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Is Inflation Really Under Control

Is Inflation Really Under Control

Recently, analysts have been discussing the pros and cons of using negative interest rates to keep the U.S. economy growing.  Despite this, Fed Chairman Jerome Powell has said that he does not anticipate the Federal Reserve will implement a policy of negative interest rates as it may be detrimental to the economy.  One argument against negative interest rates is that they would squeeze bank margins and create more financial uncertainty. However, upon examining the actual rate of inflation we are likely already in a ‘de facto’ negative ­­interest rate environment. Multiple inflation data sources show that actual inflation maybe 5%. With the ten year Treasury bond at 1.75%, there is an interest rate gap of – 3.25%. Let’s look at multiple inflation data points to understand why there is such a divergence between the Fed assumptions that inflation is under control versus the much higher rate of price hikes consumers experience.

In October, the Bureau of Labor Statistics (BLS) reported that the core consumer price index (CPI) grew by 2.2% year over year.  The core CPI rate is the change in the price of goods and services minus energy and food.  Energy and food are not included because they are commodities and trade with a high level of volatility.  However, the Median CPI shows a ten year high at 2.96% and upward trend as we would expect, though it starts at a lower level than other inflation indicators. The Median CPI excludes items with small and large price changes. 

Source: Gavekal Data/Macrobond, The Wall Street Journal, The Daily Shot – 11-29-19

Excluding key items that have small and large price changes is not what a consumer buying experience is like. Consumers buy based on immediate needs. When a consumer drives up to a gas pump, they buy at the price listed on the pump that day. 

The Federal Reserve Is Directly Monetizing US Debt

The Federal Reserve Is Directly Monetizing US Debt

In a very real way, MMT is already here

Sure, it’s not admitting to this. And it’s using several technical jinks and jives to offer a pretense that things are otherwise.

But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly.

At a time, mind you, when US fiscal deficits are exploding and foreign buyers are heading for the exits.

How It’s Supposed to Work

Here’s how it’s supposed to work when the US government issues new debt:

  1. If the US Treasury needs to raise new funds, it announces an upcoming auction of US Treasury bills/notes/bonds.
  2. A date for the auction is set.
  3. Various participants bid for those bills/notes/bonds (including ‘regular folks’ like you and me if we’re using the government’s Treasury Direct program).
  4. At a later date, the Fed can buy those US Treasury bills/notes/bonds. The various holders of that debt submit offers to sell, and the Fed (presumably) selects the best offers on the best terms.

The Federal Reserve, under no conditions, buys Treasury paper directly.  The Federal Reserve’s own website still maintains that this is the case:

(Source)

There are two important claims plus one assertion I’ve highlighted in there, each in a different color:

  1. Yellow: Treasury securities may “only be bought and sold in the open market.”
  2. Blue: doing otherwise might compromise the independence of the Fed.
  3. Purple: the Fed mostly buys “old” securities.

So according to the Fed: it’s independent, it follows the rules set forth in the Federal Reserve Act of 1913, and it mostly buys “old” Treasury paper that the market has already properly priced in a free and fair system.

But that’s not really what’s going on…

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

One Bank Finally Admits The Fed’s “NOT QE” Is Indeed QE… And Could Lead To Financial Collapse

One Bank Finally Admits The Fed’s “NOT QE” Is Indeed QE… And Could Lead To Financial Collapse

After a month of constant verbal gymnastics (and diarrhea from financial pundit sycophants who can’t think creatively or originally and merely parrot their echo chamber in hopes of likes/retweets) by the Fed that the recent launch of $60 billion in T-Bill purchases is anything but QE (whatever you do, don’t call it “QE 4”, just call it “NOT QE” please), one bank finally had the guts to say what was so obvious to anyone who isn’t challenged by simple logic: the Fed’s “NOT QE” is really “QE.”

In a note warning that the Fed’s latest purchase program – whether one calls it QE or NOT QE – will have big, potentially catastrophic costs, Bank of America’s Ralph Axel writes that in the aftermath of the Fed’s new program of T-bill purchases to increase the amount of reserves in the banking system, the Fed made an effort to repeatedly inform markets that this is not a new round of quantitative easing, and yet as the BofA strategist notes, “in important ways it is similar.”

But is it QE? Well, in his October FOMC press conference, Fed Chair Powell said “our T-bill purchases should not be confused with the large-scale asset purchase program that we deployed after the financial crisis. In contrast, purchasing Tbills should not materially affect demand and supply for longer-term securities or financial conditions more broadly.” Chair Powell gives a succinct definition of QE as having two basic elements: (1) supporting longer-term security prices, and (2) easing financial conditions.

Here’s the problem: as we have said since the beginning, and as Bank of America now writes, “the Fed’s T-bill purchase program delivers on both fronts and is therefore similar to QE,” with one exception – the element of forward guidance.

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

The Fed’s Dilemma Is Our Problem!

The Fed’s Dilemma Is Our Problem!

A road sign showing two arrows leading in different directions and a label below that says dilemma

Pundit Bill Bonner predicts:

“Most likely, the stock market will crash sometime before the 2020 election. We can’t know when.

…. The end of the stock market boom, too, is unpredictable. But each passing day brings us a day closer to when it will crash and burn.”

Bonner’s prediction is in line with our 2017 article, “An Economic Showdown Is Looming”. I suggested the Fed, part of the deep state, was setting up President Trump to be another Herbert Hoover. The deep state wants the market to crash so they can crush capitalism and further consolidate federal government control.

Fed Chair Yellen announced the Fed would begin raising rates in 2015. After one early increase and she held off until after the election. Despite Ms. Yellen’s vehement objections to the politics of holding off on rate increases before the election, it sure looked political.

CNN Money reports:

Federal Reserve Chair Janet Yellen gave the U.S. economy a nearly clean bill of health, two days before Donald Trump arrives at the White House.(Emphasis mine)

“Now, it’s fair to say, the economy is near maximum employment and inflation is moving toward our goal.”

CNBC quoted Ms. Yellen:

“Would I say there will never, ever be another financial crisis? …. That would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.”

In 2018, the Atlantic Article, “The Federal Reserve Chair Is Ignoring President Trump”, Fed chairman Powell reassured us:

“Not every business cycle is going to last forever, but no reason to believe this cycle can’t go on for quite some time, effectively indefinitely.”

The underlying Fed message – Bush broke it, Obama fixed it, and now Trump is responsible.

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

The Federal Reserve is a Barbarous Relic

The Federal Reserve is a Barbarous Relic

The Sky is Falling

The man from the good place. “As I was going up the stair, I met a man who wasn’t there. He wasn’t there again today, Oh how I wish he’d go away!” [PT]

Ptolemy I Soter, in his history of the wars of Alexander the Great, related an episode from Alexander’s 334 BC compact with the Celts ‘who dwelt by the Ionian Gulf.’  According to Ptolemy’s account, which survives via quote by Arrian of Nicomedia some 450 years later, when Alexander asked the Celtic envoys what they feared most, they answered:

Today, at the risk of being called Chicken Little, we tug on a thread that weaves back to the ancient Celts.  Our message is grave: The sky is falling.  Though the implications are still unclear.

Various Celts – left: fearsome warriors; middle: fearsome warriors afraid of the sky falling on their heads; right: Cernunnos, fearsome Celtic horned god amid his collection of skulls. [PT]

The sky, for our purposes, is the debt based dollar reserve standard that has been in place for the past 48 years. If you recall, on August 15, 1971, President Nixon “temporarily” suspended convertibility of the dollar into gold.  The dollar  became wholly the fiat money of the Treasury.

At the G-10 Rome meeting held in late-1971, Treasury Secretary John Connally reduced the new dollar reserve standard to a bite-sized nugget for his European finance minister counterparts, stating:

The Nixon-Connally tag team in the White House. [PT]

Predictably, without the restraint of gold, the quantity of debt based money has increased seemingly without limits – and it is everyone’s massive problem.  What’s more, over the past 30 years the Federal Reserve has obliged Washington with cheaper and cheaper credit.

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

Fed Has Shovel, Digs Bigger Hole

Fed Has Shovel, Digs Bigger Hole

Let’s get to the bottom line on all this “rate cut” nonsense.

The Fed made a fatal mistake in first promoting “fiscal” actions (during the 08 crash) and then continuing to support them well after the bottom in 2009.  This allowed Barack Obama to run trillion dollar deficits for years and, once he did so to push policies that were economically bankrupt (e.g. the ACA) and got them embedded it was faced with the reality of the creature of its own design.

It appears that Yellen thought she could leave her office with a belated “goodbye” of “normalization”, after having been complict herself, and evade the impending blow up — at least until after her chair had cooled off from her ugly ass sitting on same.

She was wrong.

Powell not only ratified Bernanke’s policy he doubled down on his and Yellen’s insanity instead of putting up the middle finger when Donald Trump was elected.  By supporting Trump’s crazy deficit spending ramp he managed to stick ~30% on the stock market at the cost of trapping The Fed, permanently, in financing deficits.

If there was no cost to the real economy or real people in doing this it would defensible.  But there is such a cost, and it falls on 90% of the population — which owns only a tiny percentage of equities.  Worse, that cost falls not only on savers but those who have a fiduciary responsibility toward safety and return, which also typically have as their beneficiaries that same 90% of the population!

Then there’s the impact on state and local governments who can’t earn that return either and thus this ramps property taxes in response.  And while ultra-low rates seem to be good in some other places (e.g. home values) that’s a chimera.

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

The Fed is Lying to Us

The Fed is Lying to Us

“When it becomes serious, you have to lie”

The recent statements from the Federal Reserve and the other major world central banks (the ECB, BoJ, BoE and PBoC) are alarming because their actions are completely out of alignment with what they’re telling us.

Their words seek to soothe us that “everything’s fine” and the global economy is doing quite well. But their behavior reflects a desperate anxiety.

Put more frankly; we’re being lied to.

Case in point: On October 4, Federal Reserve Chairman Jerome Powell publicly claimed the US economy is “in a good place”. Yet somehow, despite the US banking system already having approximately $1.5 trillion in reserves, the Fed is suddenly pumping in an additional $60 billion per month to keep things propped up.

Do drastic, urgent measures like this reflect an economy that’s “in a good place”?

The Fed’s Rescue Was Never Real

Remember, after a full decade of providing “emergency stimulus measures” the US Federal Reserve stopped its quantitative easing program (aka, printing money) a few years back.

Mission Accomplished, it declared. We’ve saved the system.

But that cessation was meaningless. Because the European Central Bank (ECB) stepped right in to take over the Fed’s stimulus baton and started aggressively growing its own balance sheet — keeping the global pool of new money growing.

Let’s look at the data. First, we see here how the Fed indeed stopped growing its balance sheet in 2014:

And we can note other important insights in this chart.

For starters, you can clearly see how in 2008, the Fed printed up more money in just a few weeks than it had in the nearly 100 years of operations prior.

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

Is Powell Playing Fed Games?

U.S. Federal Reserve chair Jerome Powell speaks during a discussion at the Economic Club in Washington on Jan. 10, 2019. (SAUL LOEB/AFP/Getty Images)
U.S. Federal Reserve chair Jerome Powell speaks during a discussion at the Economic Club in Washington on Jan. 10, 2019. (SAUL LOEB/AFP/Getty Images)

Is Powell Playing Fed Games?

The Federal Reserve will be adding assets to its balance sheet again, but Powell insists it’s not “quantitative easing”

The Federal Reserve will be adding assets to its balance sheet again, but Powell insists it’s not “quantitative easing”James GorrieWRITEROctober 10, 2019 Updated: October 10, 2019Share

Apparently, the “repo market” purchases by the Federal Reserve we discussed earlier this week —which don’t count as quantitative easing (QE)—were just the beginning of the new, non-quantitative easing but money printing period.

Fed “repos,” you may recall, are now necessary to boost weak overnight liquidity reserves of the big banks and don’t permanently expand the Fed’s balance sheet, unless they go on forever, in which case they would be QE. Now they are more of a short-term bail-out.

It’s Time for “Non-Quantitative Easing”

But in his Tuesday speech, Federal Reserve Chairman Jerome Powell explained that for the first time in five years, the “time is now upon us” for the Fed to resume buying U.S Treasury bills and bonds. That means that come November, the American economy will officially enter into another period of quantitative easing, you know, the Fed buying assets to expand its balance sheet.

Or not.

Typically, when the Federal Reserve buys Treasury assets, it’s because of weakness, either in the economy or in the financial system. A weakness that needs to be papered over by money printing, expanding the Fed’s balance sheet and bank reserves. Or the Fed buys other assets that nobody wants to buy at a decent price, like the purchases of mortgage backed securities (MBS) it conducted after the financial crisis.

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

Peter Schiff: Negative Interest Rates Are Boneheaded

Peter Schiff: Negative Interest Rates Are Boneheaded

Donald Trump has been badgering Federal Reserve Chairman Jerome Powell for months, begging for lower interest rates. Yesterday, he took things to another level, saying that the “boneheads” at the Fed need to push rates into negative territory.

In his podcast, Peter Schiff said negative interest rates are boneheaded.

Trump used a pair of tweets to push for negative interest rates.

The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet………The USA should always be paying the the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads.’

Peter said he can’t think a more boneheaded thing to do than to push interest rates negative.

Trump is basically saying negative rates would allow the federal government to refinance its debt. It could roll over short-term debt into longer termed bonds and lock up the low rates. But as Peter pointed out, interest rates are already near historic lows.

If President Trump actually cared about refinancing the national debt and lengthening the maturity of the debt – the duration – and locking in these low interest rates, lock them in! They’re already super low.”

Peter said if the Fed did cut rates to zero or lower, he thinks yields on long-term bonds would actually start to go up because the market would begin factoring in higher inflation.

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

Federal Reserve Chair Jerome Powell Insists There Won’t Be A Recession When All The Evidence Suggests Otherwise

Federal Reserve Chair Jerome Powell Insists There Won’t Be A Recession When All The Evidence Suggests Otherwise

It’s happening again.  Just like last time around, the head of the Federal Reserve is telling us that there won’t be a recession even though all of the evidence suggests otherwise.  Just before the recession of 2008, Federal Reserve Chair Ben Bernanke told the country that “the Federal Reserve is not currently forecasting a recession”, and shortly thereafter we plunged into the worst economic downturn since the Great Depression of the 1930s.  This time, it is Federal Reserve Chair Jerome Powell that is attempting to prop things up by making positive statements that are not backed up by reality.  Speaking to a group at the University of Zurich, Powell insisted that the Fed is “not at all” anticipating that there will be a recession…

Federal Reserve Chairman Jerome Powell said Friday that he doesn’t “at all” expect the U.S. to enter a recession, though he hinted the central bank will likely cut interest rates as expected this month.

“Our main expectation is not at all that there will be a recession,” Powell said in a panel discussion at the University of Zurich.

Meanwhile, things are literally falling apart all around us.  Just a few days ago, I put together a list of 28 data points that clearly indicate that a recession is imminent, and since then we have gotten even more bad news.

For instance, we just learned that Fred’s will be filing for bankruptcy and closing more than 500 stores

Discount merchandise retailer and pharmacy chain Fred’s filed for Chapter 11 bankruptcy Monday with plans to close all of its stores.

The company plans to liquidate its assets, punctuating a swift collapse of its operations that involved a cascading series of store closures in recent months.

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

Powell “Not Forecasting a Recession”

Powell “Not Forecasting a Recession”

In a speech today in Zurich Switzerland, Jerome Powell stated the Fed is not forecasting a recession.

YouTube Video of Zurich Conference

​The Fed has never forecast a recession, even after they have started.

It reminds me of Bernanke’s denials on the housing bubble.

No Comment on Trade?


1st and 3rd appear a bit opposing.

View image on Twitter

Everything’s Fine


The Economy is great. The only thing adding to “uncertainty” is the Fake News!


Accurate Reader Comment

“Not only has the Fed never forecast a recession they’ve never forecast a crash or bubble. But that hasn’t stopped them from telling us we don’t have a bubble or crash on the horizon.”

Powell Doesn’t Change His Tune… And Rabobank Sees Fed Cutting To Zero

Powell Doesn’t Change His Tune… And Rabobank Sees Fed Cutting To Zero

  • The tone of Fed Chairman Powell’s remarks in Zurich was similar to that of his speech in Jackson Hole. Powell repeated the statement that the Fed will ‘act as appropriate to sustain the expansion,’ which indicates that he is leaning toward a September rate cut.
  • Earlier today, the Employment Report for August showed that the weakness in the manufacturing sector and business investment has spread to employment growth. This strengthens the case for an insurance cut in September, although Powell said that the labor market remained in quite a strong position.
  • In our view the feedback loop between trade policy and monetary policy is likely to lead to another insurance cut, probably in OctoberMeanwhile, the inverted yield curve points to a recession in 2020 that will force the Fed to cut rates all the way to zero before the end of 2020. 

Powell doesn’t change his tune 

Fed Chairman Jerome Powell did not bring a prepared speech to the SNB event at the University of Zurich today, instead he took part in a moderated Q&A with SNB President Thomas Jordan on the economic outlook and monetary policy. Powell said that the US economy is still in a good place and the most likely outlook remains favorable. However, there are the significant risks to the outlook: global economic growth, uncertainty about trade policy and persistently low inflation. He said that ‘As we move forward, we’re going to continue to watch all of these factors, and all the geopolitical things that are happening, and we’re going to continue to act as appropriate to sustain this expansion.’

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

In Unprecedented, Shocking Proposal, BOE’s Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency

In Unprecedented, Shocking Proposal, BOE’s Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency

After Jerome Powell’s neutral-to-slightly-dovish-but-mostly-boring speech on Friday morning, investors could be forgiven for suspecting that this year’s Fed-sponsored gathering in Jackson Hole might be disappointingly dull (especially with all that’s going on in Trump’s twitter feed, the escalating trade war and escalating geopolitical unrest).

Then along came former Goldman banker and current (outgoing) BOE governor, Mark Carney, who in his lunchtime address laid out a shocking, radical proposal – perhaps the most stunning thing to ever be unveiled at Jackson Hole – urging to replace the US Dollar with a “Libra-like” reserve currency in a dramatic revamp of the global monetary, financial and economic order.

While it was unclear if Carney was focusing on Libra as the new reserve currency, or simply was hoping to find something against which the dollar could be devalued, the proposal was clearly shocking as it suggests that the central bank quiet acceptance of cryptocurrencies (especially in Japan) has been what many have speculated all along: a “currency” against which fiat money can be devalued in hopes of sparking fiat hyperinflation that inflates away record amounts of fiat debt.

Of course, such a new system would bring about the end of US hegemony, and effectively end the dollar-based global financial system, dramatically scaling back the US’s influence in the global economy, and making rising powers like China and Russia critical players an increasingly multipolar world…. especially if they propose a gold-backed dollar alternative to the world. That this would quickly emerge as the new reserve currency – together with whatever stablecoin/crypto central bankers deign to be the dollar’s replacement – goes without saying.

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

This Is The Same Pattern The Fed Followed Before The Great Depression

This Is The Same Pattern The Fed Followed Before The Great Depression

There is immense confusion surrounding July’s Federal Reserve meeting and the rather insane aftermath that has been spurred on in the trade war. The Fed’s latest rate decision of a mere .25 bps cut was seen as “disappointing”, this was then followed by Jerome Powell’s public statements making it clear that this was only a mid-year “adjustment”, and that it was not the beginning of a rate cutting cycle and certainly not the beginning of renewed QE. This shocked the investment world, which was expecting far more accommodation from the Fed after 7 months of built up expectations that the central bank was about to unleash the stimulus punch bowl again.

The question that very few people are asking, though, is why didn’t they? What is stopping them? Everyone from daytraders to the president wants them to do it, yet they continue to keep liquidity conditions tight. In fact, they even dumped another $36 billion in assets from their balance sheet in July. Why?

Keep in mind that the latest Fed decision does two things: First, it is an indirect admission that the U.S. is entering recession territory. Second, it is also an admission that the Fed doesn’t plan to do anything about it, at least, not until it’s too late. In other words, all those people who thought the central bank was about to kick the can on the current crash in economic fundamentals were wrong. As I have been predicting for many months, the Fed has no intention of trying to delay the effects of negative conditions any longer. The crash is now a reality that the mainstream will have to accept.

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

Powell Rate Cut Unleashes Volatility Tsunami

Powell Rate Cut Unleashes Volatility Tsunami

It wasn’t supposed to work this way.

In the rate cut playbook envisioned by Trump, Powell’s July 31st rate cut was supposed to send stocks higher while crushing the dollar. However, when the FOMC announce a “mid-cycle”, 25bps cut, the outcome was not only a surge in the dollar but also a surge in volatility not seen so far this year.

The sequence of events is familiar to all by now: at first, Powell’s rate cut spooked the market which had been expected either a 50bps cut, or an explicit promise of an easing cycle. It got neither, and neither did Trump, who the very next day realized that with the Fed now explicitly focusing on global uncertainties, read trade war, as a catalyst for future rate cuts as demonstrated by the following infamous chart

…. decided to escalate the trade war with China by announcing 10% tariffs on the remaining $300BN in Chinese imports, sending stocks and bond yields plunging, and the market pricing in as much as 100bps of more rate cuts in 12 months, forcing Powell to cut far more than just another 25bps or so as the Fed Chair suggested in the July FOMC meeting.

China immediately retaliated by devaluing the Yuan below 7.00 for the first time since 2008 and halting US ag imports, which in turn prompted the US Treasury to declare China a currency manipulator. Meanwhile, China’s yuan devaluation means the White House is set to unveil even higher tariffs, resulting in an even weaker yuan, and so on, in a toxic feedback loop that may soon escalate the trade and currency war into an all-out shooting war.

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

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