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BUENOS AIRES – Today, we woke up in Buenos Aires with a disagreeable headache… and a depressing hypothesis:

First, it doesn’t matter whether Brett Kavanaugh is on the Supreme Court or not; one more Deep State toad won’t make any difference.

Second, the Supreme Court has been derelict in its duty for the last 80 years.

For years, the Court has looked the other way as the feds robbed one class of citizen (ordinary, working people) and rewarded another (the elite).

Third, as a result, the American empire faces a catastrophic money crisis… probably accompanied by internal schisms, social breakdowns, and dangerous political scuffles.

Let’s begin by looking again at the connection between time and money.

Losing Time

If you work by the hour, the guy with money can buy your time. That’s what it really means to say someone is “rich” – he has more time because he can control not only his own, but yours, too.

The guy who had $1,000 worth of stocks in 1971 could buy approximately 250 of the average working man’s hours. Today, that $1,000 worth of stocks is worth about $28,000… which, at today’s $26-per-hour average, will buy 1,077 hours of the typical working man’s time – four times as much as in 1971.

In other words, compared to the wage earner, the capitalist is four times as rich.

Invert it, and you see about the same thing. A working man would have had to labor for 212 hours to buy the 30 Dow stocks in 1971. Today, his time is much less valuable; he has to sweat for 1,000 hours to buy the Dow.

That’s why the liberals whine about “inequality”… and probably why Donald J. Trump was elected. Few people may have done the math, but a lot of people suspected a rat.

And they were right.

Many – including the president – pointed their fingers… but at the wrong rat!

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

Bill Bonner: “America’s Economy Is On A Suicide Mission”

September 16, 2018

Bill Bonner: “America’s Economy Is On A Suicide Mission”

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

– “The Second Coming,” William Butler Yeats

Rain is coming down this morning. Buckets of it. The Carolinas are getting walloped by Hurricane Florence. Here in Ireland, another tropical storm, Helene, is said to be on its way. It is raining hard already.

Yesterday, we went up to the coast to see a village that has been preserved more or less as it was 100 years ago. The cottages were just as you might have imagined, whitewashed stone with thatched roofs.

On the coast, the winds blow so violently that the thatch must be lashed down with ropes to keep it from blowing off. Inside, each cottage had a little peat fire and just a few pieces of simple furniture.

These were tiny homes – barely as large as the typical American living room. But they were cute, cozy, and – as long as the fire was burning – fairly comfortable.

Meanwhile…

Bull Market Revival

In an unusually stark separation, the smart money and the dumb money seem to be taking leave of one another.

This week, the news seemed especially felicitous. Stocks moved higher on a wave of positive jobs data and opinion surveys.

The Dow now stands within 500 points of a new all-time high – which would signal a revival of the bull market that began in March 2009… or August 1982, depending on how far back you want to trace it.

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

America’s Oil Boom Is a Fraud

September 11, 2018

America’s Oil Boom Is a Fraud

PARIS – We promised to end the week with a bang!

You’ll recall that Fed policy always consists of the same three mistakes… 1) Keeping interest rates too low for too long, resulting in too much debt; 2) Raising interest rates to try to gently deflate the debt bubble; and 3) Cutting rates in a panic when stocks fall and the economy goes into recession.

Well, here comes the Big Bang: Mistake #4 – rarely seen, but always regretted.

Mistake #4 is what the feds do when their backs are to the wall… when they’ve run out of Mistakes 1 through 3.

It’s a typical political trade-off. The future is sacrificed for the present. And the welfare of the public is tossed aside to buy money, power, and influence for the elite.

Apocalypse Now!

Every debt expansion ends in a debt contraction. Stocks crash. Jobs are lost. The economy goes into reverse, correcting the mistakes of the previous boom.

Investors see their money entombed. Householders await foreclosures. The authorities scream: Apocalypse Now!

The more the feds falsify price signals in the boom, the more mistakes there are to correct. For example, this week, a report in The New York Times described the big mistake in the shale oil boom.

You’ll recall that it turned America from a big importer of oil to a major exporter… and revived much of the heartland with big fracking projects in woebegone regions of Texas and North Dakota.

The shale oil boom was even credited with having scuttled the oil market, which dropped from a high of around $130 a barrel in mid-2008 to under $30 in late 2016, thanks to so much new supply.

But guess what? The whole boom was fake. It didn’t add to wealth; it subtracted from it. Accumulated losses over the last five years tote to more than $200 billion, with $36 billion lost in the Bakken shale fields in North Dakota alone.

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

How Trump Turns on The Fed

September 5, 2018

How Trump Turns on The Fed

POITOU, FRANCE – The U.S. economy… all $20 trillion of it… explained in a single tweet (any similarity between this and one you might get from the president of the United States of America is pure coincidence):

Just look at the Dow (near an all-time high)… and unemployment (near an all-time low)…

The tax cuts ARE WORKING! The trade war, too! And those who say otherwise are just jealous SOBs!

Cartoon Personalities

In reality TV – and performance art of the wraslin’ genre – you add dramatic tension by creating simplified, cartoon personalities and then allowing them to get into snits with one another. The audience tunes in to find out how the spats will be resolved.

In professional wrestling, it is pretty straightforward.

One of the wraslers insults or challenges another one. Wives and girlfriends are brought onstage to stir up animal passions. There’s some pushing and shoving in the dressing room – caught by security cameras! And then, the stage is set for a resolution in the ring.

A tweet is not long enough to elaborate on a policy, an idea, or a complete thought. But it is great for this kind of feud-building.

President Trump uses tweets effectively. For example, he tweeted that the lawful head of North Korea was a “bad dude,” a “maniac,” and a “rocket man.”

Gauntlets were thrown down… leading to a rumble in the jungle – in Singapore – where the U.S. president said he would be “honored” to meet with Kim Jong-un.

Upon completion of the meeting, the U.S. president announced victory and declared that North Korea was “no longer a nuclear threat.”

The celebrity feud is part of the entertainment world’s advertising strategy.

Trump versus Jimmy Fallon, Arnold Schwarzenegger, LeBron James, Rosie O’Donnell, Mark Sanford, Robert De Niro… etc., etc., etc.

Trump uses it in politics, too – Trump versus Low Energy Jeb, Lyin’ Ted, Elizabeth “Pocahontas” Warren, “Dog” Omarosa… etc., etc., etc.

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

The Market Gods Are Laughing

July 15, 2018

The Market Gods Are Laughing

POITOU, FRANCE – President Trump escalated the trade war yesterday, making a kamikaze attack on a vast armada of Chinese imports – $200 billion in total – headed for California.

The Chinese say they will retaliate.

Phony Wars

Last month, we opined that the trade war wouldn’t go any better than Vietnam… or Iraq… or any of the feds’ other phony wars – against drugs, poverty, or terrorists.

It will be expensive, futile… and perhaps disastrous.

But that doesn’t mean it won’t be popular. Wars give the spectators something to live for – us versus them… good guys against bad guys… winners versus losers.

Their hat size swells as their champion wallops the Chinese. Their girth shrinks as he challenges and taunts the Canadians. Their manhood grows when the enemy gives in and admits defeat.

But while this puerile entertainment is taking place in the arena, the real action is going on in the expensive skyboxes, where the elite collude against the fans.

Wars shift resources from the boring and productive win-win deals in the private sector to the magnificently absurd win-lose deals of the feds and their cronies. The only real winner is the Deep State.

Weatherman David

We saw our colleague, former U.S. budget chief under President Reagan, David Stockman, on TV yesterday. The interview was painful to watch.

He was bravely trying to explain the trade deficit and why it was caused by monetary policy, not by trade ramparts that were too low.

But the young, know-it-all newscasters were such numbskulls – so lacking in any experience, theory, or historical perspective – he might as well have been instructing a walrus on how to chew gum. The lesson was in vain.

The three TV experts saw no problem with the trade deficit… and no danger approaching from Trump’s war on it.

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

The Final Assault in the War on Cash

June 24, 2018

The Final Assault in the War on Cash

Before I show you what I’ve learned about a plan to seize control of America’s money, let me make one point clear…

If you value sound money and political freedom… if you value limited government and taxation with representation… and if you value enterprise and privacy… then you’re going to hate the future I’m about to describe.

There is no philosophical or monetary middle ground on the issue.

You’re either with it or against it.

The Chicago Plan

In March 1933, Henry Morgenthau Jr., chairman of the Federal Farm Board, was sent a short memo titled, “Memorandum on Banking Reform.”

It was signed by Frank Knight (the acknowledged author of the memo), Garfield Cox, Aaron Director, Paul Douglas, Lloyd Mints, Henry Schultz, and Henry Simons. All of them were professors at the University of Chicago.

The memorandum advocated for full-reserve banking (FRB) in the U.S. monetary system. U.S. currency would be backed only by government debt, not bank debt (loans issued by commercial banks to private citizens and companies).

It wouldn’t nationalize the U.S. banking system. But it would nationalize the nation’s money supply.

Under this kind of system, banks could no longer “create” money by lending it into existence. Money creation would be the exclusive territory of the government of the United States.

In this system, the key government agencies could not create money through new lending. They would do so through new spending (on priorities determined by elected politicians).

They called it “The Chicago Plan.”

The most radical elements of the plan – which we’ll discuss shortly – were left on the shelf nearly a century ago.

But I believe it’s about to find a resurgence in modern America…

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

Ike was right!

June 23, 2018

Ike was right!

POITOU, FRANCE – We wait for the world to fall apart.

The Dow is still more than 1,000 points below its high; so we presume the primary trend is down. Treasury yields – on the 10-year note – are near 3%… twice what they were two years ago. So we presume the primary trend for bonds is down, too.

If we’re right, we are at the beginning of a long slide… down, down, down… into chaos, destitution, and destruction.

Faked Out

Our working hypothesis is that General Eisenhower was right. There were two big temptations to the American Republic of the 1950s; subsequent generations gave in to both of them.

They spent their children’s and grandchildren’s money. Now, the country has a government debt of $21 trillion. That’s up from $288 billion when Ike left the White House.

And they allowed the “unwarranted influence” of the “military/industrial complex” to grow into a monster. No president, no matter how good his intentions, can stop it.

A corollary to our major hypothesis is that the rise of the Deep State (the military/industrial/social welfare/security/prison/medical care/education/bureaucrat/crony complex) was funded by the Fed’s fake-money system.

Now, investors, businesses, households, and the feds themselves have all been “faked out” by a fraudulent money system. None of them can survive a cutback in credit.

For nearly 30 years, central banks have backstopped markets and flooded the world with liquidity.

But last week, the Fed turned the screws a little further. It now targets a 2% Fed Funds Rate and claims to be on the path of “normalization.”

And the European Central Bank (ECB) made it official, too; it hasn’t quite begun tightening, but it’s got its toolbox open. And command of the ECB work crew is set to change hands next year anyway, passing on to a German engineer.

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

Chart Predicts Every Market Crash in History

March 1, 2018

Chart Predicts Every Market Crash in History

The Fed blows bubbles. Then it eventually pops them. Where are we in the cycle?

Bill Bonner writes This Has Predicted Every Market Crash in History.

I recreated the chart in Fred and added trendlines. But let’s tune in to Bill Bonner.

“Buy the dip” has worked for the last 38 years. And now, investors are more than 100% convinced that it will work again. But they are wrong. Every major stock market decline and every recession in the last 100 years was preceded by the Federal Reserve raising short-term interest rates by enough to provide the pin to prick the balloon.

Note the emphasis on every. Yes, there have been periods where the Fed raised rates and a recession didn’t ensue. Everyone knows the famous saying about the stock market having predicted nine of the past five recessions! That may be true, that rising rates don’t necessarily cause a recession. But as an investor, you must be aware that every major stock market decline occurred on the heels of a tightening phase by the Fed. More importantly, there have been no substantive Fed tightening phases that did not end with a stock market decline.*

This is an economy built on debt. The whole capital structure – stocks, bonds, and real estate – now depends on excess debt… and more of it.

In a correction, the only way to stop stock prices from falling and the economy from shrinking is to bring in some more debt. But when you do that a few times, you are soon beyond Peak Debt… which is to say, you’re way over the legal limit.

Debt has been growing three to six times faster than income for more than an entire generation. This makes the old 1.5-to-1 ratio of debt to income seem quaint. It is now 3.5-to-1 nationwide.

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

The Antidote to Optimism

January 27, 2018

The Antidote to Optimism

It is always brightest before they turn the lights out.

You can quote us on that, Dear Reader.

Just when you thought things couldn’t get better… guess what?

They don’t. They go dark as a dungeon.

Antidote to Optimism

Our task today is to show that however wonderful things may appear in today’s markets and economy, they may not be all that great.

We put our backs into this grim work neither for love nor for money, but simply out of a sense of stern duty.

If not us, who? If not now, when?

Someone must put forward an antidote to the optimism now raging through markets around the world.

Someone must make the case for cynicism, suspicion, and mockery.

Someone must take the other side of the trade.

And so… the work, like shucking oysters on a cold day, falls to us. We open them up… hoping to find a pearl.

Donald Trump, Davos ManInstead, we find claptrap.

“The elite gathering at Davos [including Donald Trump],” begins a Financial Timesarticle, “takes place against a backdrop of improving economic activity across the world.”

The IMF says it is the “broadest synchronized global growth upswing since 2010.”

The FT goes on to tell us that the world economy is supposed to grow a healthy 3.9% “this year and next” thanks, at least in part, to the sweeping tax reform measure just implemented in the U.S.

Well, well, well. Gosh, it looks as though we were wrong about everything. You can predict the future after all.

As for the tax cut, we didn’t believe that the tax measure would have any positive consequences other than giving us more money.

What economic benefit could be reaped by taking money from one pocket and putting it in another?

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

A Bedtime Story

December 31, 2017

A Bedtime Story

We are explaining our money system to our grandson, James, now 14 months old…

His mother tries to get him to go to bed at 9 p.m. But the little boy’s internal clock is still on Baltimore time; it tells him it is much too early to go to sleep.

Bill’s living room transformed into a makeshift nursery

Grandpa takes over, drawing out the monetary system like a general spreading a map on a field table. “Here is the enemy,” he says gravely. “They have us completely surrounded. We’re doomed.”

James grumbles. He squirms. He has a sunny, optimistic temperament. But we think our explanations are sinking in.

He seems to understand…

…that money is not wealth; it just measures and represents wealth, like the claim ticket on a car in a parking garage.

…that our post-1971 money system is based on fake money that represents no wealth and measures badly.

…that this new money enters the economy as credit… and that the credit industry (Wall Street) has privileged access to it. The working man still has to earn his money, selling his work, by the hour. But Wall Street—and elite borrowers connected to the Establishment—get it without breaking a sweat or watching the clock.

…that a disproportionate share of this new money is concentrated in and around the credit industry—pushing up asset prices, raising salaries and bonuses in the financial sector, and making the rich (those who own financial assets) much richer.

…that this flood of credit helped the middle class raise its living standards, even as earnings stagnated. But it also raised debt levels throughout the economy.

…and that it allowed the average American family to spend American money that Americans never earned and buy products Americans never made…

Instead, Walmart’s shelves were stocked with goods “Made in China.” The middle class lost income as factories, jobs, and earnings moved overseas. Debt stayed at home.

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

Deep State First

August 27, 2017

Deep State First

Lighting a Candle

POITOU, FRANCE – On Tuesday, Donald Trump, president of all the Americans, said his country would spend more blood and money trying to force the Afghans to do what it wants them to do, whatever that is.

If you are destined to stay on the Afghan plantation forever, might as well plant something. [PT]

Cartoon by Steve Bell

And so… a darkness covered the land. From Sioux City to Savannah, a shadow passed between Earth and sun. Strange and fearful events were reported. A calf was born with two heads outside of Des Moines. Pomegranate trees flowered in Manhattan. An LGBTQQ+ person wondered WTF?

The people were sore afraid.

Nowhere was the darkness deeper than in the nation’s capital. There, no light shone. No flicker of awareness… observation… learning… or reflection appeared.

Hello, darkness.

Donald J. Trump had promised to light a candle. But it was nowhere to be seen. Five years ago, he said, “Ron Paul is right.” The Afghanistan adventure was “wasting our money.” It was a “total disaster,” he added.

He asked, “What are we doing there? These people hate us.” Then, a year later, he said, “We should leave Afghanistan immediately.”

And in his bid for the White House, he had offered something better. “America First,” he called it. Instead of trying, fruitlessly, to build a better country in the Hindu Kush, he would try to build a better country at home!

No more losing wars. No more strangling regulations. No more losing deals with the rest of the world. Even from the mouth of Donald Trump, these promises sounded good, good enough to win the nation’s highest office.

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

How Dumb Is the Fed?

July 13, 2017

How Dumb Is the Fed?

Bent and Distorted

POITOU, FRANCE – This morning, we are wondering: How dumb is the Fed?

The question was prompted by this comment by former Fed insider Chris Whalen at The Institutional Risk Analyst blog.

They’re not the best map readers, that much is known for certain. [PT]

[O]ur message to the folks in Jackson Hole this week [at the annual central banker meeting there] is that the end of the Fed’s reckless experiment in social engineering via QE and near-zero interest rates will end in tears.

“Momentum” stocks like Tesla, to paraphrase our friend Dani Hughes on CNBC last week, will adjust and the mother of all rotations into bonds and defensive stocks will ensue. We must wonder aloud if Chair Yellen and her colleagues on the FOMC fully understand what they have done to the US equity markets. […]

Once the hopeful souls who’ve driven bellwethers such as Tesla and Amazon into the stratosphere realize that the debt driven game of stock repurchases really is over, then we’ll see a panic rotation back into fixed income and defensive stocks.

If you believe the newspapers, the Fed has begun a “tightening cycle.” It is on course to raise its key interest rate, little by little, in quarter-point increments.

It must know that this is a perilous thing to do. After so much market manipulation over such a long period, prices all up and down the capital structure – from junk bonds to quality stocks and solid real estate – have been bent and distorted.

After all, that was the idea: drive up the price of stocks and bonds by driving down interest rates. People would be forced to spend or invest their money rather than save it. And higher financial asset prices would make the rich feel even richer.

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

The Fed Will Blink

April 25, 2017

The Fed Will Blink

Honest Profession

GUALFIN, ARGENTINA – The Dow rose 174 points on Thursday. And Treasury Secretary Steve Mnuchin said we’d have a new tax system by the end of the year.

Animal spirits were restless. But which animals? Dumb oxes? Or wily foxes? Probably both.

Since Thursday there have been two additional very spirited up days with large gaps – this is very rare in the DJIA, particularly from such a high level after a ~240% rally since the lows made 8 years ago… it continues to feel like a blow-off (and it happens against the backdrop of a sharp slowdown in money supply growth) – click to enlarge.

But what caught our attention were the central bankers strutting across the yard and crowing with such numbskull cackles that even barnyard animals would be embarrassed by them. There was a time when central banking was an honest profession.

Central bankers provided financing for the government. They backed the banking system, too, by holding savings as reserves, which they lent to solvent member banks in emergencies. They were tight-lipped, tight-laced, and tightwads. Their role was to say “no” more often than “yes.”

When the king wanted money to fight in a war… or build a bridge… the banker would give the terse reply: “Sire, we don’t have any.” Real money was backed by gold. And credit had to be backed by real money, which meant it had to be saved. Savings were limited, as was money.

Cackling central planners – this reminds us of the “FOMC meeting laughtrack” of 2003-2007 – the more Fed members laughed at their meetings, the closer the economy and financial system came to the near fatal implosion of 2007-2009. Do today’s monetary bureaucrats have more of a clue than their predecessors just before the GFC? The answer is an emphatic no – they have simply doubled down and blown an even bigger credit and asset bubble.

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

Fake News From the Fed

April 16, 2017

Fake News From the Fed

What you see in the media is mostly “fake news.”

Reuters had this story recently:

Most Federal Reserve policymakers think the central bank should take steps to begin trimming its $4.5 trillion balance sheet later this year as long as the economic data holds up, minutes from their last meeting showed…

Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee’s reinvestment policy would likely be appropriate later this year,” the Fed said in its minutes.

This is the public spectacle – where tiny and often trivial bits of real news are conflated with vast myths and illusions.

The Fed fiddles with short-term interest rates… President Trump tweets a threat to the Freedom Caucus… the GOP proposes a new health-care plan…

You can’t know what any of these “facts” mean without reference to a huge body of non-facts – beliefs, ideas, and prejudices, many of them absurd.

Remember, a “myth” is not necessarily untrue; it just can’t be tested or disproven.

And since reality is infinitely complex, and a myth can only reflect a small trace of it… no matter how attractive or “true” it is, the myth always leaves out more truth than it describes.

Critical Narrative

We make no pretense of ever knowing the “truth.”

That would be impossible. All we can do is try to identify the most ridiculous myths… and find the most useful one, the one we can believe without getting kicked in the pants.

Imagine you were a Jew in Germany in the 1930s… or a stock market investor in the US in 1929… or a merchant in Mosul, Iraq, in 2003.

In each case, there were plenty of ways to understand what was going on. But the critical narrative was: Time to get out of town.

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

Pulling Levers to Steer the Machine

April 14, 2017

Pulling Levers to Steer the Machine

Ticks on a Dog

A brief comment on Fed chief Janet Yellen’s revealing speech at the University of Michigan. Bloomberg:

“Before, we had to press down on the gas pedal trying to give the economy all of the oomph that we possibly could,” Yellen said Monday in Ann Arbor, Michigan. The Fed is now trying to “give it some gas, but not so much that we’re pushing down hard on the accelerator.” […]

“The appropriate stance of policy now is closer to, let me call it neutral,” Yellen said in response to questions during an event at the Gerald R. Ford School of Public Policy at the University of Michigan. Yellen said she expected the economy to continue to grow at a moderate pace and that gradual interest rate increases “can get us where we need to be.”

Central planners groping in the dark…

Every society is ruled by an elite. They prey upon the common folks like ticks on a dog. They work their way into positions of power and influence, using a combination of brains, connections, and claptrap.

The mob generally looks up to them, impressed by the hocus pocus. And then, eventually, the ticks grow too many and too fat. The poor dog weakens… and the magic fails.

Where exactly we are in the process, we can’t be sure. But surely, we took another step toward the eventual catastrophe when Ms. Yellen spoke.

Everything she said was preposterous.

No Oomph

The economy is not growing at a “moderate speed.” If it is growing at all – it depends on how you calculate consumer price inflation – it is doing so only at stall speed.

Officially, per capita growth is less than 1% a year. What kind of “oomph” is that?

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

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