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The Free Money Bubble Is About To Burst
The Free Money Bubble Is About To Burst
Recently, there has been a parade of central bankers along with their lackeys on Wall Street coming on the financial news networks and desperately trying to convince investors that there are no bubbles extant in the world today. Indeed, the Fed sees no economic or market imbalances anywhere that should give perma-bulls cause for concern. You can listen to Jerome Powell’s upbeat assessment of the situation in his own words during the latest FOMC press conference here. The Fed Chair did, however, manage to acknowledge that corporate debt levels are in fact a bit on the high side. But he added that “we have been monitoring it carefully and taken appropriate steps.” By taking appropriate steps to reduce debt levels Powell must mean slashing interest rates and going back into QE. The problem with that strategy being that is exactly what caused the debt binge and overleveraged condition of corporations in the first place.
Global central banks have abrogated the free market and are in the practice of repealing the business cycle and ensuring stocks are in a permanent bull market. Massive and unrelenting money printing is the “tool” that they use. The good old USA had its central bank cut rates to 0 percent by the end of 2008 to combat the Great Recession; and that paved the way for the EU to join the free-money parade by 2016. In fact, the Band of Japan had already been at the zero-bound range years before. This means much of the developed world has been giving money away gratis for the better part of a decade.
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Will MMT Trigger the Collapse of “Money”?
Will MMT Trigger the Collapse of “Money”?
If the supply of money in an economy is $1 billion, each unit of currency buys X (the purchasing power of each unit of currency).
If the money supply is doubled without any expansion in the consumers’ pool of goods and services, the purchasing power of each unit of currency falls in half. This reduction in the purchasing power of each unit of currency is called inflation.
Governments facing soaring demands and limited tax revenues are naturally tempted to meet these demands with “free” new currency, since the political and financial pain caused by skyrocketing taxes leads to governments being tossed from power.
This temptation explains the regular occurrence of hyperinflation and debt default, as the temptation to over-borrow and pile up interest payments leads to governments defaulting on their debt. In both cases — hyperinflation and debt default — there’s a currency/ governance/ financial crisis that upends the status quo.
This is one common objection to MMT: the freedom to issue new currency is difficult to limit, as there will always be more demands for government spending. Without some “governor” to limit the issuance of new currency to align with the expansion of goods and services, then governments tend to issue new currency far in excess of what the real economy is creating.
This generates inflation, which impoverishes everyone using the currency.
MMT advocates claim that since MMT generates goods and services, it won’t generate inflation. But rebuilding a bridge doesn’t actually create any new goods and services, or increase productivity: it generates wages and consumes materials and energy.
Since it doesn’t generate more consumable goods and services, the expansion of wages and demand for materials will drive prices higher.
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The World Has Gone Mad and the System Is Broken
The World Has Gone Mad and the System Is Broken
I say these things because:
- Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up. The reason that this money that is being pushed on investors isn’t pushing growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it. This dynamic is creating a “pushing on a string” dynamic that has happened many times before in history (though not in our lifetimes) and was thoroughly explained in my book Principles for Navigating Big Debt Crises. As a result of this dynamic, the prices of financial assets have gone way up and the future expected returns have gone way down while economic growth and inflation remain sluggish. Those big price rises and the resulting low expected returns are not just true for bonds; they are equally true for equities, private equity, and venture capital, though these assets’ low expected returns are not as apparent as they are for bond investments because these equity-like investments don’t have stated returns the way bonds do. As a result, their expected returns are left to investors’ imaginations.
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What We’ve Lost
What We’ve Lost
This is only a partial list of what we’ve lost to globalism, cheap credit and the Tyranny of Price which generates the Landfill Economy.
A documentary on the decline of small farms and the rural economy in France highlights what we’ve lost in the decades-long rush to globalize and financialize everything on the planet— what we call Neoliberalism, the ideology of turning everything into a global market controlled by The Tyranny of Price and cheap credit issued to corporations and banks by central banks.
After Winter, Spring (2012) was made by an American who moved to a small village in the Dordogne region of France to recover something of her childhood on a small Pennsylvania farm.
The farmers–self-described as paysans, peasants in English, (a translation I don’t consider entirely accurate, for reasons too complex to go into here)– describe the financial difficulties of earning enough to survive without outside jobs.
One young farmer who is taking over the family dairy from his aging parents encapsulates the economic reality of small farms: in the 1960s, they had 3 or 4 cows, now they have 100, but their income is the same.
Corporate mega-farms can produce huge quantities of agricultural products of questionable quality because they have the scale, access to cheap credit and expertise to deal with the voluminous bureaucratic paperwork imposed by the EU and the French government. (One slip-up on a form and you’re sunk if you’re a one- or two-person operation.)
Artisanal producers can’t compete, and will never be able to compete in a global marketplace where there is always a cheaper source. (Up to half a small farmer’s income comes from EU subsidies, which the EU is trying to cut.)
…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.
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Monetary failure is becoming inevitable
Monetary failure is becoming inevitable
This article posits that there is an unpleasant conjunction of events beginning to undermine government finances in advanced nations. They combine the arrival of a long-term trend of rising welfare commitments with an increasing certainty of a global-scale credit crisis, in turn the outcome of a combination of the peak of the credit cycle and increasing trade protectionism. We see the latter already undermining the global economy, catching both governments and investors unexpectedly.
Few observers seem aware that an economic and systemic crisis will occur at a time when government finances are already precarious. However, the consequences are unthinkable for the authorities, and for this reason it is certain such a downturn will lead to a substantial increase in monetary inflation. The scale of the problem needs to be grasped in order to assess how destructive it will be for government finances and ultimately state-issued currencies.
Introduction
Listening to recent commentaries about the repo failures in New York leads one to suppose there is insufficient money in the system. This is not the real issue, as the chart below of the fiat money quantity for the dollar clearly shows.
The fiat money quantity is the amount of fiat money (in this case US dollars) both in circulation and held in reserve on the central bank’s balance sheet. Before the Lehman crisis, it grew at a fairly constant compound growth rate of 5.86%. Since the Lehman crisis, it has grown at an average of 9.45%, even after the slowdown in its rate of growth that started in January 2017. FMQ is still $5 trillion above where it would have been today if the massive monetary expansion in the wake of the Lehman crisis had not happened. If there is a shortage of money, it is because the process of debt creation to fund current expenditure is spiralling out of control.
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Japan’s Monetary System is a Warning to Modern Society
Japan’s Monetary System is a Warning to Modern Society
QUESTION: Mr. Armstrong; My friend who retired from the Bank of Japan told me you had recreated the monetary system of Japan and that was how you could predict the yen would go below par back in 1995 and again in 2011. Could you please publish the chart on the yen showing the full monetary system from the Meiji reform?
Thank you
AH
ANSWER: Japan has been through a truly wild ride when it comes to currency. The emperors would devalue the outstanding money supply when they came to the throne and reduce it to 10% of its former value. This allowed the new emperor to issue coins as if he were beginning anew. By the time the third emperor pulled this stunt, the people simply refused to accept the coins of the emperor ever again.
The Japanese resorted to using bags of rice as money and Chinese coins. Eventually, they also used ingots of silver or gold for larger transactions by the 18th to 19th century.
This is actually a very good reference point because Japan lost the ability to issue money for 600 years until the Meiji reform in 1870 when the yen was born. The last official Japanese coin issue was in 958 AD.
The Meiji Reform of 1870 set the yen at par with the US dollar based upon a silver yen which was the equivalent of the US silver dollar.
This is an important point because as governments today try to eliminate their currency in the hunt for taxes, people are hoarding US dollars exactly as the Japanese began to hoard Chinese coins. Governments should look well at what they are proposing for they can lose the confidence of the people and they will lose the right to issue money.
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For the sake of life on Earth, we must put a limit on wealth
For the sake of life on Earth, we must put a limit on wealth
It’s not just the megarich: increased spending power leads us all to inflict environmental damage. It’s time for a radical plan
It is not quite true that behind every great fortune lies a great crime. Musicians and novelists, for example, can become extremely rich by giving other people pleasure. But it does appear to be universally true that in front of every great fortune lies a great crime. Immense wealth translates automatically into immense environmental impacts, regardless of the intentions of those who possess it. The very wealthy, almost as a matter of definition, are committing ecocide.
A few weeks ago, I received a letter from a worker at a British private airport. “I see things that really shouldn’t be happening in 2019,” he wrote. Every day he sees Global 7000 jets, Gulfstream G650s and even Boeing 737s take off from the airport carrying a single passenger, mostly flying to Russia and the US. The private Boeing 737s, built to take 174 passengers, are filled at the airport with around 25,000 litres of fuel. That’s as much fossil energy as a small African town might use in a year.
Where are these single passengers going? Perhaps to visit one of their superhomes, constructed and run at vast environmental cost, or to take a trip on their superyacht, which might burn 500 litres of diesel an hour just ticking over, and which is built and furnished with rare materials extracted at the expense of beautiful places.
Perhaps we shouldn’t be surprised to learn that when Google convened a meeting of the rich and famous at the Verdura resort in Sicily in July to discuss climate breakdown, its delegates arrived in 114 private jets and a fleet of megayachts, and drove around the island in supercars. Even when they mean well, the ultrarich cannot help trashing the living world.
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Suffering the Profanity of Plentiful Cheap Money
Suffering the Profanity of Plentiful Cheap Money
What if the savings in your bank account lost 55 percent of its value over the last 12 months? Would you be somewhat peeved? Would you transfer some of your savings to another currency?
That was the favored approach in Argentina – where the official inflation rate’s 55 percent. But no more. On September 2, President Mauricio Macri resorted to capital controls to preserve the central bank’s foreign exchange reserves and prop up the peso. What gives?
Just fifteen months ago Macri secured the biggest bailout in the International Monetary Fund’s history. Now Argentina’s delaying payment to its creditors and is rapidly approaching what will be its third sovereign default this century. On top of that, Macri’s Peronist rival Alberto Fernández will likely take his job come election day in October.
Alas, for Macri and his countrymen, a painful lesson is being exacted. You can’t solve a debt problem with more debt. Eventually the currency buckles and you’re left with two poisons to pick from: inflation or default. With Macri’s latest capital controls scheme he’s choosing to take swigs of both.
Make of Argentina’s woes what you will. Central bankers in the United States are also guilty of programs of mass money debasement. They may have a bigger economy to better mask their malice. But despite what the MMT delusionals say the day of reckoning always arrives – and always at the worst possible time.
Indeed, the U.S. dollar hasn’t lost 55 percent of its value over the last 12 months. However, according to the Bureau of Labor Statistics’ own inflation calculator, the dollar’s lost 55 percent of its value since 1988. In other words, it takes $1 to purchase what $0.45 could buy during President Reagan’s last year in office.
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Currency Which Expires – That’s the Solution – Or Just Cancel it all?
Currency Which Expires – That’s the Solution – Or Just Cancel it all?
Back during the Great Depression, there were people who theorized that gold hoarding was preventing economic recovery. There is always this same theory that people who save hoarding their money and are not spending it results in the lack of a recovery suppressing demand. This theory has been around for a very long time. It assumes a recovery is always blocked by people hoarding their money and saving for a rainy day.
Back during the American Civil War, the federal government issued paper currency for the first time after the Revolution. Much of this currency paid interest. Some were in the form of virtually circulating bonds with coupons for the interest payments. Some were backed by gold. Others offered a table on the reverse providing a schedule. The interest baring notes remained valid currency, but the interest expired within a specific time period. Hence, one would redeem the note since it would no longer pay interest beyond a specific date.
The rumbling behind the curtain I am hearing is a growing idea of making the currency in Europe simply expire. I have explained before that in Europe currency routinely expires – even in Britain. The United States has never canceled its currency so a note from the Civil War is still legal tender. But that is not the case in Europe.
Europeans are accustomed to having their money simply expire. This is not limited to paper currency. They also cancel the coins. The proposal being whispered in the dark halls of Europe is that perhaps the way to impose negative rates to force people to spend is to just cancel all the currency and authorize only small notes for pocket change. They want everyone to be forced to use bank cards and this is the new theory to revitalize the economy.
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28 Signs Of Economic Doom As The Pivotal Month Of September Begins
28 Signs Of Economic Doom As The Pivotal Month Of September Begins
Since the end of the last recession, the outlook for the U.S. economy has never been as dire as it is right now. Everywhere you look, economic red flags are popping up, and the mainstream media is suddenly full of stories about “the coming recession”. After several years of relative economic stability, things appear to be changing dramatically for the U.S. economy and the global economy as a whole. Over and over again, we are seeing things happen that we have not witnessed since the last recession, and many analysts expect our troubles to accelerate as we head into the final months of 2019.
We should certainly hope that things will soon turn around, but at this point that does not appear likely. The following are 28 signs of economic doom as the pivotal month of September begins…
#1 The U.S. and China just slapped painful new tariffs on one another, thus escalating the trade war to an entirely new level.
#2 JPMorgan Chase is projecting that the trade war will cost “the average U.S. household” $1,000 per year.
#3 Yield curve inversions have preceded every single U.S. recession since the 1950s, and the fact that it has happened again is one of the big reasons why Wall Street is freaking out so much lately.
#4 We just witnessed the largest decline in U.S. consumer sentiment in 7 years.
#5 Mortgage defaults are rising at the fastest pace that we have seen since the last financial crisis.
#6 Sales of luxury homes valued at $1.5 million or higher were down five percentduring the second quarter of 2019.
#7 The U.S. manufacturing sector has contracted for the very first time since September 2009.
#8 The Cass Freight Index has been falling for a number of months. According to CNBC, it fell “5.9% in July, following a 5.3% decline in June and a 6% drop in May.”
…click on the above link to read the rest of the article…
The Guide To Real History
The Guide To Real History
In the last two centuries, all wars have been machinations orchestrated by bankers pursuing two very simple objectives: profit and a world domination that bears a name: the New World Order.
Education and medias are the main culprits to blame for keeping the important role of bankers in the dark shadows of history. The genuine relevance of Rothschild, Rockefeller, Warburg, Morgan and their peers is voluntarily kept hidden from public scrutiny, so that any investigator that digs in the realms of our past can easily be discredited as a «conspiracy theorist». Author Carroll Quigley once had full access to the Council on foreign relations documents and he confirmed the very real world banking conspiracy designed to dominate the world, in his book «Tragedy and hope».
Bizarrely, education and medias prefer to bring everything back to public figures and politicians like Churchill, Hitler or Stalin, but they will never tell you that these charismatic monsters had no money, nor created it. Hitler was a failed artist that built the most formidable war machine the world had seen in 6 years only, in a near-bankrupt country deprived of any oil production, so do you think he might have had some help?
The Grand Scheme
Before 1971, bank loans were based on their gold reserves, but no bank really owned the value in gold of the money it lent over the years, so the scheme wasn’t very different than today’s fractional system of money creation, in which banks have to own 1/10th of their loans. For example, if bank A has a million dollar, it can lend 10 millions to bank B, which can lend 100 millions to a country, since bank B owns 10 millions. This is basically how the world ended up owing 184 trillion dollars (184 000 000 000 000$) to private banks as of today.
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The Real “Helicopter Money”: Since 2009, China Has Created $21 Trillion Of New Money, More Than Double The US
The Real “Helicopter Money”: Since 2009, China Has Created $21 Trillion Of New Money, More Than Double The US
Back in the days of the Fed’s QE, much of thinking analyst world (the non-thinking segment would merely accept everything that the Fed did without question, after all their livelihood depended on it), was focused on how massive, and shocking, the Fed’s direct intervention in capital markets had become. And while that was certainly true, what we showed back in November 2013 in “Chart Of The Day: How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water” is that whereas the Fed had injected some $2.5 trillion in liquidity in the US banking system, China had blown the US central bank out of the water, with no less than $15 trillion in increases to Chinese bank assets, all at the behest of a juggernaut of new credit creation – be it new yuan loans, shadow debt, corporate bonds, or any other form of debt that makes up China’s broad Total Social Financing aggregate.
Now, almost six years later, others are starting to figure out what we meant, and in an Op-Ed in the FT, Arthur Budaghyan, chief EM strategist at BCA Research writes about this all important topic of China’s “helicopter” money – which far more than the Fed, ECB and BOJ – has kept the world from sliding into a depression, and yet is blowing the world’s biggest asset bubble.
Budaghyan picks up where we left off, and notes that over the past decade, Chinese banks have been on a credit and money creation binge, and have created RMB144Tn ($21Tn) of new money since 2009, more than twice the amount of money supply created in the US, the eurozone and Japan combined over the same period. In total, China’s money supply stands at Rmb192tn, equivalent to $28 TRILLION. Why does this matter?
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Will They Take All Your Money?
Will They Take All Your Money?
Why not? It’s not yours.
Most people assume that, if they have money on deposit in a bank, they own that money. That’s not necessarily the case. Decades ago, some of the world’s most powerful countries began to pass legislation that, if you deposit money in the bank, it becomes the property of the bank. In those countries, if you open a bank account and make a deposit, you sign off legal title to that cash. It becomes an asset of the bank.
The reason they got away with this obvious “theft through legislation” was that the banks were required to henceforth regard your deposit as a debt in your favour. So, technically, you were still owed the money as a bank liability, even though it was no longer truly yours.
On the surface, the change of ownership may seem to be a moot point, as, surely any bank would allow you to withdraw whatever you have deposited, or there would be a run on the bank and the bank would fail.
Well, that’s a definite “maybe.”
What if there were a financial crisis, such as in Greece, where an anticipated run on the banks was circumvented by freezing all accounts, then partially reopening them? If that were the case, the bank in question could allow small amounts of cash to be withdrawn by its depositors each week or each month until the crisis had been safely averted.
Surely, that would be a good thing to do, yes?
Well, there might be a problem there. It’s just possible that the bank would decide that it was enjoying the revised relationship, that it would like to continue to take in deposits the normal way but only pay out “allowances” to depositors as it saw fit.
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