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Investors Do Not See “Transitory” Inflation

Investors Do Not See “Transitory” Inflation

The Federal Reserve and European Central Bank repeat that the recent inflationary spike is “transitory”. The problem is that investors do not buy it.

Inflation is always a monetary phenomenon, and this time is not different. What central banks call transitory effects, and the impact of supply chains are not the real drivers of inflationary pressures. No one can deny certain supply shock impacts, but the correlation and extent of the increase in prices of agricultural and industrial commodities to five-year highs as well as the abrupt rise of non-replicable goods and services to decade-highs have monetary policy to blame.  Injecting trillions of liquidity makes more funds chase fewer goods and the rise in the real inflation perceived by citizens is much larger than the official CPI.

Take food prices. The United Nations Food Price Index is up 30% in the past five years and up 10% year-to-date (April 2021). The rise in food prices already caused protests all over the world in 2018 and it continues to reach new highs. The correlation in the price increase of most agricultural goods also shows that it is a monetary effect.

The same can be said about the Bloomberg Commodity Index which is also at five-year highs and up 15% year-to-date.

Yes, there have been some supply disruptions in a few commodities, but it is not widespread let alone the norm. If anything can be said is that the rise in agricultural and industrial commodities is happening despite the persistent overcapacity that many of these had already before the pandemic. We should also remember that one of the unintended consequences of massive monetary expansion is perpetuation of overcapacity. Excess capacity is refinanced and maintained even in crisis times…

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

Yield Curve Control: Bubbles And Stagnation

Yield Curve Control: Bubbles And Stagnation

Central banks do not manage risk, they disguise it. You know you live in a bubble when a small bounce in sovereign bond yields generates an immediate panic reaction from central banks trying to prevent those yields from rising further. It is particularly more evident when the alleged soar in yields comes after years of artificially depressing them with negative rates and asset purchases.

It is scary to read that the European Central Bank will implement more asset purchases to control a small love in yields that still left sovereign issuers bonds with negative nominal and real interest rates. It is even scarier to see that market participants hail the decision of disguising risk with even more liquidity. No one seemed to complain about the fact that sovereign issuers with alarming solvency problems were issuing bonds with negative yields. No one seemed to be concerned about the fact that the European Central Bank bought more than 100% of net issuances from Eurozone states. What shows what a bubble we live in is that market participants find logical to see a central bank taking aggressive action to prevent bond yields from rising… to 0.3% in Spain or 0.6% in Italy.

This is the evidence of a massive bubble.

If the European Central Bank was not there to repurchase all Eurozone sovereign issuances, what yield would investors demand for Spain, Italy or Portugal? Three, four, five times the current level on the 10-year? Probably. That is why developed central banks are trapped in their own policy. They cannot hint at normalizing even when the economy is recovering strongly, and inflation is rising.

Market participants may be happy thinking these actions will drive equities and risky assets higher, but they also make economic cycles weaker, shorter, and more abrupt.

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

 

From a Hamilton Moment to Perpetual Debt Slaves: This Is the True Face of the EU

From a Hamilton Moment to Perpetual Debt Slaves: This Is the True Face of the EU

Over the summer while the U.S. was mired in the worst kind of color revolution with race riots, economic shutdowns and the worst kind of divisive politics, the European Union was celebrating its great achievement.

A seven-year budget and COVID-19 bailout package that was heralded as German Chancellor Angela Merkel’s “Alexander Hamilton Moment.” Because that legislation, meant to be the cornerstone of Germany six-month stint as the president of the European Council finally granted the European Commission the ability to issue debt, collect taxes and disburse funds.

That would be the way the COVID-19 relief funds would be raised and distributed. It was the first moment of fiscal integration under a central EU body that would bypass the individual member states as the means by which to raise capital.

It would be the first step in the process of consolidating debt issuance and euro creation under the control of Brussels, rather than continuing to carry out the fiction of individual sovereign debt.

The euro is a fatally flawed currency because of this and if it is to survive deeper into the 21st century having only one central issuer of it, the EU itself via the European Commission and the European Central Bank, with one aggregated risk profile (interest rate) is necessary.

The current leadership of the EU was put in place to make this happen on powerful Germany’s watch. And in July is looked like it was done. The markets loved it. The media hailed Merkel as the great leader of Europe. Some countries balked, the so-called Frugal Five, but eventually they signed off on the draft legislation once they were no longer directly on the hook for any more wealth transfers from them to perpetual problem children like Italy, Greece and Spain.

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

What the Great Reset Architects Don’t Want You To Understand About Economics

What the Great Reset Architects Don’t Want You To Understand About Economics

It shouldn’t come as a surprise that the Vice President of the World Bank Carmen Reinhardt recently warned on October 15 that a new financial disaster looms ominously over the horizon with a vast sovereign default and a corporate debt default. Just in the past 6 months of bailouts unleashed by the blowout of the system induced by the Coronavirus lockdown, Reinhardt noted that the U.S. Federal Reserve created $3.4 Trillion out of thin air while it took 40 years to create $14 Trillion. Meanwhile panicking economists are screaming in tandem that banks across Trans Atlantic must unleash ever more hyperinflationary quantitative easing which threatens to turn our money into toilet paper while at the same time acquiescing to infinite lockdowns in response to a disease which has the fatality levels of a common flu.

The fact of the oncoming collapse itself should not be a surprise- especially when one is reminded of the $1.5 quadrillion of derivatives which has taken over a world economy which generates a mere $80 trillion/year in measurable goods and trade. These nebulous bets on insurance on bets on collateralized debts known as derivatives didn’t even exist a few decades ago, and the fact is that no matter what the Federal Reserve and European Central Bank have attempted to do to stop a new rupture of this overextended casino bubble of an economy in recent months, nothing has worked. Zero to negative percent interest rates haven’t worked, opening overnight repo loans of $100 billion/night to failing banks hasn’t worked- nor has $4.5 trillion of bailout unleashed since March 2020. No matter what these financial wizards try to do, things just keep getting worse. Rather than acknowledge what is actually happening, scapegoats have been selected to shift the blame away from reality to the point that the current crisis is actually being blamed on the Coronavirus!

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

The Insanity of Central Banks

QUESTION: Marty, you mentioned several times now, that the ECB MUST convert to a digital Euro. I have done speeches about that based on a paper from the IMF (Christine Lagarde) last year, in which they too discuss how to do it. But I have a serious question regarding timing.

I live in Germany and I would say that WE (the country) are not ready for such a move yet. Let alone many people. I have people in my family who still don’t have smartphones (just plain mobile).

I am completely with you that this move is coming (I am also part of a crypto community but as a critical member (I am the party spoiler there)).

But how can they move to a digital Euro to prevent bank runs, when I can’t see the infrastructure in place to do so.

Especially in such a short amount of time rg. the date you mentioned. They can eliminate cash withdrawals, yes, but paying with my smartphone reguires technology .. ?

Thanks a lot,

A

ANSWER: We are talking about bureaucrats. They only think in concepts much like Klaus Schwab’s Great Reset. The practical application of what they are doing is not there. They lack even the infrastructure, as in California, to force all cars to be electric. They do not have the power grid to support that.

I was in meetings where they actually told me with a straight face that they had to take trading the Euro away from Britain. I asked if they were going to take it away from the USA, Japan, Hong Kong, Singapore, etc? They looked at me puzzled, and said no! Just Britain. I asked if they really wanted to control the Euro just convert it into the old Soviet Union ruble. No free market at all.

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

A Powerful Ally to the Fed Just Boosted the Prospects for Inflation

Inflation Calculator

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: ECB could follow the Fed’s pro-inflation policy, precious metals in a pandemic, and legendary silver coin to be sold for more than $10 million at an auction.

Gold could move up further as the ECB looks to keep the euro down

If one believes that central bank policies are a primary driver of gold prices, the yellow metal should have plenty of room to go up even as it sits above its previous all-time high. Besides the Federal Reserve’s openness to inflation, gold should be buoyed by a surge of the euro and the European Central Bank’s (ECB) efforts to contain it.

Experts like Mechanical Engineering Industry Association’s chief economist Ralph Wiechers and Natixis strategist Dirk Schumacher note that an overly strong euro poses problems for the eurozone. It hinders both exporters and importers, slows the European economy, and can cause inflationary spikes in individual countries.

While the ECB might not be able to control the euro as easily, Schumacher’s firm expects them to try and push it down by introducing looser monetary policies. BNP Paribas’ analysts share a similar view, stating in a recent note that the ECB would also voice its desire to keep the euro lower. This was exemplified when former ECB vice president Vitor Constancio stated in an interview that the ECB would follow in the Fed’s wake by allowing inflation to run above the targeted rate for periods of time.

Strong currencies are among the biggest headwinds for gold prices, and inflation is one of its most powerful drivers. Given recent statements by officials from both central banks, it should come as no surprise that prominent investor Peter Schiff points to inflation as the next big thing that will power gold’s gains.

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

The U.S. Dollar Collapse Is Greatly Exaggerated

The U.S. Dollar Collapse Is Greatly Exaggerated

The US Dollar Index has lost 10% from its March highs and many press comments have started to speculate about the likely collapse of the US Dollar as world reserve currency due to this weakness.

These wild speculations need to be debunked.

The US Dollar year-to-date (August 2020) has strengthened relative to 96 out of 146 currencies in the Bloomberg universe. In fact, the U.S. Fed Trade-Weighted Broad Dollar Index has strengthened by 2.3% in the same period, according to data compiled by Bloomberg.

The speculation about countries abandoning the U.S. Dollar as reserve currency is easily denied. The Bank Of International Settlements reports in its June 2020 report that global US-dollar denominated debt is at a decade-high. In fact, US-dollar denominated debt issuances year-to-date from emerging markets have reached a new record.

China’s dollar-denominated debt has risen as well in 2020. Since 2015, it has increased 35% while foreign exchange reserves fell 10%.

The US Dollar Index (DXY) shows that the United States currency has only really weakened relative to the yen and the euro, and this is based on optimistic expectations of European and Japanese economic recovery. The Federal Reserve’s dovish announcements may be seen as a cause of the dollar decline, but the evidence shows that the European Central Bank (BOJ) and the Bank Of Japan (BOJ) conduct much more aggressive policies than the U.S. while economic recovery stalls. Recent purchasing manager index (PMI) declines have shown that hopes of a rapid recovery in Europe and Japan are widely exaggerated, and the Daily Activity Index published by Bloomberg confirms it. Furthermore, the balance sheet of the ECB is at the end of August more than 54% of the eurozone GDP and the BOJ´s is 123% versus the Federal Reserve’s 33%.

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

Bank Of Ireland Is Now Imposing Negative Rates On Cash Held In Pensions

Bank Of Ireland Is Now Imposing Negative Rates On Cash Held In Pensions

If you’re holding your pension with the Bank of Ireland, you are now officially being charged to do so. 

In a move that we’re sure is going to have absolutely no consequences, the bank is starting to impose negative interest rates on cash held in pensions, according to The Irish Examiner. The bank is applying a rate of 0.65% on pension pots, which means customers will now pay the bank $65 on every $10,000 held. 

The bank commented: “European Central Bank interest rates have been negative since 2014. Since then banks have been subject to negative interest rates for holding funds overnight and market indications are that rates will remain low for some time.”

It continued: “As a result, we have applied negative rates on deposits for large institutional and corporate customers since 2016. We recently wrote to 14 investment and pension trustee firms to inform them about a rate change to their accounts, which is reflective of the negative interest rate environment.”

“The average amount held on deposit by investment and pension trustee firms is in excess of around €100m, therefore it is no longer sustainable for the Bank to continue with the current rate of interest. We provided 3 months’ advance notification of this rate change to our investment and pension trustee firm customers,” the bank concluded.

Ulster Bank is also considering similar rates in the future. The bank’s CEO, Jane Howard, said: “In terms of Ulster Bank, we did introduce negative rates earlier this year and we’ve introduced it for larger businesses with balances of over €1m.”

She continued: “As I sit here today we have no plans to charge negative interest rates for our personal customers but given the way everything happens, like Covid, so unexpectedly, it is not something I can rule out forever.”

By now, it feels like it is only a matter of time before the U.S. follows suit. And to think, none of this “prosperity” would be possible without the miracle of modern central banking.

Thanks, Christine.

ECB v Fed

ECB v Fed

QUESTION: Martin,

You mentioned in a recent blog post that the ECB, unlike the FED, can go bankrupt.

Can you explain further?

Not sure where you get the time, energy and resources to research and write all that you do buy it is truly amazing.

Regards,

M

ANSWER: The Federal Reserve does not need permission to create elastic money. It has the authority to expand or contract its balance sheet. However, it cannot simply print money out of thin air. The ECB is the only institution that can authorize the printing of euro banknotes. The Federal Reserve must back the banknotes by purchasing US government bonds. The Fed buys and sells US government bonds to influence the money supply whereas the ECB influences the supply of euros in the market by directly controlling the number of euros available to eligible member banks. This structure was created because of Germany’s obsession with its own hyperinflation of the 1920s.

Each member state retained its central bank and those central banks issue the banknotes — not the ECB. Therefore, the ECB works with the central banks in each EU state to formulate monetary policy to help maintain stable prices and strengthen the euro. The ECB was created by the national central banks of the EU member states transferring their monetary policy function to the ECB, which in effect operates on a supervisory role.

There are four decision-making bodies of the ECB that are mandated to undertake the objectives of the institution. These bodies include the Governing Council, Executive Board, the General Council, and the Supervisory Board.

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

Central Bank Crisis Expanding

Central Bank Crisis Expanding

QUESTION: Hi Marty.
You mentioned in the blog that all European sovereign debt may end up being converted into perpetual bonds. Will it be through debt mutualization or will each country have each own Consol? Could you please elaborate on how this conversion would affect pension funds, banks, social security and individual investors? Knowing that the ECB already owns 33% of all government bonds in the Euro Zone, can it (ECB) be the buyer of last resort to avoid liquidity issues for all these investors (pension funds, banks, social security and individual investors)? What would make the ECB fail?
Regards

AMD

ANSWER: They will most likely provide no warning and they will simply announce what they have done to prevent anyone from trying to liquidate. The ECB will have it as reserves so that will not change. They were rolling the debt anyway because they cannot sell it without causing interest rates to rise.

The Federal Reserve is buying up corporate bonds to the point that there is now a shortage. They are doing this in a desperate measure to try to prevent interest rates from rising, which will in turn put pressure on the ECB and Emerging Markets. This is demonstrating that the central banks are fearful of the market pushing rates higher because of CREDIT RISK.

After the Fed Punts, the ECB Throws Another Hail Mary

After the Fed Punts, the ECB Throws Another Hail Mary

Last week FOMC Chair Jerome Powell and company did, essentially nothing, at their June meeting. They held interest rates at 0.25%, did not expand QE nor did they indicate any changes.

This wasn’t what the market wanted, as the bond were pushing the Fed to take rates negative and further open up the liquidity spigots.

Rates would be lower for longer and central bank swap lines would remain open. Other than that, the Fed didn’t give the markets what it wanted.

There were plenty of dollars in the system. That dynamic immediately changed after the FOMC meeting.

By punting the Fed put the ball back in the hands of the ECB who had been enjoying the dynamic of a weaker dollar to alleviate offshore dollar liquidity concerns.

It didn’t hurt that political instability here in the U.S. is at a high not seen since the 1860’s.

The stronger euro was assisting the ECB in selling their balance sheet expansion.

The ECB then announced it’s latest TLTRO-3 Auction for this quarter. The total amount of the auction was a stunning $1.3 trillion, which broke down into $550 billion in new lending and $760 billion in rollovers.

And it means the total TLTRO outstanding balance is already at all-time high levels and nothing has been solved yet.

But, as Goldman Sachs through Zerohedge points out, these loans were at incredibly generous rates:

Given improved terms (-1% for YR1 until June 2021, and -0.5% for YR2-3 if lending benchmarks criteria are met) starting with this auction, banks were expected to repay some outstanding TLTRO-II early to refinance at cheaper rates. Taken together, this still leaves some €550bn of net new take-up.

This gives banks the great incentive to get paid to borrow in euros and get the yield spread against other currencies like the dollar or the Japanese yen.

The size of this issuance is your proof that there simply aren’t enough dollars out there to soak up demand or banks wouldn’t have fed so deeply at the trough.

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

No to the ECB madness

No to the ECB madness

The latest ruling of the Federal Constitutional Court is a drop of bitterness in the idyll of the ECB’s excessive money printing. What Super Mario (Draghi) did and what the IMF-imported Christine Lagarde mercilessly continues – 2.6 trillion euros (since 2015), invested in government, corporate and other securities to boost the economy and inflation – are a blessing for financiers and their customers (plutocracy) and a curse for savers and future pensioners. Roughly speaking, the ECB is buying up the debts of banks and large corporations, but is not worried about citizens’ savings melting away as a result of the negative interest rate, while the bubble is growing in markets overheated by cheap money (including the property market). The owners of real assets are benefiting, while owners of financial assets are losing. Companies that would not have been able to survive under any other circumstances remain in the market as zombies, reducing productivity, the rate of return on capital in the eurozone and their competitiveness in the world.

These trillions of euros are therefore ineffective. After all, the eurozone economy weakened significantly much earlier, before the outbreak of the so-called pandemic. Now the bubble has burst on the stock markets and Lagarde immediately started to take new “measures” from her ivory tower in Frankfurt: money presses are running at full speed, markets are recovering, the economy is still at its worst since the end of the Second World War, unemployment rates very high everywhere, but never mind all that, “The show must go on”, until one day, oh, how unpleasant these German judges!

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

“A Legal Nightmare”: In Latest European “Freakshow”, EU Threatens To Sue Germany Over QE Ruling

“A Legal Nightmare”: In Latest European “Freakshow”, EU Threatens To Sue Germany Over QE Ruling

In the latest European farce, the European Commission threatened to sue Germany after the country’s top court questioned the legality of the ECB’s bond-buying program, Bloomberg reported over the weekend. In what Nordea’s Andrewas Steno Larsen dubbed the “ongoing freakshow in the Euroarea”, the EC president – a German no less – Ursula von der Leyen said that “The final word in EU law is always spoken in Luxembourg. Nowhere else.”

In other words, following last week’s shocking decision by Germany’s constitutional court which found that some aspects of the ECB’s QE are not constitutional and gave the ECB a 3 month ultimatum in which to demonstrate that QE was a proportional response, “we are gearing up for a remarkable legal stand-off between EU and Germany” writes Larsen, who adds that “the German head of the EU Commission, Ursula Von Der Leyen, is now openly battling her mother country’s constitution as she hinted that Brussels is considering taking legal steps that could result in Germany being sued in Europe’s highest court over the ruling from its constitutional court on ECB bond buying in a letter to the German Press Agency. Never underestimate the arrogance of EUR-crats!”

And here is the German European who is tasked with leading the onslaught on the German constitution.

German head of the EU Commission, Ursula Von Der Leyen.

And just to make sure the Germans are really pissed off, the ECB has tasked its staff to study if they should consider buying junk corporate bonds according to Reuters, “as if the ECB hasn’t manipulated credit prices enough already” as Nordea helpfully adds, noting that “ultimately, we think the EUR-ship will be glued together again – but markets are rightfully pricing in a risk of an ugly political showdown for the time being (wider spreads, relatively low EUR/USD etc).”

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

Eurozone Breakup Risk at New High

Eurozone Breakup Risk at New High

The German Constitutional Court made an unexpected and significant ruling last week against the ECB and Quantitative Easing.

QE Deemed Illegal

In the midst of a pandemic and an important presidential election, it is very easy  to miss globally significant events. 

Here is one that is way under the radar: The German Constitutional Court ruled the ECB’s QE Program Could be Illegal.

That is a landmark ruling that challenges the independence of the ECB and the authority of the Court of Justice of the European Union (CJEU).

In announcing the ruling, German Chief Justice Andreas Voßkuhle said the CJEU had approved a practice that “was obviously not covered” by the ECB’s mandate. Voßkuhle spent months crafting the 77-page decision, announcing the ruling just a day before his official retirement on Wednesday. “

Dismissing a 2018 CJEU decision to allow the bond purchases, the German court ordered the ECB to provide Germany with adequate justification for the program within the next three months. Should it fail to do so, the Bundesbank, Germany’s central bank, would no longer be permitted to participate in the program.

What it Means for the Future of the EU

Eurointelligence explains What it Means for the Future of the EU.

The ruling raises complex and potentially troubling issues for the EU as a whole. The German constitutional court has accused the ECB and the CJEU, the court of Justice of the European Union, of abusing their power, and of acting beyond their assigned competences. That concept is known in German constitutional law as acting ultra viresIn the German legal interpretation of European integration, all sovereignty still rests with the member states. The EU is clearly not a federal state, but a deferred power.

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

Italian Debt Crashes Prompting ECB Intervention

Italian Debt Crashes Prompting ECB Intervention

Welcome to the brave new world of a helicopter money, aka the Magic Money Tree (MMT), where everything is crashing and nowhere more so than in Europe, which having made a dramatic U-turn on its historic fiscal stinginess, and where a flood of debt is now expected, bond yields across the continent are soaring even as European stocks crater, and nowhere more so than in Italy where the 10Y bond yield, which was trading below 1% as recently as one month ago, exploded as high as 2.99% this morning, before easing some of the rout following media reports that the ECB is intervening via the Bank of Italy.

Earlier in the session, Italy’s 10-year yield climbed as much as 64bps to 2.99%, pushing the BTP-bund spread up to 44bps wider to 323bps, the most since 2018 after a La Stampa report that Rome may extend the nationwide lockdown to beyond April 3.

Then shortly after 6am ET, Italian bonds trimmed declines after Radiocor reported the ECB was invervening in the domestic market through the Bank of Italy. “Moves are flexible in terms of timing and of markets targeted, and can continue as long as needed”, Radiocor news agency reported, citing central banking sources.

Even that, however, barely made a dent, with Italy’s 10-year yield still almost 40bps higher at 2.72% after earlier climbing to 2.99%.

There was no ECB intervention in other European bonds, although they certainly also need it, with Bunds suffering sharp losses as the 10Y Bund yield surged as high as -0.20%…

… although paring some losses following reports Germany was softening opposition to Italy’s proposal for joint EU bond issuance: German’s 30-year swap spread narrows 11bps to 0bps, the tightest since 2014, amid concerns that any fiscal loosening will lead to more bond issuance.

…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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