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“Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

“Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

Blames tangled-up supply chains but not what’s causing supply chains to get tangled up in the first place: The most grotesquely overstimulated economy ever.

Fed Chair Jerome Powell, during a panel discussion hosted by the ECB today, admitted again that inflation pressures would run into 2022 and blamed “bottlenecks and supply chain problems not getting better” and admitted they are “in fact at the margins apparently getting a little bit worse.”

“The current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end,” he said.

OK, good, he almost gets it: “very strong demand” is causing this. But where the heck does this “very strong demand” come from?

Here’s where: The most grotesquely overstimulated economy ever.

The Fed has handed out $4.5 trillion to investors in 18 months, and repressed short-term interest rates to near 0%, and long-term interest rates (via the $120 billion a month in bond purchases) to ridiculously low levels, and this has inflated asset prices, including home prices, and beneficiaries are feeling rich and flush, and they’re going out and borrowing against their assets and buying $70,000 pickup trucks, electronic devices, yachts, second and third homes, and a million other things. That’s where much of the demand comes from.

The other part of the demand comes from the government, which spread $5 trillion in borrowed money around over the past 18 months – stimulus checks, forgivable PPP loans (over $800 billion), extra unemployment benefits, funds sent to states to spend how they see fit, to airlines and other big companies to bail them out, which then used this money to buy out their employees that then spent this money.

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

The ECB is the Reason We Have the Great Reset

The European Central Bank (ECB) has kept its monetary policy unchanged. However, it did slow down the pace of net asset purchases under its pandemic emergency purchase program. The ECB’s main refinancing operations remain at 0%, on the marginal lending facility at 0.25%, and on the deposit facility at -0.5%. The ECB said that it believes that “favourable [sic] financing conditions can be maintained with a moderately lower pace of net asset purchases under the (PEPP) than in the previous two quarters.”

The junkies think what the central banks have to say is still relevant and are eagerly waiting for word to come down from above to see if their unwinding of pandemic-era stimulus in the face of surging inflation would take place. That seems like reading a nice bedtime story to the kids so they sleep with pleasant dreams. The ECB reiterated that interest rates will remain at their present or lower levels until inflation is seen reaching 2% “well ahead of the end of its projection horizon and durably for the rest of the projection horizon,” and until the ECB determines that inflation will stabilize at 2% over the medium-term.

It is really extraordinary to think that there will ever be a return to normal. The ECB has had negative interest rates since 2014. The Federal Reserve warned the ECB that they could get trapped. The warnings were coming in, and even in 2016, the London Evening Standard warned of the black hole of negative interest rates. This entire Great Reset is now due to the fiscal mismanagement of governments and central banks. Those who still think there will be some return to normal finance are no doubt those wearing masks and lining up for booster shots every six months. They can’t wait for the new Pfizer daily pills as well and are ready to listen to Bill Gates and never buy beef again.

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

EU To Propose Exempting “Green” Bonds From Deficit And Debt Limit Calculations

EU To Propose Exempting “Green” Bonds From Deficit And Debt Limit Calculations

Yesterday, the ECB announced that in Q4, it would “modestly lower the pace of net asset purchases under the PEPP than in the previous two quarters” (even as Lagarde scrambled to convince markets not to call it tapering) with Reuters sources adding that “policymakers set a monthly target of between 60 billion and 70 billion euros” down from 80 billion currently “with flexibility to buy more or less, depending on market conditions.” Putting this non-taper taper in context, Nomura calculated that “even if net PEPP is scaled down to €60bn/month the ECB would still buy 85% of the remaining gross supply, strongly supporting EUR rates.”

Despite the shrinkage of ECB bond-buying, Lagarde made it clear that the fiscal spice must flow:

  • *LAGARDE: FISCAL SUPPORT HAS TO BE CONTINUED
  • *LAGARDE: FISCAL SUPPORT NEEDS TO BE MORE TARGETED

The most notable proposal is to exempt “green” investments from calculations of deficit and debt limits and temporarily forgetting existing rules that say debt must be cut every year, Reuters reported citing documents prepared for the ministers’ talks showed.

“The challenge in coming years will be to consolidate deficits while increasing green investments to achieve the ambitious targets of the EU to cut emissions or any other investments,” a note prepared by host Slovenia said.

In other words, the EU will use the “green” strawman of fighting climate change as a loophole to issue debt over and above the EU’s self-imposed ceilings.

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

Eurozone finances have deteriorated

Eurozone finances have deteriorated

Despite negative interest rates and money printing by the European Central Bank, which conveniently allowed all Eurozone member governments to fund themselves, having gone nowhere Eurozone nominal GDP is even lower than it was before the Lehman crisis.

Then there is the question of bad debts, which have been mostly shovelled into the TARGET2 settlement system: otherwise, we would have seen some substantial bank failures by now.

The Eurozone’s largest banks are over-leveraged, and their share prices question their survival. Furthermore, these banks will have to contract their balance sheets to comply with the new Basel 4 regulations covering risk weighted assets, due to be introduced in January 2023.

And lastly, we should consider the political and economic consequences of a collapse of the Eurosystem. It is likely to be triggered by US dollar interest rates rising, causing a global bear market in financial assets. The financial position of highly indebted Eurozone members will become rapidly untenable and the very existence of the euro, the glue that holds it all together, will be threatened.
Introduction

Understandably perhaps, mainstream international economic comment has focused on prospects for the American economy, and those looking for guidance on European economic affairs have had to dig deeper. But since the Lehman crisis, the EU has stagnated relative to the US as the chart of annual GDP in Figure 1 shows.


Clearly, like much of the commentary about it, the EU has been in the doldrums since 2008. There was a series of crises involving Greece, Cyprus, Italy, Portugal, and Spain. And the World Bank’s database has removed the UK from the wider EU’s GDP numbers before Brexit, so that has not contributed to the EU’s underperformance…
…click on the above link to read the rest of the article…

The Fed Says, “Let Me Squeeze Your Dollars…5 Basis Points at a Time”

The Fed Says, “Let Me Squeeze Your Dollars…5 Basis Points at a Time”

I still maintain no one will mark June 16th, 2021 as the day the world changed. Watching the dollar surge into this weekend thanks to a breakdown in the euro only validates that conclusion in my mind.

Remember, on June 16th Presidents Biden and Putin met for a summit which altered the course of geopolitics forever, agreeing to disagree about Nordstream 2 and reversing the worst of U.S./Russian relations among other things.

While that was happening the FOMC met and reversed the flow of dollars globally.

I told my Patrons something was up on June 18th. Then I did 2 hours worth of podcasts on it (herehere, and here) after thinking it through. Finally, after fully digesting it I wrapped it all up in a lengthy post on July 3rd.

The Fed’s decision to pay 5 basis point on Reverse Repos was the subtlest but most effective way to taper without tapering, tighten without tightening and undermine the WEF’s Great Reset while seemingly still supporting it.

I can hear the howls from the gallery who think otherwise so I’ll address them first.

Yes, normie macro-guys, the bond market has been screaming at the Fed that inflation is soaring and they need to raise rates.

Yes, first year domestic policy students, the Fed looks like it is putting pressure on Republicans to cave to Nancy Pelosi’s hardball over the Infrastructure, Budget and Debt Ceiling deadlock, so far to no avail.

Yes, second year geopolitics students, the Fed is forcing China to respond to soaring commodity prices while simultaneously trying to defend the yuan.

Yes, these are all effects of the Fed’s move in June.

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

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.

Can Too Big For Fed & ECB

CAN TOO BIG FOR FED & ECB

There are lies, damned lies, and economists. Whether these economists work for the government or a bank, they spend all their time on the computer extrapolating current trends with minor adjustments. 

If you want to understand the future, don’t spend your life preparing and constantly revising an Excel sheet with masses of economic data. Collective human behaviour is extremely predictable. But not by spreadsheet analysis but by studying history. 

HISTORY IS A BETTER FORECASTER THAN ECONOMISTS

There just is nothing new under the sun. So why is there so much time and money wasted around the world to make economic forecasts that are no better than a random job by a few chimps?

Instead, give some lateral thinkers a few history books and let them study the rise and decline of the major empires in history. That will tell them more about long term economic forecasts than any spreadsheet. 

After a 50 year decline of the US economy and the dollar, we still hear about the V-shaped recovery being imminent. 

On what planet do these people live who believe that a world on the cusp of an economic and social collapse is going to see a miraculous recovery out of the blue. 

This is the problem with a system that is totally fake and dependant on constant flow of stimulus even though it has zero value. Most people are fooled and believe it is for real.

ALL EMPIRES END WITH COLLAPSING CURRENCY AND SURGING DEBTS

We are now in the final stages of the end game. The end of the end could be extended affairs or they could be extremely quick. Most declines of major cycles are drawn out and this one has lasted half a century. During that time the dollar is down 50% against the DM/Euro and 78% vs the Swiss franc. And US debt has gone up 65x since 1971 from $400B to $26T. A collapsing currency and surging debts are how all empires end.

…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…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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