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Into Darkness: Where The Fed Is Leading Us

Into Darkness: Where The Fed Is Leading Us

The system is hurtling towards breakdown. Protect yourself now.

As you may know, I was one of the very first voices publicly reporting on covid-19, issuing an alert that the virus was a significant pandemic event on Jan 23rd, 2020.

This was long before most media outlets even managed to write their first “It’s just the flu, bro!” article.

Using the same logic and scientific methodology I was trained in as a PhD, I was able to “predict” things well in advance of nearly every official or mainstream news source.

I’m using quotation marks around the word  “predict” because it’s not really a prediction when you’re just extrapolating trends that are already underway.

Just as it’s not really a “prediction” to estimate where a thrown pitch will travel, it wasn’t much of a prediction to state that a novel virus with an R-Naught (R0) of well over 3 would be extremely difficult to contain once it arrived in a country.  Note that I didn’t say impossible — South Korea, Australia, New Zealand, Thailand, Taiwan and Vietnam all get high marks for containment — but certainly difficult.

The US and the UK proved this in spades, as they’re both led by below-average ‘managers’ rather than leaders.

Leaders make tough decisions based on imperfect information.  Managers dither and hedge and only make up their minds after the facts are already in and events well underway.  Naturally, the US/UK managers were simply no match for the exponential rate that the Honey Badger Virus (aka Covid-19) spreads at.

I call it the Honey Badger virus because of its incredible ability to evade quarantine, as eagerly and easily as Stoeffle, as seen in this short enjoyable video:

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

REVEALED: The Fed’s Next Trick

REVEALED: The Fed’s Next Trick

REVEALED: The Fed’s Next Trick

Today we lower our ear to the rail… and report the approach of a rumbling locomotive.

Free and honest markets are roped to the tracks, squirming, writhing, sobbing.

This iron horse is barreling toward them. Mr. Jerome Powell is at the controls…

And murder is on his mind.

What is the Federal Reserve’s latest plot against the remains of free and honest markets?

And will it pull off the caper?

Answers anon.

We first look in on the seemingly condemned — squirming, writhing, sobbing on the tracks…

A Quiet Day on Wall Street

The day counted plus and minus.

The Dow Jones lost 39 points. The S&P scratched out a 1.85-point gain today. The Nasdaq, meantime, took the ribbon with a 32-point advance.

A dull affair altogether. Yet tomorrow may bring high adventure of course.

And so we now return to today’s central question:

What is the Federal Reserve’s latest plot against the remains of free and honest markets?

Let us first flip back the calendar to the war year of 1942… where our tale begins.

How the Fed Fought WWII

Wars are costly enterprises. And taxes alone would not purchase the arsenals of democracy.

Uncle Samuel therefore held his cap before the bond market… and went upon the borrow.

But the authorities were hot to keep borrowing costs within reasonable limits.

The Federal Reserve and the Treasury Department therefore signed onto an agreement:

The Federal Reserve would place a cap on the government’s borrowing costs.

This it accomplished by purchasing any government bond with yields above a predetermined level.

These purchases shrunk the yield (purchasing Treasuries hammers down the yield; selling Treasuries ratchets yields higher).

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

The Fed Just Admitted It Won’t Stop Printing Money For YEARS… Here’s How to Profit From This

The Fed Just Admitted It Won’t Stop Printing Money For YEARS… Here’s How to Profit From This


The Fed will soon be buying stocks.

Earlier this week, the Fed announced that it will begin buying corporate bonds from individual companies. Before this announcement, the Fed was already involved in the:

  • The Treasury markets (US sovereign debt)
  • The municipal bond markets (debt issued by states and cities)
  • The corporate bond markets by index (debt issued by corporations)
  • The commercial paper markets (short-term corporate debt market)
  • And the asset-backed security markets (everything from student loans to certificates of deposit and more).

With the introduction of individual corporate bonds, the Fed is now one step closer to buying stocks outright.

Indeed, the Fed has made ZERO references to stopping its monetary madness. Just yesterday Fed Chair Jerome Powell emphasized to Congress that the Fed is “years away from halting its assets monetization scheme.” 

Again, the Fed is explicitly telling us that it plans on buying assets (Treasuries, municipal bonds, corporate bonds, etc.) for years to come.

The next step will be for the Fed to buy stocks.

It won’t be the first central bank to do so…

The central bank of Switzerland, called the Swiss National Bank has been buying stocks for years. Yes. It literally prints money and buys stocks in the U.S. stock markets.

Then there’s Japan’s central bank, called the Bank of Japan. It also prints money and buys stocks outright. As of March 2019, it owned 80% of Japan’s ETFs.

Yes, 80%.

The BoJ is also a top-10 shareholder in over 50% of the companies that trade on the Japanese stock market.

If you think this can’t happen in the US, think again. The Fed told us in 2019 that it would be forced to engage in EXTREME monetary policies during the next downturn.

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

US Money Supply – The Pandemic Moonshot

US Money Supply – The Pandemic Moonshot

Printing Until the Cows Come Home…

It started out with Jay Powell planting a happy little money tree in 2019 to keep the repo market from suffering a terminal seizure. This essentially led to a restoration of the status quo ante “QT” (the mythical beast known as “quantitative tightening” that was briefly glimpsed in 2018/19). Thus the roach motel theory of QE was confirmed: once a central bank resorts to QE, a return to “standard monetary policy” becomes impossible. You can check in, but you can never leave.

Phase 1: Jay Powell plants a happy little money tree to rescue the repo market from itself (from: “The Joy of Printing”).

It is easy to see why. Any attempt to seriously reduce outstanding central bank credit will bring about the very situation QE was intended to prevent, i.e., falling asset prices and an economic bust. Seemingly no-one in officialdom ever stops to ask why that should be so. What happened to “self-sustaining recoveries” and “achieving escape velocity”? Could it be the economy is neither a perpetuum mobile nor a space ship?

Before we consider this question, here is what has happened since then: shortly after the double-plus-uncool novel SARS-2 corona-virus traversed several ponds and made landfall in the US, Mr. Powell and his fellow merry pranksters decided to water the money tree with super-gro. Or maybe it was hyper-gro:

The “QE” roach motel, illustrated by the history of the Fed’s balance sheet.

That is a rather noteworthy bout of inflation. Readers may have noticed that in the realms of finance and economics there has also been an inflation of verbiage describing never before seen extremes.  By its very nature, one would normally not expect to hear the term “unprecedented” very often, but it has become disconcertingly commonplace in connection with monetary pumping, deficit spending and debt growth.

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

America Convulses in Pain, Fed Bails Out the Wealthy

America Convulses in Pain, Fed Bails Out the Wealthy

What’s so insidious about the Fed’s bailouts of investors in hedge funds, mortgage-REITS, stocks, bonds, leveraged loans, and other often risky assets? The destruction of capitalism.

By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT. You can listen to it on YouTube, and you can find it on iTunes, Spotify, Stitcher, Google Podcasts, and others.

We’re in an economic meltdown like I’ve never seen before. Tens of millions of people have lost their jobs – and so suddenly, that the government data to track them has fallen into chaos, with different agencies reporting data that is all over the place and contradicting each other. None of these systems were designed to track this type of sudden collapse of the labor market during a pandemic.

Then there are the many small businesses that have had to shut down or lost most of their customers and revenues. And these entrepreneurs have no idea if they can make it through this period.

Over the past three months, about 110,000 people in the United States have died from the coronavirus. That number is still growing every day at a rate of about 1,000 deaths. But the efforts to slow the spread of the virus and save lives have caused enormous economic damage.

And people’s frustration and anger with racial injustice has boiled over, and they’re frustrated and angry over a host of systemic issues, including the inequality of economic prospects, and there have been big protests every day around the country for well over a week.

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

The Fed’s Forever War Against Savers

The Fed’s Forever War Against Savers

The Fed’s Forever War Against Savers

The war on savers rages into its second decade.

And yesterday Field Marshal Powell vowed indefinite bombing, shelling, machine-gunning and bayoneting… until the white flag rises over enemy lines.

It is war to the knife… and from the knife to the hilt.

The only peace terms he will accept are these:

Complete, undiluted and unconditional surrender.

These hoarding hellcats must be vanquished. And their cities must be sowed with salt… as triumphant Rome vanquished Carthage… and sowed it with salt.

Here is yesterday’s dispatch from headquarters:

We are going to be deploying our tools — all of our tools — to the fullest extent for as long as it takes… We are not thinking about raising rates; we are not even thinking about thinking of raising rates.

Zero Rates Through at Least 2022

Powell and staff indicated they will clamp rates to zero, or near zero… through 2022.

We wager rates will remain clamped to zero longer yet.

Deflation hangs over the battlefield like a thick cloud of chlorine gas. And the Federal Reserve’s 2% inflation target appears more wishful than ever.

We do not expect any rate hikes until it lifts. And we hazard little will lift until 2022 has passed.

Meantime, Marshal Powell reminded us yesterday that the pre-pandemic 3.5% unemployment rate yielded little inflation.

He suggested, that is, that unemployment could sink below 3.5% before inflation menaced.

But it could be a long, long while before unemployment drops to pre-pandemic levels.

As we recently noted:

After the last financial crisis, over six years lapsed before employment fully recovered — 76 months.

If we assume a parallel recovery… pre-pandemic unemployment would return in 2026.

Of course comes our disclaimer: Pre-pandemic unemployment would return before 2026.

We simply do not know. Nor does anyone.

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

Blain’s Morning Porridge – June 11 2020: The illusion wears thin

Blain’s Morning Porridge – June 11 2020: The illusion wears thin

“It is the system that deserves to be blamed. What those who wish to perpetuate the system deserve is another question.”

The Fed did exactly what was expected – nay, demanded! Asset purchase volumes will be maintained while rates will remain near zero for the next 2 years. Hallelujah! The market shrugged aside indications a second virus wave is hitting across parts of the US and Europe… 

If Fed-Head Jay Powell has said anything else, there would have been a hissy-fit mini-taper-tantrum. The dominant force on markets will remain central banks juicing markets – and all the entails in terms of distortion. The immediate lesson for investors is – keep buying! The Fed and the other CBs have got your back. They can’t afford for markets to stumble.

Problem is… little the Fed said is likely to change the reality of the coming recession. The downturn might not be as deep or as bad as we originally feared, but whatever nonsense some analysts are spouting in terms of hopes for a V-Shape recovery… recession is coming. It might be less damaging, and less long-lived than we fear… But.. 

There is a new and growing dimension to this crisis…

The Black Lives Matter demonstrations around the globe highlight the threat of social unrest, and political dislocation. When the virus kicked in, I commented a few times how lockdown frustrations and hot summer nights could be a recipe for riots. But, what’s happened is much more fundamental – and should be a critical concern for investors in terms of how it changes the political narrative.  

Unrest is a political issue – and politics have a seriously underestimated ability to roil markets. 

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

EU Economy Traveling Along Same Worn Dead-end Road

EU Economy Traveling Along Same Worn Dead-end Road

With so many countries across the world facing difficulties, many people have yet to notice the Euro-Zone has become a place where hope goes to die. The last round of elections in the Euro-Zone should bring little comfort to those supporting a stronger Europe. Huge gains were made by forces seeking more power for the populist agenda. In short, it is a boost for the rights of individual nations to have more say in how they are governed.  Two of the most pressing issues are that insolvent Italy struggles with a stagnate economy and Spain is coming apart politically with Catalan separatists defying Spain’s Prime Minister. 

To avoid the union coming apart at the seams and a miserable future, the European Commission recently unveiled an unprecedented €750BN CoVid-19 recovery plan. It consists of €500 billion in grants to member states, and €250 billion would be available in loans. This means they are asking for the power to borrow. This is geared to tackle the worst recession in European history and shore up Italy. It would mean transforming the EU’s central finances to allow for it to raise unprecedented sums on the capital markets and hand out the bulk of the proceeds as grants to hard-pressed member states.

The Euro-Zone was already in deep trouble before CoVid-19 hit, the weakness that started in 2017 never ended. In the fourth quarter even Germany narrowly escaped recession. This could be blamed on the Brexit or Trade War but it goes beyond that, they abandoned all structural reforms in 2014 when the ECB started its quantitative easing program (QE) and expanded the balance sheet to record-levels. In 2019, almost 22% of the Euro Zone GDP gross added value came from Travel & Leisure, a sector that will unlikely come back anytime soon. Add this to weak exports and a banking sector that is totally decimated and everything points downward.

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

Unintended Consequences of Monetary Inflation

UNINTENDED CONSEQUENCES OF MONETARY INFLATION

“In short, the Fed is committed to rescue businesses from the greatest economic catastrophe since the great depression and probably even greater than that, to fund the US Government’s rocketing budget deficits, fund the maintenance of domestic consumption directly or indirectly through the US Treasury, while pumping up financial markets to achieve these objectives and preserve the illusion of national wealth.

“Clearly, we stand on the threshold of an unprecedented monetary expansion.”

Introduction

President Reagan memorably said that the nine words you don’t want to hear are “I’m from the government and I’m here to help.” Governments in all the major jurisdictions are now making good on that unwanted promise and are taking responsibility for everything from our shoulders.

Those receiving subsidies and loan guarantees are no doubt grateful, though they probably see it as the government’s duty and their right. But someone has to pay for it. In the past, by the redistribution of wealth through taxes it meant that the haves were taxed to give financial support to the have-nots, at least that was the story. Today, through monetary debasement nearly everyone benefits from monetary redistribution.

This is not a costless exercise. Governments are no longer robbing Peter to pay Paul, they are robbing Peter to pay Peter as well. You would think this is widely understood, but the Peters are so distracted by the apparent benefits they might or might not get that they don’t see the cost. They fail to appreciate that printing money is not just the marginal source of finance for excess government spending, but it has now become mainstream.

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

Inflation into 2021

Inflation into 2021

QUESTION: Hi, Martin
You have referenced the three different types of inflation in previous posts. Please speak to what we can expect to see manifest from this record money printing/stimulus from the Fed.
Thanks,
MD

ANSWER: This cycle will be on the back of shortages in commodities. This is what the computer has been forecasting all along. We have been witnessing shortages in food. But this coronavirus has also disrupted the supply chain in many areas. Then we have the Monetary Crisis Cycle coming for 2021 into 2022. With Europe planning to cancel its paper currency to try to force everyone into banks, you have the punters looking at this as bullish short-term for a trade.

The European and Japanese governments will have little choice moving forward, for they have destroyed their bond markets and are UNABLE to issue bonds that institutions will buy at these crazy rates. It is more than a simplistic printing of money. We are looking at the bond market is collapsing. This is the DESTRUCTION of Capital Formation so in the end, capital must flee anything connected with governments and seek shelter in primarily the stock markets.

So far, we are into a 3-month reactionary bounce with the NASDAQ taking the lead and the Dow lagging. This is very disquieting for it warns we are going to see much higher volatility into the next two years, perhaps more so than anyone has ever witnessed in their life or for the past 300 years.

Land of the “Free”: Stashing Gold May be Illegal Soon

LAND OF THE “FREE”: STASHING GOLD MAY BE ILLEGAL SOON

According to one hedge-fund manager, known for his “doom and gloom” economic outlooks, the federal government may soon make stashing gold away illegal for individuals. Crispen Odey believes that governments will ban the possession of gold if they lose control of inflation of their fiat currency.

Odey says that gold is a great way to protect your wealth from the inflation that central banks won’t be able to control as they continue to print money. “History is filled with examples where rulers have, in moments of crisis, resorted to debasing the coinage,” said Odey, who has raised his gold position in his flagship Odey European fund all the way up to 39.9% as of the beginning of the month from 15.9% at the end of March.

“It is no surprise that people are buying gold. But the authorities may attempt at some point to de-monetize gold, making it illegal to own as a private individual. They will only do this if they feel the need to create a stable unit of account for world trade,” he added according to a report by Market Watch.

Bloomberg News said that the fear of government confiscation of gold is often discussed among serious gold bugs. It happened in the U.S. in 1933. But with major currencies no longer linked to gold, there are no signs such a move is realistically being considered by central banks. However, Bloomberg News is a mainstream media outlet and will say what the powers-that-shouldn’t-be tell them to, so take their opinion with a grain of salt.

With far too many Americans believing the government has the right to confiscate their wealth, it wouldn’t come as a surprise if they attempted this kind of theft.  Not enough Americans even question the morality of taxation, let alone confiscation of their morally acquired property.

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

The path to monetary collapse

The path to monetary collapse

Few mainstream commentators understand the seriousness of the economic and monetary situation. from a V-shaped rapid return to normality towards a more prolonged recovery phase.

The fact that a liquidity crisis developed in US money markets five months before the virus hit America has been forgotten. Only a rising gold price stands testament to a deeper crisis, comprised of contracting bank credit while central banks are trying to rescue the economy, fund government deficits and keep the market bubble inflated.

The next problem is a crisis in the banks, wholly unexpected by investors and depositors. At a time when lending risk is soaring off the charts, their financial condition is more fragile than before the Lehman crisis. Failures in European G-SIBs in the next month or two are almost impossible to avoid, leading to a full-blown monetary and credit crisis which promises to undermine asset values, government financing and fiat currencies themselves.

We can now discern the path leading to the destruction of fiat currencies and take reasonably guesses as to timing.

How central banks view the current situation.

The financial world is bemused: what is it to make of the economic effects of the coronavirus? The official answer, it seems, is on the lines of don’t panic. The earliest fears of millions of deaths have subsided and in the light of experience, a more rational approach of easing lockdown rules is now being implemented in a number of badly hit jurisdictions. Whether this evolving policy is right will be proved in due course. But the motivation is moving from saving lives to restricting the economic damage.

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“Revolutions And Wars”: What According To Ray Dalio Comes After “Printing Money”

“Revolutions And Wars”: What According To Ray Dalio Comes After “Printing Money”

Having seemingly conquered the world of finance, Ray Dalio and Howard Marks have been competing who can be a more productive writer in recent weeks, and just two weeks after writing a lengthy thesis on the rise and fall of fiat currencies (which had no less than 43 mentions of gold for obvious reasons), Dalio is back to discussing one of his favorite topics, namely the rise and fall of empires, among which the US and China, over the last 500 years. 

The third chapter of his “Changing World Order” series (preceded by Chapter 1 “The Big Picture in a Tiny Nutshell”,  and Chapter 2, “The Big Cycle of Money, Credit, Debt, and Economic Activity” and its appendix “The Changing Value of Money“), takes a closer look at the rise and fall of the Dutch, British, and American empires and their reserve currencies and, in what will spark howls of outrage from both sides of the discussion, touches on the rise of the Chinese empire, which Dalio views as the next ascendent superpower “to bring us up to the present.”Ray Dalio@RayDalio

In this latest release of my series The Changing World Order, I will review the rises and declines of the Dutch, British, and American empires and their reserve currencies and will touch on the rise of the Chinese empire to bring us up to the present…


https://bit.ly/TCWOch3 The Big Cycles Over The Last 500 YearsNote: To make this an easier and shorter article to read, I tried to convey the most important points in simple language and bolded them, so you can get the gist of the whole thing in just a few…linkedin.com


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Fed Chair Just Made This Inadvertent Case for Gold

Fed Chair Just Made This Inadvertent Case for Gold

jerome powell gold
Photo by Flickr.com CC BY | Photoshopped

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Powell boosts gold in Fed speech, why gold is the best bet to make now, and gold remains undervalued as an asset.

Fed Chair Powell gives a nudge to gold during speech

A much-awaited speech by Federal Reserve Chair Jerome Powell last week, held at the Peterson Institute for International Economics, dispelled any notion that the central bank is optimistic in regards to an economic recovery. In fact, Powell was very clear in his belief that many could be disappointed by the sluggishness of the recovery and the various uncertainties that might be scattered across its path.

Powell commented on the state of U.S. employment, noting that more than 20 million people have lost their jobs in just two months. The chair added that existing growth problems have been exacerbated and that any job gains posted over the previous decade have been erased.

Looking forward, Powell said that the Fed isn’t open to negative interest rates right now, but did not completely discount the possibility should the need arise. Although it remains historically low-performing, this now makes U.S. Treasuries one of the few sovereign bonds that haven’t dipped into negative territory.

Having just printed trillions of dollars in short order to stimulate the economy, Powell appeared to not be fully content with the extent of the stimulus that the state has issued. Although Congress has already spent $2.9 trillion on coronavirus mitigation, Powell’s words could be interpreted that a bigger debt bubble is on the way, keeping in mind that the federal budget alone went from being $160 billion in the green as of April 2019 to a deficit of $737.9 billion a year later.

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

Underneath the Surface Trouble Is Brewing Once Again

Underneath the Surface Trouble Is Brewing Once Again

Larry McDonald, publisher of the investment research service The Bear Traps Report, warns that this crisis is far from over. He spots growing tensions in the credit markets and thinks that large public borrowers like Italy and New York State are in need of massive bailouts.


Stocks have staged an impressive comeback. Since the lows of March, the S&P 500 has gained almost 30%. Despite that, Larry McDonald would not be surprised if new turmoil soon arose.

“In March 2008 for instance, after the failure of Bear Stearns, the Fed acted aggressively and we had a big relief rally. But then came Lehman,” says the renowned investment strategist.

Mr. McDonald knows what he’s talking about. As a former vice-president of distressed debt trading at Lehman Brothers he witnessed the meltdown of the global financial system first hand. Today, he runs the The Bear Traps Report, an independent investment research service for institutional investors.

In this in-depth interview with The Market/NZZ, Mr. McDonald warns of rising defaults in the credit markets and points out that large public borrowers such as Italy and New York State are going to need bailouts of historic proportions. However, he spots opportunities in the metals and mining sector.

Mr. McDonald, despite a grim economic picture, investors are getting confident that the worst of the pandemic is behind us. What’s your take on the financial markets?

Equity markets have priced in a lot of love from the Federal Reserve. The Fed has done a lot to ease financial conditions, and the amount of liquidity is amazing. Since late February, they’ve done more in terms of balance sheet expansion than nearly two years of action in 2008 to 2010. They’ve clearly pumped up asset prices.

…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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