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#234. Britain on the brink

#234. Britain on the brink

THE PRICE OF EXTREMISM

Whether the country’s leaders know it or not, the United Kingdom is now at serious risk of economic collapse.

We must hope that this doesn’t happen. If it does, it will take the form of a sharp fall in the value of Sterling which, in these circumstances, is the indicator to watch.

A currency crash would cause sharp increases, not just in the prices of essential imports such as energy and food, but also in the cost of servicing debt. In defence of its currency, Britain could be forced into rate rises which would bring down its dangerously over-inflated property market.

This risk itself isn’t new. Rather, it results from a long period of folly, and can’t be blamed entirely on the current administration, inept though the Johnson government undoubtedly is. What we’re witnessing now seems to be a government on the edge of panic. The official opposition doesn’t offer a workable alternative programme, and mightn’t be electable if it did.

We need to be clear that the root cause of Britain’s problems is long-term adherence to an increasingly extreme ideology sometimes labelled ‘liberal’.

It’s one thing to recognize the merits of the market economy, but quite another to turn this into a fanaticism which judges everything on its capability of generating short-term private profit.

Extremism is divisive, and creates winners and losers to an extent that moderation does not. If solutions still exist for Britain’s worsening problems – and that’s a very big “if” – there are two reasons why such solutions mightn’t be adopted.

The first is that these solutions would anger a very vocal group of winners under the existing system.

The second is that those in charge would have to make a public admission of the failures of extremism.

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

The Inflation Crisis Is Worse Than Admitted – Will Interest Rates Go To Record Highs?

The Inflation Crisis Is Worse Than Admitted – Will Interest Rates Go To Record Highs?

Inflation is not a new problem in the US; there has been a steady expansion of price inflation and a devaluation of the dollar ever since the Federal Reserve was officially made operational in 1916.  This inflation is easily observed by comparing the prices of commodities and necessities from a few decades ago to today.

The median cost of a home in 1960 was around $11,900, which is the equivalent of $98,000 today.  In the year 2000, the median home price rose to $170,000.  Today, the average sale price for a home is over $400,000 dollars.  Inflation apologists will argue that wages are keeping up with prices; this is simply not true and has not been true for a long time.

In today’s terms, a certain measure of home price increases involve artificial demand created by massive conglomerates like Blackstone buying up distressed properties.  We can also place some blame on the huge migration of Americans out of blue states like New York and California during the pandemic lockdowns.  However, prices were rising exponentially in many markets well before covid.

Americans have been dealing with higher prices and stagnant wages for some time now.  This is often hidden or obscured by creative government accounting and the way inflation is communicated to the public through CPI numbers.  This is especially true after the inflationary crisis of the late 1970s and early 1980s under the Carter Administration and Fed Chairman Paul Volcker.

It’s important to understand that CPI today is NOT an accurate reflection of true inflation overall, and this is because the methods used by the Fed and other institutions to calculate inflation changed after the 1970s event.  Not surprisingly, CPI was adjusted to show a diminished inflation threat.  If you can’t hide the price increases, you can at least lie about the gravity of those increases.

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

Inflation – Cassandra Speaks

Inflation – Cassandra Speaks

Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

“The way to crush the bourgeoise is to grind them between the millstones of taxation and inflation.”

This Morning: Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

Contrary to expectations, World War Last didn’t break out yesterday. Either the Russians are stepping back or they are retreating in a forward direction while adding thousands of new troops… Who knows..? Who to believe? In the absence of evidence or a credible reason for Putin pressing the auto-destruct button while he’s winning, (er, yes, he probably is as the West discomboffulates around the issue, beset by leadership crises, division, energy prices and distrust), can we now look forward to Spring?

And get back to worrying about real stuff. Like inflation?

The news this morning is UK inflation hitting a 30-year high, home price rises in the US and UK earning more than the average working wage, and the Fed Minutes – yawn. Put these together and it looks torrid. Yet the market seems unbovvered…  There is a strong likelihood the Fed will hike 50 bp in March and up to 10 times in the next (whatever length of time) years/months/minutes… Whateva… Expectations of aggressive moves in rates have doubled in recent weeks.

Commentary in the bond market ranges from the risks of over-aggressive policy mistakes, arguments about how long “transitory” inflation might last, and the risks of further supply and wage driven inflation hikes…

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

Weekly Commentary: 2021 Year in Review

Weekly Commentary: 2021 Year in Review

Books will be written chronicling 2021. I’ll boil an extraordinary year’s developments down to a few simple words: “Things Ran Wild”. Covid ran wild. Monetary inflation ran wild. Inflation, in general, ran completely wild. Speculation and asset inflation ran really wild. More insidiously, mal-investment and inequality turned wilder. Extreme weather ran wild. Bucking the trend, confidence in Washington policymaking ran – into a wall.
Covid running wild. With the hope for vaccines and a waning pandemic, few anticipated the tragedy of more than 475,000 Covid deaths (exceeding 2020). As the year comes to its conclusion, we are shocked by daily new cases exceeding 500,000 – and two million for the week. Globally, daily cases exceed two million.

Inflation running wild. CPI surged 6.8% y-o-y in November, the strongest consumer price inflation since June 1982. Core PCE, the Fed’s favored inflation gauge, rose above 6% for the first time since 1983. Surging food and energy prices, in particular, punish those who can least afford it.

Monetary inflation running wild. Federal Reserve Credit expanded $1.391 TN over the past year, or 19%, to a record $8.742 TN. The Fed’s balance sheet inflated an astonishing $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10-fold since the mortgage finance Bubble collapse.

M2 “money” supply inflated another $2.478 TN (12 months through November) to a record $21.437 TN – with egregious two-year growth of $6.185 TN, or 40.6%. Bank Deposits surged $1.957 TN over the past year (12.1%), with two-year growth of $4.812 TN (36%). Money Fund Assets rose another $408 billion y-o-y, or 9.5%, to $4.70 TN. The myth that QE effects remain well contained within Treasury and securities markets has been debunked.

In the seven pandemic quarters through Q3 2021, Non-Financial Debt surged $9.183 TN, or 16.8%, in history’s greatest Credit expansion.
…click on the above link to read the rest of the article…

Ellen Brown: The Real Antidote to Inflation

Ellen Brown: The Real Antidote to Inflation

The Fed has options for countering the record inflation the U.S. is facing that are far more productive and less risky than raising interest rates.
[Images Money / CC BY 2.0]

The Federal Reserve is caught between a rock and a hard place. Inflation grew by 6.8% in November, the fastest in 40 years, a trend the Fed has now acknowledged is not “transitory.” The conventional theory is that inflation is due to too much money chasing too few goods, so the Fed is under heavy pressure to “tighten” or shrink the money supply. Its conventional tools for this purpose are to reduce asset purchases and raise interest rates. But corporate debt has risen by $1.3 trillion just since early 2020; so if the Fed raises rates, a massive wave of defaults is likely to result. According to financial advisor Graham Summers in an article titled “The Fed Is About to Start Playing with Matches Next to a $30 Trillion Debt Bomb,” the stock market could collapse by as much as 50%.

Even more at risk are the small and medium-sized enterprises (SMEs) that are the backbone of the productive economy, companies that need bank credit to survive. In 2020, 200,000 more U.S. businesses closed than in normal pre-pandemic years. SMEs targeted as “nonessential” were restricted in their ability to conduct business, while the large international corporations remained open. Raising interest rates on the surviving SMEs could be the final blow.

Cut Demand or Increase Supply?

The argument for raising interest rates is that it will reduce the demand for bank credit, which is now acknowledged to be the source of most of the new money in the money supply…

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

I Now Track the Most Important Measure of the Fed’s Economy: the “Wealth Effect” and How it Impacts Americans Individually

I Now Track the Most Important Measure of the Fed’s Economy: the “Wealth Effect” and How it Impacts Americans Individually

The Fed provides the data quarterly, I dissect it at the stunning per-capita level.

The Federal Reserve is pursuing monetary policies that are explicitly designed to inflate asset prices. The rationalization is that ballooning asset prices will create the “wealth effect.” This is a concept Janet Yellen, when she was still president of the San Francisco Fed, propagated in a paper. In 2010, Fed Chair Ben Bernanke explained the wealth effect to the American people in a Washington Post editorial. And in early 2020, Fed Chair Jerome Powell pushed the wealth effect all the way to miracle levels.

Today we will see the per-capita progress of that wealth effect – what it means and what it accomplishes – based on the Fed’s wealth distribution datathrough Q4 2020, and based on Census Bureau estimates for the US population over the years. Here are some key results. At the end of 2020, the per-capita wealth (assets minus debts) of:

  • The 1% = $11.7 million per person (green);
  • The next 9% = $1.6 million per person (blue);
  • The 50% to 90% = $263,016 per person (red line at the bottom).
  • The bottom 50% = $15,027 per person. That amount of wealth is so small it doesn’t show up on this per-capita chart that is on a scale of wealth that accommodates the 1%.

The total population in 2020, according to the Census Bureau, was 330 million people. The 1% amount to 3.3 million people. Back in 2000, the population was 283 million people, and the 1% amounted to 2.8 million people. So the 1% has grown by 473,000 people because the population has gotten larger. And the 50% – the have-nots, as we’ll see in a moment – have grown by 24 million people.

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

 

The Mainstream Is Wrong About Rising Bond Yields and Gold

The Mainstream Is Wrong About Rising Bond Yields and Gold

Prices are going up. The Federal Reserve is printing money at an unprecedented rate. The US government continues to borrow and spend at a torrid pace. As Peter Schiff put it in a recent podcast, we’re adrift in a sea of inflation. Gold is supposed to be an inflation hedge. So, why isn’t the price of gold climbing right now?

In a nutshell, rising bond yields have created significant headwinds for gold. And the mainstream is reading rising yields and their relationship to gold all wrong.

It really comes down to expectations. Most people in the mainstream view rising yields as an inflation signal, and they expect the Federal Reserve to respond to this inflationary pressure in a conventional way. They expect the Fed to tighten monetary policy, raise interest rates and shrink its balance sheet.

As Peter Schiff has explained on numerous occasions, this won’t happen. The Fed won’t fight inflation because it can’t. It will ultimately surrender to inflation.

Right now, the markets sense that inflation is going to be moving higher. And maybe even higher than what the Fed is acknowledging. But I think the markets still believe the Fed — that the Fed will be able to contain the inflation problem before it really runs out of control. So, it’s the expectation that the Fed’s going to fight inflation by raising rates — that’s what’s pressuring gold. But the markets are wrong. The Fed is not even going to attempt to fight inflation. It’s going to surrender. Inflation is going to win without a fight…

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

, schiffgold, inflation, money printing, credit expansion, central banks, qe, quantitative easing, peter schiff, fed, us federal reserve, gold,

QE During the “Everything Mania”: Fed’s Assets at $7.7 Trillion, up $3.5 Trillion in 13 months

QE During the “Everything Mania”: Fed’s Assets at $7.7 Trillion, up $3.5 Trillion in 13 months

But long-term Treasury yields have surged, to the great consternation of our Wall Street Crybabies.

The Fed has shut down or put on ice nearly the entire alphabet soup of bailout programs designed to prop up the markets during their tantrum a year ago, including the Special Purpose Vehicles (SPVs) that bought corporate bonds, corporate bond ETFs, commercial mortgage-backed securities, asset-backed securities, municipal bonds, etc. Its repos faded into nothing last summer. And foreign central bank dollar swaps have nearly zeroed out.

What the Fed is still buying are large amounts of Treasury securities and residential MBS, though no one can figure out why the Fed is still buying them, given the crazy Everything Mania in the markets.

But for the week, total assets on the Fed’s weekly balance sheet through Wednesday, March 31, fell by $31 billion from the record level in the prior week, to $7.69 trillion. Over the past 13 months of this miracle money-printing show, the Fed has added $3.5 trillion in assets to its balance sheet:

One of the purposes of QE is to force down long-term interest rates and long-term mortgage rates. But long-term Treasury yields started rising last summer. The 10-year Treasury has more than tripled since then and closed today at 1.72%. Mortgage rates started rising in early January. Bond prices fall as yields rise, and the crybabies on Wall Street want the Fed to do something about those rising long-term yields and the bloodbath they have created in the prices of long-term Treasury securities and high-grade corporate bonds.

But instead, the Fed has said in monotonous uniformity that rising long-term yields despite $120 billion of QE a month are a welcome sign of rising inflation expectations and a growing economy:

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

wolf richter, wolfstreet, qe, quantitative easing, money printing, credit expansion, fed, us federal reserve, central bank, interest rates, wall street

Things That Make Me Go Hmmm: Inflation, Crypto, Command Economies and Gold.

Things That Make Me Go Hmmm: Inflation, Crypto, Command Economies and Gold.

Over the years I’ve written almost ad nauseum about the crazy I see (and saw) around me as a fund manager, family office principal and individual investor.

The list includes: 1) an entire book on the grotesque central bank distortions of free market price discovery, 2) the open (and now accepted) dishonesty on everything from front-running Musk tweets and bogus inflation reporting to COMEX price fixing, 3) the insanity of 100-Year Austrian bonds or just plain negative-yielding bonds going mainstream, 4) the open death of classic capitalism and the rise of economic feudalism, 5) asset bubble hysteria seen in everything from BTC to Tesla; 5) rising social unrest, 6) the serious implications of Yield Curve Controland the gross mispricing of debt that has midwifed the greatest credit binge/bubble in recorded history, and 7) the ignored power of logical delusion that so characterizes the madness of crowds in the current investment era.

In short, there a great deal of things which, as our advisory colleague, Grant Williams, would say: Makes me go hmmm.

Speaking of exceptional team advisors at Matterhorn Asset Management, Ronni Stoeferle recently had a compelling discussion with the equally brilliant, and hitherto deflationary thinker, Russell Napier.

Among the many compelling take-aways from that discussion is the fact that Mr. Napier is now turning inflationary.

As we’ll see below, this broader and structural inflationary pivot, now undeniably on the horizon, has massive (and positive) implications not only for precious metal ownership, but also the very structure of the financial world going forward (negative).

In short, the inflation topic is not just an academic topic nor fodder for podcasters and economic tenure-seekers—it’s a critical signal of the repressive financial world staring us straight in the eyes today and heading toward ever-more financial repressions tomorrow.

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

Matthew Piepenburg, inflation, financial repression, gold switzerland, central banks, money printing, credit expansion

The Losses are Hidden – Bill Holter

The Losses are Hidden – Bill Holter

Precious metals expert and financial writer Bill Holter has been predicting the financial system is going to go down sooner than later.  He says the signs are the lies being told to the public to try to hold the system together.  Holter explains, “If you look at everything, nothing is natural.  Everything is contrived.  We are lied to about pretty much everything 24/7. . . . They lied about everything regarding Covid.  They have lied about the election.  They are lying about the unemployment rate.  They are lying about inflation.  They are lying about the true amount of total debt outstanding.  They are lying about everything. And one other tidbit, 36% of all dollars outstanding have been created now, were created in the last 12 months.  Oh, and the Fed is no longer going to publish M2. . . . How can you make a business decision if you don’t know how much money is outstanding?”

This leads us to all the digital dollars sloshing around and Crypto currencies.  Holter says, “Crypto currencies are a perceived exit from the system.  They are perceived as a safe haven.  If Bitcoin, which is nothing but digital air, can become $65,000 per unit, what can something real become worth?  What these crypto currencies are doing is illustrating a debasement of all the fiat currencies.”

Bill Holter says big loses in the financial world are being hidden from the public.  Take real estate, for example.  Holter points out, “The average mall in the United States is appraised 60% lower than it was a year ago.  That’s a 60% drop.  It’s now worth 40%.  There is debt on these things they owe.  These malls were not bought, built and created out of cash…

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

greg hunter, usa watchdog, financial system, financial system collapse, bill holter, debt, fed, us federal reserve, money printing, credit expansion

Are We Staring At A Coming Systemic Breakdown & The End Of Capitalism?

For any problems they face, governments all over the world are now conditioned to simply deficit spend or issue new $trillions in ‘thin air’ currency.

So how in danger are we of that recklessness leading to a breakdown of the entire system?

Respected financial analyst Michael Every suspects we’re closer than most realize.

As governments continue to flood the world with debt-funded stimulus, they not only fan the flames under the social powderkeg of wealth inequality, but they are destroying their own powers in the process.

Up until the Great Financial Crisis, a dollar in new federal debt issued resulted in more than $1 in incremental GDP. But no longer:

Federal Debt Growth vs GDP Growth

That indicates the government is now at the ‘pushing on a string’ phase: it can’t grow out of its problems. Issuing new debt only digs the insolvency hole deeper at this point.

Which is why Michael agrees that now, more than ever, is the time to partner with a financial advisor who understands the nature of the risks and opportunities in play, can craft an appropriate portfolio strategy for you given your needs, and apply sound risk management protection where appropriate:

adam taggart, peak prosperity, michael every, rabobank, capitalism, money printing, credit expansion, central banks, monetary stimulus, growth, risk

Gold vs. the stock market

More than 3,000 years ago in the early 12th century BC, Greco-Roman legend tells us of a mythical pair of monsters located in the Strait of Messina in southern Italy.

The monsters were named Scylla and Charybdis. And both Homer’s Odyssey and Virgil’s Aeneid describe the terror of sailors who came into contact with them.

Scylla was on one side of the Strait, and Charybdis on the other. But because the Strait is so narrow, it was impossible for sailors to avoid both of the monsters, essentially forcing the captain to choose between the lesser of two evils.

In Homer’s narrative, for example, Odysseus is advised that the whirlpools of Charybis could sink his entire ship, while Scylla might only kill a handful of his sailors.

So Odysseus chooses to sail past Scylla: “Better by far to lose six men and keep your ship than lose your entire crew.”

The story is a myth. But the idea of having to choose between two terrible options is very real.

It appears that the Federal Reserve has landed itself in this position.

In its efforts to boost the economy during the pandemic, the Fed slashed interest rates so much that the average 30-year mortgage rate for homebuyers reached an all-time low of 2.65% earlier this year.

Similarly, AAA-rated corporate bond yields reached record low 2.14% last summer.

The US government 10-year Treasury Note dropped to a record low 0.52%.

And the 28-day US government Treasury Bill rate actually turned negative for a brief period– something that has never happened before.

The effects of such cheap rates are obvious.

With corporate borrowing rates so low, the stock market has boomed. With consumers able to borrow money so cheaply, home prices have surged to an all-time high.

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

 

Forbes: Excessive Monetary Stimulus Leaves Gold “Greatly Undervalued”

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: How the expansion of money supply is boosting gold’s allure, an overview of last year’s precious metals imports to the U.S., and U.S. Mint releases final batch of American Gold Eagle coins with current design.

Historic monetary stimulus is casting a bright light on tangible assets

The multi-trillion dollar stimulus appears to have achieved the desired effect, at least in the short term. The influx of freshly-printed, free floating money encouraged risk-on sentiment, increased bond yields and caused money managers to once again turn away from gold.

Yet, as Forbes columnist Frank Holmes points out, the pressures coming down on gold right now could turn out to be its most powerful tailwind further down the line.

According to the Forbes article, M1 (the amount of readily-available or liquid money in circulation) should be approached the same as any other asset class. This is usually the case; many investors treat cash as a part of their portfolios. Therefore, the law of supply and demand should also be applied to cash. In light of the recent monetary expansion, cash quickly starts to look overabundant in the economy.

Holmes notes that M1 has expanded by 355% year-on-year, marking the highest annual rate increase on record by a wide margin. Unsurprisingly, inflation expectations for the next five years based on the Treasury breakeven rate have risen to their highest level since 2011, when gold posted its previous all-time high. Today’s gold price may be some ways off from August’s peak of $2,070, but there are plenty of analysts calling for a retrace this year, and Holmes thinks inflation could kickstart the next round of gold price gains.

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

 

Yellen Challenges Powell’s Unlimited Control of the Markets

The Fed attempts to maintain control of various rates (including inflation, unemployment and long-term interest rates) through its monetary policy decisions. In the past, poor choices arguably led to both the dot-com bubble and the Great Recession. But that’s old news.

Today, Fed Chairman Jerome Powell is trying to get the U.S. economy moving. A combination of near-zero interest rates and “quantitative easing,” which means buying bonds directly. Both these interventions increase the amount of money in circulation. Ultimately, this would lead to inflation, as you’d expect.

And of course, inflation is closely tied to market rates. In response to the pandemic, the Fed rate policy that Powell currently advocates is keeping money market rates close to zero for an extended period of time. The Fed also seem to intervene quite a bit, attempting to maintain tight control on those rates.

Powell has to balance economic recovery and employment against market bubbles and excessive inflation. That’s a lot of balls in the air… What if one drops?

Unleashing a “tsunami” of cash

Enter Treasury Secretary Janet Yellen, who just threw a big monkey wrench in Powell’s plans to maintain any semblance of tight control over rates. What did she say? As Newsmax reported:

Already low short-term interest rates are set to sink further, potentially below zero, after the Treasury announced plans earlier this month to reduce the stockpile of cash it amassed at the Fed over the last year to fight the pandemic and the deep recession it caused.

That sounds sensible, right? There’s just one problem: the Treasury is planning to “unleash what Credit Suisse Group AG analyst Zoltan Pozsar calls a ‘tsunami’ of reserves into the financial system and on to the Fed’s balance sheet.”

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

 

Crazy days for money

Crazy days for money

This article anticipates the end of the fiat currency regime and argues why its replacement can only be gold and silver, most likely in the form of fiat money turned into gold substitutes.

It explains why the current fashion for cryptocurrencies, led by bitcoin, are unsuited as future mediums of exchange, and why unsuppressed bitcoin has responded more immediately to the current situation than gold. Furthermore, the US authorities are likely to suppress the bitcoin movement because it is a threat to the dollar and monetary policy.

This article explains why growth in GDP represents growth in the quantity of money and is not representative of activity in the underlying economy. The authorities’ monetary response to the current economic situation is ill-informed, based on a misunderstanding of what GDP represents.

The common belief in the fund management community that rising interest rates are bad for gold exposes a lack of understanding about the consequences of monetary inflation on relative time preferences. Rising interest rates will be with us shortly, and they will burst the bond bubble with negative consequences for all financial assets and the currencies that have inflated them.

In short, we are sitting on a monetary powder-keg, the danger of which is barely understood by policy makers and which could explode at any time.

Introduction

We have entered a period the likes of which we have never seen before. The collapse of the dollar and dollar assets is growing increasingly certain by the day. The money-printing of the dollar designed to inflate assets will end up destroying the dollar. We know this thanks to the John Law precedent three hundred years ago. I last wrote about this two weeks ago, here. In 1720, it was just France and Law’s livre…

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

Olduvai IV: Courage
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Olduvai II: Exodus
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