through history (Figure 1, LHS chart) confirms that the frequency has increased over this period. Examples include the UK secondary banking crisis (1975), the two Oil shocks (1970s), numerous EM defaults (mid-1980s), US Savings and Loans mass failures (late 80s/early 90s), various Nordic financial crises (late 80s), Japanese stock bubble bursting (1990-), various ERM shocks/devaluations (1992), the Mexican Tequila crisis (1994), the Asian crisis (1997), the Russian & LTCM crisis (1998), the Dot.com crash (2000), the various accounting scandals (02/03), the GFC (08/09) and the Euro Sovereign crisis (10-12).

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

“Trickle Down” Has Failed; Wealth and Income Have “Trickled Up” to the Top .5%

March 30, 2017

“Trickle Down” Has Failed; Wealth and Income Have “Trickled Up” to the Top .5%

Central bank policies have generated a truly unprecedented “trickle-up” of wealth and income to the top .5%.

Over the past 20 years, central banks have run a gigantic real-world experiment called “trickle-down.” The basic idea is Keynesian (i.e. the mystical and comically wrong-headed cargo-cult that has entranced the economics profession for decades): monetary stimulus (lowering interest rates to zero, juicing liquidity, quantitative easing, buying bonds and other assets– otherwise known as free money for financiers) will “trickle down” from banks, financiers and corporations who are getting the nearly free money in whatever quantities they desire to wage earners and the bottom 90% of households.

The results of the experiment are now conclusive: “trickle-down” has failed, miserably, totally, completely.

It turns out (duh!) that corporations didn’t use the central bank’s free money for financiers to increase wages; they used it to fund stock buy-backs that enriched corporate managers and major shareholders.

The central bank’s primary assumption was that inflating asset bubbles in stocks, bonds and housing would “lift all boats”–but this assumption was faulty. It turns out most of the financial wealth of the nation is held by the top 5%.

As for housing–yes, a relative few (those who happened to own modest bungalows in San Francisco, Seattle, Portland, Toronto, Vancouver, Brooklyn, etc.) on the left and right coasts have registered spectacular gains in home appreciation as the housing bubbles in these cities now dwarf the 2006-07 real estate bubble. But on average, the gains in home appreciation have barely offset the declines in real (adjusted for inflation) household income.

These charts illustrate the abject failure of the “trickle-down” economic theory.The majority of the assets that have soared in value are owned by the top 5%:

Wages as a share of GDP (gross domestic product, i.e. the nation’s total economic activity) has been declining for decades:

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

Doomed to Failure

October 8, 2016

Doomed to Failure

Larded Up and Larded Over

We’ve been waiting for the U.S. economy to reach escape velocity for the last six years. What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out. Unfortunately, this may not be possible the way things are going.

fischers As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went downhill quickly” (his other grandfather drowned in a bowl of cheerios). A similar fate may await the larded up US economy.

In short, the U.S. economy may never reach “escape velocity” unless it is first allowed to crash. It has been too larded up and larded over with debt for any real sustainable growth to take root. More evidence, to this effect, was revealed this week.

For example, the International Monetary Fund (IMF) anticipates the U.S. economy will expand by just 1.6 percent this year. That’s about one percent less than last year’s estimated growth. In other words, the rate of economic growth in the United States isn’t increasing; rather, it’s decreasing.

According to the IMF, “the slower-than-expected activity comes out of the ongoing oil industry slump, depressed business investment and a persistent surplus in business inventories.” Could this be the twilight of the weakest economic recovery in the post-World War II era? Only time will tell, for sure.

But anyone with an ear to the ground and a nose to the grindstone knows the answer to that question. Business ain’t booming. Moreover, it has become near impossible for corporations to grow their earnings.

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

China’s Rolling Boom-Bust Cycle

May 18, 2016

China’s Rolling Boom-Bust Cycle

Sweet Authoritative Nothings

There is a mysterious figure making regular appearances in China’s government mouthpiece “People’s Daily”, which simply goes by the name “authoritative person” (AP). This unnamed entity always tends to show up with bad news for assorted speculators, by suggesting that various scenarios associated with monetary and/ or fiscal stimulus are actually not in China’s immediate future (the details of AP’s latest pronouncements can be found here and here).

people's daily The People’s Daily. “Authoritative Person” may be hiding somewhere in the picture to the left.

Some observers seem to believe that this represents a “renewed shift in policy” – Bloomberg e.g. quotes an economist with Mizuho Securities as follows:

“It is very significant and may signal a shift in China’s policies,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “Each time they publish this, it is normally a warning.”

Others are more careful – after all, this seems to be a case of “we’re saying one thing and doing another”, given a credit expansion of 4.6 trillion yuan in just the first quarter, which has sent narrow money supply growth soaring to more than 22% annualized.

The more measured argument is that it could be a sign that the debate about future economic policy is ongoing, resp. has been revived. No-one really knows – it is basically the Chinese version of Kremlinology.

At the end of March, China’s narrow money supply measure M1 was growing at more than 22% y/y – click to enlarge.

Although the extension of new yuan loans has slowed significantly in April from January’s heady pace (555 bn. vs. 2.5 trn.), there has still been enough pumping in the system to push M1 up again in March-April from a brief dip in February – in other words, if there is indeed a change in policy, it is not really visible yet.

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

ECB & The Failed QE Stimulus

December 1, 2015

ECB & The Failed QE Stimulus

The central banks are simply trapped. They have bought in bonds under the theory that this will stimulate the economy by injecting cash. But there are several problems with this entire concept. This is an elitist view to say the least for the money injected does not stimulate the economy for it never reaches the consumer. This attempt to stimulate by increasing the money supply assumes that it does not matter who has the money. If we are looking only at the institutional level, then this will not contribute to DEMAND inflation only ASSET inflation by causing share markets to rise in proportion to the decline in currency value.

The European Central Bank (ECB) then pushes interest rates negative to punish savers and consumers for not spending money that never reaches their pocket. Negative rates promotes hoarding cash outside of banks which in turn then inspires the brilliant idea of eliminating cash to force the objective and end hoarding. But negative rates have been simply a tax on money. The attempt to “manage” the economy from a macro level without considering the capital flow within the system is leading to disaster.

Then we have the problem that the central banks in attempting QE operations, cannot figure out how to reverse the process. They cannot sell the debt back to the market thereby defeating the original concept of creating elastic money supply. You increase the money supply during a recession to prevent banks being forced to sell assets to meet a panic demand for cash. Transactional banking has altered the classic borrow short lend long operations of banks cancelling out the idea of requiring and elastic money supply. All central banks can do now is allow the bonds they bought to mature and expire. If they attempt to sell the bonds they bought back into the marketplace, they will drive rates higher in a panic.

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

Where Is the First Helicopter Drop of Money Likely to Land?

October 13, 2015

Where Is the First Helicopter Drop of Money Likely to Land?

So what’s left in the toolbag of central banks and states to stimulate recessionary economies if QE has been discredited? The answer: Helicopter Money.

We all know helicopter money of some kind is coming as the global economy spirals into recession. Quantitative Easing (QE)–the monetary stimulus of distributing newly created central-bank money to private banks–has been discredited, as even cheerleaders and apologists now admit it has only widened wealth and income inequality.

So what’s left in the toolbag of central banks and states to stimulate recessionary economies if QE has been discredited? The answer: Helicopter Money.

Gordon T. Long and I discuss Helicopter Money in this video program: who is likely to receive the first drops, and who will be the ultimate winners and losers.

Gordon leads off by covering how money is created by central and private banks, i.e. how money is lent into existence.

Next, we discuss how helicopter money works: central states issue bonds (new debt) to fund helicopter drops of free money to stimulate demand for goods and services, and central banks buy the bonds with freshly created money.

This monetizing of state debt by the central bank is the engine of helicopter money. When the central state issues $1 trillion in bonds and drops the money into household bank accounts, the central bank buys the new bonds and promptly buries them in the bank’s balance sheet as an asset.

The Japanese model is to lower interest rates to the point that the cost of issuing new sovereign debt is reduced to near-zero. Until, of course, the sovereign debt piles up into a mountain so vast that servicing the interest absorbs 40+% of all tax revenues.

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

Now What?

September 19, 2015

Now What?

September 18 – Reuters: “The world’s leading central banks are facing the risk that their massive efforts to revive economic growth could be dragged down again, with some officials arguing for bold new ideas to counter the threat of slow growth for years to come. A day after the U.S. Federal Reserve kept interest rates at zero, citing risks in the global economy, the Bank of England’s chief economist said central banks had to accept that interest rates might get stuck at rock bottom. In Japan, where interest rates have been at zero for more than 20 years, policymakers are already tossing around ideas for overhauling the Bank of Japan’s huge monetary stimulus program as they worry that it will be unsustainable in the future, according to sources familiar with its thinking. Separately a top European Central Bank official said the ECB’s bond-buying program might need to be rethought if low inflation becomes entrenched.”

Most just scoff at the notion that there has been a historic global Bubble, let alone that this Bubble has over recent months begun to burst. Talk of an EM and global crisis is viewed as wackoism. Except that the Federal Reserve clearly sees something pernicious in the world that requires shelving, after seven years, even the cutest little baby step move in the direction of policy normalization.

The Fed and global central banks responded to the 2008 crisis with unprecedented measures. When the reflationary effects of these policies began to wane, the unfolding 2012 global crisis spurred desperate concerted do “whatever it takes” monetary stimulus. This phase has now largely run its course, and there is at this point little clarity as to what global central bankers might try next.

Clearly, great pressure will remain to hold rates tight at zero. I fully expect policymakers at some point to see no alternative than to implement additional QE.

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

What ‘Escape Velocity’? December Business Sales And Inventories Repudiate The Money Printers’ Myth

February 14, 2015

What ‘Escape Velocity’? December Business Sales And Inventories Repudiate The Money Printers’ Myth

It is plain as day that massive central bank money printing and perpetual ZIRP do not rejuvenate the main street economy under conditions of “peak debt”. And the reason is so obvious that only Keynesian economists can’t grasp it.

To wit, if the balance sheets of households and businesses are tapped out—–then artificially suppressing interest rates cannot induce them to borrow even more money. Accordingly, spending is constrained to what can be funded from current income and cash flow after any set aside for new savings. In contrast to the four decades of the great credit expansion between 1970 and 2008, therefore, GDP can no longer be stimulated by incremental outlays derived from hocking household and business balance sheets.

The graph below of the long-term trend of household leverage—measured as total mortgage, credit card and other consumer debt compared to wage and salary income—–demonstrates the new normal. During the long period of credit expansion, the Fed’s resort to low interest rates to stimulate borrowing and spending worked because households started the period with relatively clean balance sheets. As a result, central bank monetary stimulus caused leverage ratios to be ratcheted higher and higher in response to each round of rate cutting.

Self-evidently that ratcheting process has stopped, and household leverage ratios have fallen, albeit to levels which are still aberrantly high by historical standards. What this means is that after the peak debt inflection point was reached, the constraint on borrowing would not be the interest rate, as had been the case during the great credit inflation, but the availability of income to leverage.

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

The Truth About The Monetary Stimulus Illusion

January 23, 2015

The Truth About The Monetary Stimulus Illusion

Perhaps economic policymakers, including Federal Reserve Chair Janet Yellen and the Bank for International Settlements, should take a closer look at Japan, China, and yes, the United States, when debating the limits of monetary stimulus and the dangerous nature of financial bubbles. The discussion is happening too late to be anything more than an intellectual exercise.

Since its inception in 2008, easy monetary policy has created very few positive effects for the real economy—and has created considerable (and in some cases unforeseen) negative effects as well. The BIS warns of financial bubbles. Quantitative easing has already created asset price bubbles in the United States and elsewhere, and an investment bubble (this includes capital expenditure and real estate) in China and other emerging markets.

Meanwhile, this policy has failed to have a positive impact on the real economy partly because central banks have adopted very aggressive monetary easing at a macro level while restricting banks from increasing the size of their balance sheets at a micro level (macro-prudential policy). As a result, easy money has flowed into asset markets through shadow banks and overseas through carry trades.

China has been the main recipient of this bounty. Yet unlike global asset market bubbles, China’s expanding bubble is less well understood. China’s economy has grown at a rapid clip this century. Industrial production, based on the value of the dollar in 2005, increased five-fold from $800 billion in 2000 to $4 trillion in 2013. China averaged an annual growth rate of 33 percent during this period while global production grew 3.1 percent and the United States barely grew at all (averaging 0.5 percent). Not surprisingly, China’s share of global production increased from 4.5 percent to 22 percent between 2000 and 2013.

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

Kuroda Says BOJ to Mull Fresh Options in Case of More Easing

January 23, 2015

Kuroda Says BOJ to Mull Fresh Options in Case of More Easing

Bank of Japan Governor Haruhiko Kuroda signaled the central bank may need to look at fresh options if more stimulus is needed to propel inflation to levels unseen since stagnation set in two decades ago.

“If, really, our possible path to 2 percent inflation is significantly affected, then of course we can make adjustment to our monetary policy,” Kuroda said in an interview with Bloomberg Television in Davos, Switzerland, on Friday. Asked whether the BOJ will have to get more creative, he said “yes, I think so.” He declined to specify the options available.

Kuroda, 70, spoke days after the BOJ cut its inflation projection for the coming fiscal year, a move that reinforced forecasts for further stimulus by October. While Kuroda’s unprecedented scale of asset purchases has pulled the world’s third-largest economy out of 15 years of entrenched deflation, he’s confronting — like his European counterparts — mounting pressures depressing price gains, and subdued growth.

Kuroda and his colleagues have channeled most of their purchases into the government-bond market, sending yields on 10-year notes to a record low of 0.195 percent this week. The BOJ’s program also include exchange-traded funds and real-estate investment trusts.

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

How China Deals With Deflation: A 60% Pay Raise For 39 Million Public Workers

January 23, 2015

How China Deals With Deflation: A 60% Pay Raise For 39 Million Public Workers

While the rest of the developed world, flooded with re-exported deflation as a result of now ubiquitous money printing, scrambles to print even more money in hopes of stimulating the economy when all it is doing is accelerating a closed deflationary loop (at least until the infamous monetary helicopter drop), China – which still has the most centrally-planned economy in the world even if the US is rapidly catching up – has a more novel way of dealing with the threat of deflation: a massive wage hike across the board for all public workers. Two days ago, at a press conference, the Chinese vice minister of human resources and social security Hu Xiaoyi said that China’s 39 million civil servants and public workers will get a pay raise of at least 60% of their base salaries as part of pension plan overhaul.

The hope is that just like in the US where the Federal government would love to be able to do just that and more, surging wages would stimulate the Chinese economy which over the past year has had to content with the double whammy of surging bad loans and the collapse of shadow banking, as well as the burst housing market.

The pay raise “will make sure that the overall incomes for most of these workers will not decrease after the reform, and some of them could actually earn a bit more,” Ziaoyi said, even if he did not provide details of the plan, which will cover civil servants and public workers, such as teachers and doctors.

According to Caixin, top civil servants, including President Xi Jinping and Premier Li Keqiang, will see their monthly base salaries rise to 11,385 yuan from 7,020 yuan (to $1,833 from $1,130), starting in October. Of course, both are billionaires with hidden money around the world, but the raise is all about optics and boosting confidence. The base salaries of the lowest civil servants would more than double to 1,320 yuan. It is unclear if the plans Caixin saw are final.

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

Mario Draghi: Charlatan Of The Apparatchiks

January 23, 2015

Mario Draghi: Charlatan Of The Apparatchiks

Well, he finally launched “whatever it takes” and that marks an inflection point. Mario Draghi has just proved that the servile apparatchiks who run the world’s major central banks will stop at nothing to appease the truculent gamblers they have unleashed in the casino. And that means there will eventually be a monumental crash landing because the bubble beneficiaries are now commanding the bubble makers.

There is not one rational reason why the ECB should be purchasing $1.24 trillion of existing sovereign bonds and other debt securities during the next 18 months. Forget all the ritual incantation emanating from the central bankers about fighting deflation and stimulating growth. The ECB has launched into a massive bond buying campaign for the sole purpose of redeeming Mario Draghi’s utterly foolish promise to make speculators stupendously rich by the simple act of buying now (and on huge repo leverage, too) what he guaranteed the ECB would be buying latter.

So today’s program amounts to a giant bailout in the form of a big fat central bank “bid” designed to prop up prices in the immense parking lot of French, Italian, Spanish, Portuguese etc. debt that has been accumulated by hedge funds, prop traders and other rank speculators since mid-2012. Never before have so few—-perhaps several thousand banks and funds—-been pleasured with so many hundreds of billions of ill-gotten gain. Robin Hood is spinning madly in his grave.

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

Even Central Bankers Now Admit QE Doesn’t Work

January 21, 2015

Even Central Bankers Now Admit QE Doesn’t Work

Even As European Central Bank Is Set to Unleash a Massive Round of Quantitative Easing, Central Bank Heads Admit QE Doesn’t Work

The former head of the Bank of England – Mervyn King – said today that more QE will not help the economy:

We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus after six years … is the answer doesn’t seem (right) to me.

Also today, William White – the brilliant economist who called the 2008 crisis well ahead of time, who is head of the OECD’s Review Committee and former chief economist for BIS (the central banks’ central bank) slammed QE:

QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market.

***

Even after the stress tests the banks are still in ‘hunkering down mode’. They are not lending to small firms for a variety of reasons. The interest rate differential is still going up.

***

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

The Stimulus Monkeys Are Screeching And The Central Banks Are Pushing On A String

January 11, 2015

The Stimulus Monkeys Are Screeching And The Central Banks Are Pushing On A String

Have you been at the zoo when the monkeys start rattling their cages and screeching in unison? That about sums up the last 24 hours since the euro zone’s December CPI printed at negative 0.2% versus prior year. Within minutes of the release, brokerage house “economists” were out in force caterwauling that $1 trillion of ECB bond purchases were now in the bag, meaning that gamblers who had ridden the Italian 10-year bond, among other peripheral junk, all the way down from 7.5% to 1.72% would have another bountiful payday.

Then, just to make sure, the rather vague reference in the Fed’s 2pm meeting notes about headwinds emanating from economic weakness in Europe was spun shortly thereafter by the Fed’s PR firm, Hilsenramp & Blackstone, as an explicit instruction to Draghi et. al. to crank up the printing presses to full throttle.

But then about 8pm came the screech that ignited the robo-traders to another 300 Dow point buy-the-dip-rip. The screecher was Charles Evans, who has spent the last 24 years in the central banking cage at the Chicago Fed—–that is, after having been trained previously in the intricacies of global money and capital markets as an assistant professor of economics at the University of South Carolina.

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

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