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Costs Are Spiraling Out of Control

Costs Are Spiraling Out of Control

And how do we pay for these spiraling out of control costs? By borrowing more, of course. 

If we had to choose one “big picture” reason why the vast majority of households are losing ground, it would be: the costs of essentials are spiraling out of control. I’ve often covered the dynamics of stagnating income for the bottom 90%, and real-world inflation, i.e. a decline in purchasing power. 

But neither of these dynamics fully describes the relentless upward spiral of the cost basis of our economy, that is, the cost of big-ticket essentials: housing, education and healthcare.

The costs of education are spiraling out of control, stripping households of income as an entire generation is transformed into debt-serfs by student loan debt. The soaring costs of healthcare are a core driver of higher costs in the education complex (and government in general), and to cover these higher costs, counties raise property taxes, which add additional cost burdens to households and enterprises as rents rise. 

Rising rents push the cost structure of almost every enterprise and agency higher.

Then there’s the asset inflation created by central bank ZIRP (zero interest rate policy) which has inflated a second echo-bubble in housing that has pushed home ownership out of reach of many, adding demand for rental housing that has pushed rents into the stratosphere in Left and Right Coast cities.

The increasing dominance of monopolies and cartels has eliminated competition in sector after sector. Monopolies and cartels skim immense profits even as the value, quality and quantity of their products and services decline: The U.S. Only Pretends to Have Free Markets From plane tickets to cellphone bills, monopoly power costs American consumers billions of dollars a year.

Thanks to their political influence, monopolies and cartels have legalized looting, raising prices and evading anti-trust regulations because they can pay whatever it takes in our pay-to-play political system.

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

Central Bankers Panic Over Exuberant Financial Market “Fragility”, Warn Risks Are “Underestimated”

Central Bankers Panic Over Exuberant Financial Market “Fragility”, Warn Risks Are “Underestimated”

You know it’s bad when… even the central bankers are warning that the monster they’ve created is out of control.

As stocks have exploded higher in the face of declining earnings…

Source: Bloomberg

And collapsing macro-economic data…

Source: Bloomberg

Policy makers from the world’s central banks are suddenly raising cautionary flags at the potentially unsafe investing environment stoked by their efforts to flood economies with ultra-cheap money.

  • “While vulnerabilities related to low interest rates have the potential to grow, thus calling for caution and continued monitoring, so far, the financial system appears resilient” — Federal Reserve, Nov. 15.
  • “Very low interest rates, coupled with the large number of investors which have gradually increased the duration of their fixed income portfolios, could exacerbate potential losses if an abrupt repricing were to materialize” — ECB, Nov. 20.
  • “This type of environment can lead to an increase in risk‐taking, to assets being overvalued and to indebtedness increasing in an unsustainable manner” — Riksbank, Nov. 20.
  • “Many investors are focused on the search for yield and could be tempted to take on greater risk” — Bundesbank, Nov. 21.

Most notably, Bloomberg reports that the spate of recent financial stability assessments began Nov. 15 with the Fed, which warned that low rates could encourage riskier behavior such as eroding lending standards.

A prolonged period of low rates could also “spur reach-for-yield behavior, thereby increasing the vulnerability of the financial sector to subsequent shocks,” it said.

However, as Bloomberg notes, despite central banks’ qualms about side effects, there’s little sign that they’ll do any more than issue warnings. 

“The Fed since September, the ECB as well, the BOJ, even the central bank of China is starting to provide some more easing,” Kevin Thozet, an investment strategist at Carmignac Gestion, told Bloomberg TV on Wednesday.

That’s contributed to “a bull market of everything in 2019.”

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

Analysts Stunned After Lagarde Demands “Key Role” For The ECB In Climate Change

Analysts Stunned After Lagarde Demands “Key Role” For The ECB In Climate Change

Having failed miserably to “trickle down” stock market wealth for a decade as was their intention, something Ben Bernanke made clear in his Nov 4, 2010 WaPo op-ed, central banks have moved on to more noble causes.

Over the weekend Minneapolis Fed chair Neil Kashkari suggested it was time to allow central banks to directly decide how to redistribute wealth, stating unironically that “monetary policy can play the kind of redistributing role once thought to be the preserve of elected officials”, apparently failing to realize that the Fed is not made up of elected officials but unelected technocrats who serve the bidding of the Fed’s commercial bank owners.

Failing to decide how is poor and who is rich, central bankers are happy to settle with merely fixing the climate.

Overnight, Bank of Japan Governor Haruhiko Kuroda joined his European central banking peers by endorsing government plans to compile a fiscal spending package for disaster relief and measures to help the economy stave off heightening global risks. Kuroda said that natural disasters, such as the strong typhoon that struck Japan in October, may erode asset and collateral value, and the associated risk may pose a significant challenge for financial institutions, Kuroda said.

In short, it’s time for central banks to target global warming climate change:

“Climate-related risk differs from other risks in that its relatively long-term impact means that the effects will last longer than other financial risks, and the impact is far less predictable,” he said. “It is therefore necessary to thoroughly investigate and analyse the impact of climate-related risk.”

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

Ukraine’s IMF Gold and the Gold Carry Trade

Ukraine’s IMF Gold and the Gold Carry Trade

Important Tools for the Monetary Cartel

Let’s first consider a typical International Monetary Fund (IMF) loan to a sovereign in trouble, and then examine a typical gold carry trade transaction to support a sovereign arms deal. The intent is to demonstrate the importance of physical sovereign gold holdings in all forms of international trade.

Semi-failed and failed states can only exist by dealing in hard assets of real intrinsic value just as Syria, Venezuela, Iran, and Ukraine have done… and the most liquid of those hard assets is their physical gold.

Central Banks always work with the Security State apparatus when dealing with failed states and recall that the US Central Intelligence Agency funded al Qaeda and funded the war in Syria for example. Just about anything can be made to happen with funding when that funding is based on real resources. One of the most important of those resources is physical gold.

IMF Cartel Example: Ukraine

The IMF’s 2014 aid to Ukraine is based on a unique history however all IMF ‘aid’ packages are in some sense unique. Since we are highlighting the largely hitherto concealed importance of real physical gold in geo-political calculations and operations, Ukraine provides a relevant and timely example of how the banking Cartel operates with gold and may highlight that importance.

According to the 2018 Independent Transparency Index, Ukraine ranks as one of the most corrupt nations in the world. Ukraine ranks 120th out of 180 countries where the 180th – Somalia – is the most corrupt.  But all nations need funding whether corrupt or not, and Ukraine defaulted on its IMF debt in 2001 and then again in 2009 when distribution of an existing IMF loan to Ukraine was frozen.

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

The Next Wave of Debt Monetization Will Also Be A Disaster

The Next Wave of Debt Monetization Will Also Be A Disaster

According to the IMF (International Monetary Fund) and the IIF (Institute of International finance) global debt has soared to a new record high. The level of government debt around the world has ballooned since the financial crisis, reaching levels never seen before during peacetime. This has happened in the middle of an unprecedented monetary experiment that injected more than $20 trillion in the economy and lowered interest rates to the lowest levels seen in decades. The balance sheet of the major central banks rose to levels never seen before, with the Bank Of Japan at 100% of the country’s GDP, the ECB at 40% and the Federal Reserve at 20%.

If this monetary experiment has proven anything it is that lower rates and higher liquidity are not tools to help deleverage, but to incentivize debt. Furthermore, this dangerous experiment has proven that a policy that was designed as a temporary measure due to exceptional circumstances has become the new norm. The so-called normalization process lasted only a few months in 2018, only to resume asset purchases and rate cuts.

Despite the largest fiscal and monetary stimulus in decades, global economic growth is weakening and leading economies’ productivity growth is close to zero. Money velocity, a measure of economic activity relative to money supply, worsens.

We have explained many times why this happens. Low rates and high liquidity are perverse incentives to maintain the crowding out of government from the private sector, they also perpetuate overcapacity due to endless refinancing of non-productive and obsolete sectors t lower rates, and the number of zombie companies -those that cannot pay their interest expenses with operating profits- rises.  We are witnessing in real-time the process of zombification of the economy and the largest transfer of wealth from savers and productive sectors to the indebted and unproductive.

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

Fed Fears Next Crash Fatal – John Rubino

Fed Fears Next Crash Fatal – John Rubino

Financial writer and book author John Rubino says he can see the end of the economic expansion fueled by massive debt creation. Rubino explains, “Every sector of the U.S. economy is so over indebted I don’t see how we go on much longer. The Fed is desperately trying to prolong this thing. We are running trillion dollar deficits now, and what that is for is to keep the system from falling apart. We are 11 years into an expansion, a record. This is the longest bull market in history, and this is the longest economic expansion in history. . . . These guys don’t know exactly what’s going to happen in the next recession, but they are afraid that the system is so highly leveraged that even a garden variety three quarters of a percent of negative growth and a garden variety of 20 % drop in stock prices might be fatal. The system might not be able to handle that because it would cause so much damage and there are so many different places that can blow up that the system would spin out of control. We would get 2008-2009 again but on steroids because the numbers are so much bigger this time around. So, they want to avoid that at all costs.”

Rubino points out, “Fear is the enemy in a fiat currency system. Everything is based on our assumption that the guys in charge know what they are doing and that the confidence in them is good. You take that away, and they let us see them sweat, and it’s over. There is no real bottom for the dollar, euro or the yen. Their intrinsic value is zero.

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

The Free Money Bubble Is About To Burst

The Free Money Bubble Is About To Burst

Free Money Bubble

Recently, there has been a parade of central bankers along with their lackeys on Wall Street coming on the financial news networks and desperately trying to convince investors that there are no bubbles extant in the world today. Indeed, the Fed sees no economic or market imbalances anywhere that should give perma-bulls cause for concern. You can listen to Jerome Powell’s upbeat assessment of the situation in his own words during the latest FOMC press conference here. The Fed Chair did, however, manage to acknowledge that corporate debt levels are in fact a bit on the high side. But he added that “we have been monitoring it carefully and taken appropriate steps.” By taking appropriate steps to reduce debt levels Powell must mean slashing interest rates and going back into QE. The problem with that strategy being that is exactly what caused the debt binge and overleveraged condition of corporations in the first place.

Global central banks have abrogated the free market and are in the practice of repealing the business cycle and ensuring stocks are in a permanent bull market. Massive and unrelenting money printing is the “tool” that they use. The good old USA had its central bank cut rates to 0 percent by the end of 2008 to combat the Great Recession; and that paved the way for the EU to join the free-money parade by 2016. In fact, the Band of Japan had already been at the zero-bound range years before. This means much of the developed world has been giving money away gratis for the better part of a decade.

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

The Federal Reserve Is Directly Monetizing US Debt

The Federal Reserve Is Directly Monetizing US Debt

In a very real way, MMT is already here

Sure, it’s not admitting to this. And it’s using several technical jinks and jives to offer a pretense that things are otherwise.

But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly.

At a time, mind you, when US fiscal deficits are exploding and foreign buyers are heading for the exits.

How It’s Supposed to Work

Here’s how it’s supposed to work when the US government issues new debt:

  1. If the US Treasury needs to raise new funds, it announces an upcoming auction of US Treasury bills/notes/bonds.
  2. A date for the auction is set.
  3. Various participants bid for those bills/notes/bonds (including ‘regular folks’ like you and me if we’re using the government’s Treasury Direct program).
  4. At a later date, the Fed can buy those US Treasury bills/notes/bonds. The various holders of that debt submit offers to sell, and the Fed (presumably) selects the best offers on the best terms.

The Federal Reserve, under no conditions, buys Treasury paper directly.  The Federal Reserve’s own website still maintains that this is the case:

(Source)

There are two important claims plus one assertion I’ve highlighted in there, each in a different color:

  1. Yellow: Treasury securities may “only be bought and sold in the open market.”
  2. Blue: doing otherwise might compromise the independence of the Fed.
  3. Purple: the Fed mostly buys “old” securities.

So according to the Fed: it’s independent, it follows the rules set forth in the Federal Reserve Act of 1913, and it mostly buys “old” Treasury paper that the market has already properly priced in a free and fair system.

But that’s not really what’s going on…

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

Blain’s Morning Porridge – Nov 15th 2019

Blain’s Morning Porridge – Nov 15th 2019

“Liberty, equality, fraternity, or death; the last, much the easiest to bestow, O Guillotine!”

As it’s a Friday I am contractually entitled to have a rant and whine about whatever I want to write about. Which, today, isn’t really the cut and thrust of markets. 

To be brutally frank – we all know what the problems are: Too much money in the markets pushing up the prices of market assets. The fact is too much of that too much money is owned by too few people who use their too much money to buy all these financial assets. These too few people who own all the financial assets get richer everyday as their too much money makes their too many financial assets even more valuable. And these too few people get even richer by getting even more too much money to put into the already too expensive financial markets by “persuading” central banks to keep rates low, to buy financial assets through QE, and get their in-the-pocket politicians to enact tax cuts so their too much money is even more too much money… 

With me so far??

Meanwhile, politicians pay for the too much money they give to too rich people, by taking it away from the much more numerous too many too poor people through Austerity. The too many people who don’t have any assets and owe any money they have to the people who have too much money and too many assets – aren’t happy. They blame society, they blame governments and as they get even more unhappy they get angry. These too poor too angry people then get very angry and start blaming people. which is what is happening across the globe..

Still there?… 

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

Is the Global Dollar in Jeopardy?

Is the Global Dollar in Jeopardy?

The US Federal Reserve is right to be concerned, if not worried, about the greenback’s dominance of international trade and finance. Fortunately for consumers, growing potential competitive pressure – call it the Libra effect – creates an incentive to make the existing system work better.

WASHINGTON, DC – Since the end of World War II, the United States dollar has been at the heart of international finance and trade. Over the decades, and despite the many ups and downs of the global economy, the dollar retained its role as the world’s favorite reserve asset. When times are tough or uncertainty reigns, investors flock to dollar-denominated assets, particularly US Treasury debt – ironically, even when there is a financial crisis in the US. As a result, the Federal Reserve – which sets US dollar interest rates – has enormous sway over economic conditions around the world.

For all the associated innovation evident since the launch of the decentralized blockchain-based currency Bitcoin in 2009, the arrival of modern cryptocurrencies has had essentially zero impact on the global taste for dollars. Promoters of these new forms of money still have their hopes, of course, that they can challenge the existing financial system, but the impact on global portfolios has proved minimal. The most powerful central banks (the Fed, the European Central Bank, and a few others) are still running the global money show.

Suddenly, however, there is a new, potentially serious player in town: Facebook’s Libra initiative. Facebook and a currently shifting coalition of firms are planning to launch their own private form of money that would, in some sense, be secured by holdings of major currencies.

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

The World Has Gone Mad and the System Is Broken

The World Has Gone Mad and the System Is Broken

The World Has Gone Mad and the System Is Broken

I say these things because:

  • Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up. The reason that this money that is being pushed on investors isn’t pushing growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it. This dynamic is creating a “pushing on a string” dynamic that has happened many times before in history (though not in our lifetimes) and was thoroughly explained in my book Principles for Navigating Big Debt Crises. As a result of this dynamic, the prices of financial assets have gone way up and the future expected returns have gone way down while economic growth and inflation remain sluggish. Those big price rises and the resulting low expected returns are not just true for bonds; they are equally true for equities, private equity, and venture capital, though these assets’ low expected returns are not as apparent as they are for bond investments because these equity-like investments don’t have stated returns the way bonds do. As a result, their expected returns are left to investors’ imaginations. 

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

The Austrian School Warned, the ECB Didn’t Listen

The Austrian School Warned, the ECB Didn’t Listen

Looking at the current situation, one can easily perceive that our economic environment is not in the best condition. The whole of Europe is suffering from an economic stagnation, if not in some countries even a slowdown, that could very well turn into an economic recession sooner than later if appropriate measures are not taken to restructure many parts of our monetary system. The US could start experiencing the same effects soon, as we can observe from current trends on employment and productivity. Short-sighted economic policy, as that of President Trump asking the Fed for lower interest rates, or the ECB’s loose monetary policy (necessary in great part due to the lack of structural reforms by European governments), has severe effects -mostly that it only works in the short term, and leaves a tremendous economic hangover, composed of huge debt burdens and skyrocketing deficit levels.

The Austrian Business Cycle Theory (ABCT) can also shed some light on the situation in Europe by looking at how the European Central Bank has acted over the last decade, and how its actions, even if they had mild positive economic effects in the short term, are now slowing down productivity growth, impeding economic reforms, and sending countries into debt oceans – and, thus, finally, potentially accelerating the economic slowdown.

The ABCT is an economic theory primarily developed by the Austrian School of Economics from the 19th century onwards, mainly by Friedrich Hayek and Ludwig von Mises. Briefly explained, this theory is based on the idea that a tinkering with the interest rates, leading to excessive increases in the money supply of a country, by a central bank or through fractional reserve banking, inevitably creates a cycle of economic booms and busts.

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

How QE has radically changed the nature of the West’s financial system.

How QE has radically changed the nature of the West’s financial system.

Because they are so ensconsed in their little bubble and because they profit so much from maintaining the status quo, Western mainstream media pundits don’t – or perhaps can’t – admit how Quantitative Easing policies have so quickly and so radically changed the financial system of the West and their satellites.

I imagine that most everyone reading this is already aware of what has transpired economically across the West over the last decade:

  • Elite-class asset (stuff rich people own – stocks, real estate, financial derivatives, luxury goods, etc.) prices have ballooned to pre-2008 levels.
  • Debt (which is, of course, another elite-owned asset), mainly to pay for banker bailouts and their usurious interest levels, has ballooned national accounts to incredible levels.
  • The “real” economy has only weakened, as proven by endemic low economic growth across the West and Japan.

As a pro-socialist who has no faith that capitalism seeks anything but inequality, I believe that creating and compounding these issues has been the unstated goal of Western policy over the last decade. But that’s not the main point: what cannot be denied is that those ARE the economic results of the West’s “easy money” policies – i.e., QE and ZIRP (Zero percent interest rate policy) for the 1%, and austerity for the 99% (all coins have two sides).

Similarly, I imagine that everyone reading this is generally aware of what will happen should the West stop easy money: obviously, once artificial demand is no longer being fabricated then these assets will plummet in value, with huge ripple effects in the “real” economy. The West will be right back to dealing with most of the same toxic assets they had back in 2007, but now compounded by a decade of more debt, more interest payments, and a “real” economy which was made weaker via austerity.

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

ECB Official: Can Use Portfolio To Combat Climate Change

ECB Official: Can Use Portfolio To Combat Climate Change  

Central banks have been making all kinds of ridiculous climate change statements in the last several quarters. Some monetary authorities have even said, they could also expand balance sheets to purchase climate-related financial investments. 

Sabine Lautenschläger, Member of the Executive Board and Governing Council of the European Central Bank (ECB), was quoted by Bloomberg on Wednesday in Düsseldorf, Germany, as saying the ECB is prepared to use its balance sheet to support the fight against climate change. 

Bloomberg quoted Lautenschläge as saying: 

• Sustainability criteria are already taken into account in our portfolios that are not held for monetary policy purposes: Lautenschlaeger

• The ECB needs to address all citizens, not just an expert audience – without ever becoming political

We’ve suggested in the past, that this is just a giant ruse to sneak through MMT and helicopter money under the virtue-signaling guise of fighting climate change. 

Central banks, who’ve spent a decade expanding balance sheets, have plowed trillions of dollars into financial assets across the world.

The flawed policy lifted financial asset prices but only benefited a few who held stock, bonds, real estate, etc… Everyone else, which is a majority of the global population are considered non-asset holders, didn’t participate in the decades-long orgy of cheap money, thus created a massive wealth gap that can no longer be ignored. 

As a result of the wealth gap, protectionism and nationalism are sweeping across the world. 

Political uncertainty across the world is at the highest levels ever. 

Millions of people are currently protesting from Asia, the Middle East, and South America, calling for change after a decade of flawed monetary policy by global central banks. 

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

Weekly Commentary: Whatever It Takes to Never Give Up

Weekly Commentary: Whatever It Takes to Never Give Up

Any central bank head that passes through an eight-year term without once raising rates has some explaining to do. To leave monetary policy extremely loose for such an extended period comes with major consequences (can we at least agree on that?). So, what went wrong? How did policy measures not operate as expected? With the benefit of hindsight, what could have been done differently?

What will be Draghi’s legacy? How will history view his stewardship over eurozone monetary policy? The years sure pass by. I still ponder how history will judge Alan Greenspan and Ben Bernanke. At this point, with securities prices (equities and bonds) basically at all-time highs, contemporary monetary policy – and its major architects – are held in high regard. I don’t expect this to remain the case following the next crisis.

A reporter question from Draghi’s Thursday press conference: “A recent survey by the Bank of America reveals that impotence and ineffectiveness of central banks, including the ECB, are the second risk perceived by investors. My question is: do you think that these investor concerns are justified? In other words, is there a risk of financial bubbles?”

Mario Draghi: “…You asked whether the expansionary monetary policies of central banks is the second-largest risk. I can answer for the eurozone; in the eurozone, and it’s a question we ask ourselves every day, many times a day, and I’m saying this because we monitor market developments very closely. We see some segments of financial markets where valuations are overstretched. One case is real estate, for example, and especially prime commercial real estate. Now, the causes of these overstretched valuations often don’t lead directly to our monetary policies. For prime commercial real estate, it’s the action of international investors…

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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