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How Surging Bank Deposits May Collapse the U.S. Dollar

How Surging Bank Deposits May Collapse the U.S. Dollar

dollar collapse

In another episode of “Strange 2020”, banks have become flush with deposits. But not in the way you might expect.

According to CNBC, “A record $2 trillion surge in cash has hit the deposit accounts of U.S. banks since the coronavirus first struck the U.S. in January.”

In one month, deposits grew by $865 billion, which beat the record for an entire year.

You can see the incredible jump in deposits in the official chart below, starting as the pandemic hit earlier this year:

fred

When you see such a large deviation from the norm, you don’t have to have a degree in economics to suspect something is fishy. According to CNBC, the Fed appears to be partly responsible for this anomaly:

The Federal Reserve began a barrage of efforts to support financial markets, including an unlimited bond-buying program. And an uncertain future prompted decision-makers, from two-person households to global corporations, to hoard cash.

Fox Business notes, “About two-thirds of the [$2 trillion in deposits] flowed to the nation’s biggest banks.” So if $1.34 trillion in deposits flowed from retail, asset managers, government programs like the Paycheck Protection Program, and big company lines of credit over the last five months or so, and only to big banks… that should raise suspicion.

But that much cash flowing into big banks has another potentially big consequence…

Crash of the U.S. Dollar Could Be “Inevitable”

The U.S. dollar may be headed for trouble in the near future, and the CNBC piece finishes with one possible reason why:

A lot of banks are saying, “There’s frankly not much we can do with it right now”… They have more deposits than they know what to do with.

If banks have trillions of dollars, but there isn’t anywhere for that money to go, that has a number of potential outcomes.

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

Is Data Our New False Religion?

Is Data Our New False Religion?

In the false religion of data, heresy is asking for data that is not being collected because it might reveal unpalatably unprofitable realities.

Here’s how every modern con starts: let’s look at the data. Every modern con starts with an earnest appeal to look at the data because the con artist has assembled the data to grease the slides of the con.

We have been indoctrinated into a new and false religion, the faith of data. We’ve been relentlessly indoctrinated with the quasi-religious belief that “data doesn’t lie,” when the reality is that data consistently misleads us because that is the intent.

Nobody in the False Religion of Data ever looks at what we don’t measure because that would uncover disruptive truths. My latest book Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World looks at everything consequential that we don’t measure, and since we don’t measure it, we assume it doesn’t exist. That’s the end-game of the False Religion of Datawhat’s actually important isn’t measured and therefore it doesn’t exist, while what is measured is artfully packaged to support a narrative that enriches those behind the screen of “objective data-based science.”

The data-based con can be constructed in any number of ways. A few data points can be cleverly extrapolated to “prove” some self-serving claim, a bit of data can be conjured into a model that just so happens to support the most profitable policy option, inconvenient data points can be covertly deleted via “filtering out the outliers,” statistical trickery can be invoked (with a wave of this magic wand…) to declare semi-random data “statistically significant,” and so on, in an almost endless stream of tricks.

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

Soaring Food & Energy Costs Spark Rebound In Producer Prices

Soaring Food & Energy Costs Spark Rebound In Producer Prices

Producer Prices rebounded MoM in May with headline Final Demand PPI rising 0.4% (against +0.1% exp) but it left PPI YoY still down 0.8%…

Source: Bloomberg

Some serious dispersion in the various sector’s price swings…

This rebound was driven by a record surge in food prices…

Source: Bloomberg

Two-thirds of the May increase in the index for final demand goods is attributable to a 40.4-percent jump in meat prices.

Source: Bloomberg

The indexes for gasoline, processed young chickens, light motor trucks, liquefied petroleum gas, and carbon steel scrap also moved higher.

Source: Bloomberg

Conversely, prices for chicken eggs fell 41.2 percent. The indexes for diesel fuel and for plastic resins and materials also decreased.

What will Jay Powell do now that average joe’s cost of living is soaring?

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…

This Time, the Fed Can’t Avoid Inflation, Says Expert

This Time, the Fed Can’t Avoid Inflation, Says Expert

inflation

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Is the latest QE program finally going to spike prices, gold cannot be printed by central banks, and virus intensifies the flow of gold to U.S. vaults.

Can the Federal Reserve avoid inflation once again?

As the dust around the 2008 financial crisis settled, some may have been surprised that the eagerness of the Federal Reserve to print money did not cause inflation, or even hyperinflation. Yet those who are expecting the same turnout this time around should look at the underlying nature of both crises.

FXEmpire’s Arkadiusz Sieron points out that 2008 was, in essence, a banking crisis, and banks were the ones receiving aid in the form of bank reserves. While they function in a similar capacity, these notes differ from actual money as they do not enter the economy but are rather used as a medium of exchange between banks. Adding to that was a lack of appetite among individual creditors to take on debt combined with a lack of willingness to issue loans on the banks’ part, as shown by the growth rate of credit supply reaching negative territory.

Now, the scenario appears to be the exact opposite, as consumers and business owners are the ones primarily affected by the crisis. Sieron argues that there is no question as to whether the stimulus will enter the money supply, as programs like the Term Asset-Backed Securities Loan Facility and Main Street Lending Program will ensure funding for eager debtors.

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

First the Deflationary Deluge of Assets Crashing, Then the Tsunami of Inflation

First the Deflationary Deluge of Assets Crashing, Then the Tsunami of Inflation

Once the pool of greater fools dries up, stocks crash regardless of what the Fed does or bleats.

The conventional view is the Federal Reserve creating trillions of dollars out of thin air will trigger inflation. Not so fast. Yes, creating trillions of dollars out of thin air will eventually devalue the purchasing power of each dollar–what we call inflation–but first all the unprecedented asset bubbles will pop and valuations will crash.

Let’s call this a deflationary deluge as unsustainable asset prices are eroded by a hard rain of reality. To understand the enormity of the current bubbles, please glance at the charts below. The first chart depicts recent stock market bubbles; note the extreme height of the current bubble.

The next chart shows the S&P 500, and the extraordinary amplification of the bubble that reached its apex in February 2020. Note that each ramp higher takes less time to reach its peak. The most recent snapback rally gained about 870 points in a mere two months–a move that took roughly 5 years in the early 2000s.

Real estate and other assets have also soared in unprecedented bubbles. Old bungalows that sold for $150,000 less than 20 years ago are now supposedly worth over $1 million.

What made this possible? An equivalent bubble in debt. Every sector–household, corporate and government–has borrowed astronomical sums of money to keep the bubble economy glued together. In this rising tide of currency and capital, whatever had scarcity value–real estate, art, stocks–was purchased with the borrowed money as a store of value and / or as a source of income in a world starved of low-risk yields by central banks that dropped interest rates to near zero.

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

Weekly Commentary: Global Bubbles are Deflating

Weekly Commentary: Global Bubbles are Deflating

“Bubble” is commonly understood to describe a divergence between overvalued market prices and underlying asset values. And while price anomalies are a typical consequence, they are generally not among the critical aspects of Bubbles. I’ll start with my basic definition: A Bubble is a self-reinforcing but inevitably unsustainable inflation.

Bubbles, at their core, are fueled by Credit – or “Credit inflation.” Asset inflation and speculative asset price Bubbles are a common upshot. At their core, Bubbles are mechanisms of wealth redistribution and destruction.

The more protracted the Bubble period, the greater the maladjustment to underlying financial and economic structures. And the longer the Bubble inflation, the greater the wealth disparities and underlying social and political strain. While Bubble-related inequalities reveal themselves more prominently later in the up-cycle, the scope of wealth destruction only becomes apparent as the Bubble finally succumbs. As Dr. Richebacher always stressed, there’s no cure for Bubbles other than not allowing them to inflate. The catastrophic policy failure over the past 20 years has been the determination to aggressively inflate out of post-Bubble stagnation.

Bubbles can have profound geopolitical impacts as well. The inflation of Bubbles and corresponding booming economies promote the view of an expanding global economic “pie”. The inflating Bubble phase is associated with cooperation, integration and solidarity. The backdrop shifts late in the Bubble phase, as inequities and maladjustment become more discernible. Bursting Bubbles mark a radical redrawing of the geopolitical landscape. The insecurities and animosities associated with a shrinking economic pie see a rise of nationalism and “strongman” leadership. The backdrop drifts toward fragmentation, disintegration and conflict.

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

No Stimulus for the Weary: The US is Now Sitting on an Inflation Time Bomb

Coronavirus Inflation Feature Photo

No Stimulus for the Weary: The US is Now Sitting on an Inflation Time Bomb

The White House budget office doesn’t know if the $2.2 Trillion-dollar stimulus package and Trump’s $1,200 stimulus checks might cause an inflationary spiral. But many economists have no doubt it will.

The consequences of the $2.2 trillion stimulus package are being ignored, even by the White House budget office that put it together, admitting that the package had “come together so quickly,” that they had no time “to do the customary modeling of its fiscal impact.” What does appear to have consensus in financial circles is that after this is over central banks will effectively own the governments of the world, including the United States.

When it is all said and done, President Trump’s stimulus checks will carry an inflationary cost many multiples more than their original $1,200 value in the pre-coronavirus economic reality, a reality that probably won’t become apparent until after the election in November. By then the checks will have served their purpose as a political move, not an economic one. When understood from the vantage point of what is in store for the American working classes as we emerge from this red light on main street, Trump’s checks will only add fuel to the inflationary fire just ahead, according to Neal Kimberley, a macroeconomics analyst for the South China Morning Post.Quoth the Raven@QTRResearch

There is an inflationary cost to the Fed printing ~$50,000 per citizen in stimulus.

If you have only received $1,200 you should be asking why you are bearing the inflationary cost for another $48,800 you never got.

Instead of a bailout you’re paying a hidden tax. Speak up.4,266Twitter Ads info and privacy1,383 people are talking about this

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

A Taste Of What Is Coming – Food Prices Just Increased By The Most That We Have Seen Since 1974

A Taste Of What Is Coming – Food Prices Just Increased By The Most That We Have Seen Since 1974

Get ready to pay much more for groceries.  I have been warning that the flood of new money that the Federal Reserve and Congress have been pumping into the system would have very serious consequences, and I have also been warning that food prices would be shooting higher.  When things start getting really crazy, demand for food and other basic essentials goes way up, and meanwhile this pandemic has significantly disrupted production of certain products.  So even though most of the economy is currently still in a deflationary phase, food prices are beginning to spike.  In fact, the U.S. Labor Department says that we just witnessed the largest one month increase since February 1974

The Labor Department reported Tuesday that prices U.S. consumers paid for groceries jumped 2.6% in April, the largest one-month pop since February 1974. The spike in supermarket prices was broad based and impacted items from broccoli and ham to oatmeal and tuna.

The price of the meats, poultry, fish and eggs category rose 4.3%, fruits and vegetables climbed 1.5%, cereals and bakery products advanced 2.9%, and dairy goods gained 1.5%.

Sadly, this is just the beginning.

Prior to this pandemic, Americans spent about 10 percent of their incomes on food.

As this new economic depression deepens, expect that number to eventually more than double.

We live at a time when global food supplies are becoming increasing stressed for a variety of reasons.  In wealthy countries this is going to force food prices aggressively higher, and in poor countries this is going to mean that a lot of people simply will not have enough to eat.

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

The Enslavement of Infinite Money

The Enslavement of Infinite Money

money addiction

The phrase “don’t fight the Fed” is an unfortunate but popular delusion. It presupposes that the central bank has limitless power to direct the economy because it can print limitless money. I’m not sure where this idea comes from, but consider the fact that anyone today who is under 30 years old was barely old enough in 2008 to understand or care about the credit collapse. These people spent their formative years knowing only stimulus and QE. In their minds, this is the norm, and they think it always works because they haven’t yet witnessed a collapse.

I would say a better phrase for the 2020s is “The Fed is not going to save you”; the Fed is not a superhero and it does not have the power nor the inclination to protect the little people from economic folly. This should be readily apparent today, as the COVID-19 pandemic continues to spread and the central bank can’t seem to cure it with Quantitative Easing.

My position has always been that the Fed has no intention of saving the economy, only making it appear as if they care. This is evident in the fact that they created the Everything Bubble in the first place with years of near zero interest rates, then abruptly hiked interest rates into economic weakness, just like they did during the Great Depression. All it took was a few rate increases to cause stock markets to plunge in December 2018; liquidity was strangled and repo markets became unstable. Jerome Powell knew perfectly well that this would be the result; he openly discussed it in the minutes of the October 2012 Federal Open Market Committee.

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

Time to learn about money

Time to learn about money

An unexpected destruction of fiat currency has been advanced by the monetary and fiscal response to the coronavirus. Financial markets have yet to discount the possibility of such an outcome, but in the coming months they are likely to awaken to this danger.

The question arises as to what will replace fiat currencies. In the past the answer has always been gold but today there are cryptocurrencies as well, whose enthusiasts are more aware than most of fiat money’s failings.

This article describes the basics about money, what it is and the role it plays in order to understand what will be required by the eventual replacement for fiat. It concludes that gold will return as the world’s medium of exchange, and secure cryptocurrencies, unable to provide the scalability and stability of value required of a medium of exchange will be priced in gold after the demise of fiat. But then the rationale for them will be gone, and with it their function as a store of value.

The destruction of fiat money

These are strange times. Circumstances are forcing governments to destroy their money by debasing it to pay for their obligations, real and imagined. If central bankers had a grasp of what money really is, they wouldn’t have got into a position where they are forced to use their seigniorage to destroy it. They are so ignorant about catallactics, the fundamentals behind economics, that they cannot see they are destroying the means of exchange they have imposed upon their citizens with far worse consequences than the abandonment of the evils they are trying to defray.[i]

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

The Problem is Not Deflation, It’s Attempts to Prevent It

The Problem is Not Deflation, It’s Attempts to Prevent It

Let’s investigate the Fed’s effort to prevent price deflation.

Here’s a Tweet that caught my eye. 


Real Vision✔@RealVision · 

“We’re about to have deflation and the market hasn’t figure it out yet… when it does, the Fed is going to shit itself.” @hendry_hugh @raoulGMI
https://rvtv.io/3aWzxf4 

Embedded video

david moravec@davidmooravec

Problem with deflation is- Why buy anything if you know it will be cheaper in the future.


Problem with deflation is- Why buy anything if you know it will be cheaper in the future.,” responded one person. 

Let’s investigate that question starting with a look at the CPI basket.

CPI Percentage Weights

CPI percentage weights

Why Buy Anything Questionnaire

Q: If consumers think the price of food will drop, will they stop eating?
Q: If consumers think the price of natural gas will drop, will they stop heating their homes? 
Q: If consumers think the price of gasoline will drop, will they stop driving?
Q: If consumers think the price of rent will drop, will they hold off renting until that happens?
Q: If consumers think the price of rent will rise, will they rent two apartments to take advantage?
Q: If consumers think the price of taxis will rise, will they take multiple taxi rides on advance?
Q: If people need an operation, will they hold off if they think prices might drop next month?
Q: If people need an operation, will they have two operations if they expect the price will go up?

All of the above questions represent inelastic items. Those constitute over 80% of the CPI.  Let’s hone in on the elastic portion with additional Q&A.

Questions for the Fed – Elastic Items

Q: If people think the price of coats will rise will they buy a second coat they do not need?

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

“The Dam Has Burst”: Why David Einhorn Thinks The Coronavirus Shock Will Lead To Soaring Inflation

“The Dam Has Burst”: Why David Einhorn Thinks The Coronavirus Shock Will Lead To Soaring Inflation

One of the bizarre aspects of the global depression resulting from the coordinated shutdown of most world economies due to the coronavius pandemic, is that we have experience a collapse in both aggregate supply and demand which, almost absurdly, has kept equilibrium prices relatively unchanged (except in the infamous case of oil where due to storage space limitations, the prompt WTI contract traded as far negative as -$40 on April 20. As a result, the biggest challenge facing economists is deciding if what comes next after the coronavirus pandemic is conquered, is inflation – as trillions in central bank and government stimulus lead to a far faster rebound in demand, or if the early surge in supply overwhelms demand and leads to a deflationary crash similar to what was seen in oil.

While the majority of economists and strategists, even contrarian types, are confident what comes next is even more deflation – and why not according to 10Y breakevens there will barely be any inflation for the next decade…

… one financial luminary who disagrees is David Einhorn who, when not feuding with Elon Musk on an almost daily basis now, believes that the economic shock from the coronavirus will turn out to be inflationary as he explains in his latest letter to investors.

But before we get into the gist of it, first we lay out his take on where we are now, and how we got here, namely the events leading to the global corona crisis, and the official response:

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

Gold Is Set to Crash? No Way!

Gold Is Set to Crash? No Way!

The mainstream is a fickle place.

On the one hand, we had Bank of America raising its 18-month price projection for gold to $3,000. On the other hand, some people argue the price of gold could crash later in the year.

Gold is up over 13% on the year, but the yellow metal has seen some price pressure over the last couple of days as various government agencies have started to move toward reopening the economy.

An article published by CCN offers three reasons gold could “crash to earth” in the coming months – none of them particularly compelling.

  1. A coronavirus vaccine.
  2. A quick economic recovery
  3. Deflation and a soaring dollar

The first two reasons both embrace the mainstream narrative that the economy was great before the pandemic and that it will quickly go back to “normal” as soon as governments open things back up again. But there is no normal to go back to. The economy wasn’t normal before the pandemic.

Coronavirus was merely the pin that popped the economic bubble. Everybody is still fixated on the pin, but getting rid of it doesn’t stop the air from coming out of the bubble. A coronavirus vaccine would ease the pandemic, but it wouldn’t do anything to address the malinvestments and debt that were already rampant in the economy before coronavirus reared its ugly head.

In fact, gold was already on an upward trajectory before COVID-19. In 2019, the yellow metal charted its best year since 2010. The price increased by 18.4% in dollar terms. This was in large part due to the Fed’s pivot to loose monetary policy last year. Keep in mind, the central bank was already cutting interest rates, running repo operations and relaunching quantitative easing prior to the pandemic. The response to coronavirus simply put the Fed’s extraordinary monetary policy into hyper-drive.

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

Inflation or Deflation? Collapse in Demand Trumps Supply Shocks

Inflation or Deflation? Collapse in Demand Trumps Supply Shocks

The inflationists are coming out of the woodwork, but they are wrong.

Get Ready for the Return of Inflation, says Tim Congdon, in a Wall Street Journal op-ed.

The economists Milton Friedman and Anna Jacobson Schwartz demonstrated in “A Monetary History of the United States” that a collapse in the quantity of money was the main cause of the Great Depression. Hoping to avoid a repeat, the Federal Reserve in recent weeks has poured money into the economy at the fastest rate in the past 200 years. Unfortunately, this overreaction could turn out just as poorly; history suggests the U.S. will soon see an inflation boom.

Friedman and Schwartz used a broad definition of the quantity of money that included all bank deposits, and found that U.S. money stock shrank by 38% between October 1929 and April 1933. Some prominent economists—including Princeton’s Paul Krugman and Columbia’s Joseph Stiglitz—claim that money growth no longer matters much, but they’re wrong. After all, the 2007-09 recession showed that the ever-changing fortunes of the banking system have a significant effect on demand, output and employment. From 2010-18, growth rates of the quantity of money and nominal gross domestic product were virtually identical at 4% a year.

Policy makers have repeatedly called the battle against the novel coronavirus a war. As in wartime, federal expenditures are rising sharply while tax revenues are being hit by the lockdown. Both World War I and World War II—and, indeed, the Vietnam War—were followed by nasty bouts of inflation. If that happens again, policy makers today being cheered for their swift, decisive action will instead have to answer for their grave lack of foresight.

Inflation View is Wrong

The inflation view espoused above is widely held. Some even call for hyperinflation. 

However, the collapse in demand, dwarfs supply shocks and monetary printing.

…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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