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Desperate Money Printing Leads to Depression – Dr. Marc Faber

Desperate Money Printing Leads to Depression – Dr. Marc Faber

Legendary investor, economist and market forecaster Dr. Marc Faber thinks central banks (CB) are not going to cut back the money printing.  Just the opposite.  He predicts CBs are going to print even more money at a faster pace to hold the failing economic system together for a little while longer.  Dr. Faber explains, “What is perceived to be safe, namely cash, isn’t safe anymore.  It is unsafe.  You ask me what is safe?  I don’t know what is safe anymore when you have money printers who print money indefinitely.  I don’t think they can stop.  I actually think they have to accelerate their money printing.  So, stocks may go up, but in real terms, it doesn’t mean your standard of living will go up.  Maybe the standard of living of the 50 richest people in the world will go up, but not the standard of living of the typical American . . . or the average American.  That standard of living will go down. . . . All the money printing is a desperate measure to keep the voters from rebellion.”

Dr. Farber predicts that not only are we going to see more asset inflation, but dramatic wage inflation too.  Dr. Faber, who holds a PhD in economics, says, “What I think will happen, and most people have not really considered, we will get wage inflation.  For the first time since the late 1970’s, we will get accelerating wage inflation, and in some cases, quite dramatic.   In some states, the minimum wage is $15.  I could see that going up to $30 per hour very quickly.  I don’t think inflation is ‘transitory’ (as the Fed proclaims).  We will not have stagflation.  We will have something worse.  We will have rising prices and a depression in the standard of living of most people.”

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

 

 

Who determines prices?

Who determines prices?

One of the consequences of the response to the pandemic and the disruption from Brexit is that labour shortages are appearing across the low-paid sectors of the economy.  So much so that even the metropolitan liberal Guardian has begun to wonder whether the benefits of higher wages for the low-paid might outweigh the cost of having to pay more for a plumber or an au pair.  As John Harris puts it:

“For decades, large swathes of the labour market have been run on the assumption that there will always be sufficient people prepared to work for precious little. But here and across the world, as parts of the economy have been shut down and furlough schemes have given people pause for thought, the idea that they need not stay in jobs that are exploitative and morale-sapping has evidently caught on.

“In the UK, meanwhile, Brexit remains a disastrous and chaotic project – but, among its endless and unpredictable consequences, leaving the EU has cut off employers’ access to a pool of people who were too often exploitable. Time has thereby been called on one of the ways that our dysfunctional labour market was prevented from imploding.”

Harris points to sectors of the economy – mostly low-paid – where employers have been obliged to increase wages in order to fill vacancies.  And there is certainly some room for wage increases across the economy.  But the emerging narrative is that this is a bad thing because it will create price increases.  Much of the thinking around this issue though, is based on experiences and on economic models that last saw the light of day half a century ago.  And with this in mind, we should take mainstream narratives with a pinch of salt.

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

Is Anyone Willing to Call the Top of the Everything Bubble?

Is Anyone Willing to Call the Top of the Everything Bubble?

Can extremes become too extreme to continue higher? We’re about to find out.

Is anyone willing to call the top of the Everything bubble? The short answer is no. Anyone earning money managing other people’s money cannot afford to be wrong, and so everyone in the herd prevaricates on timing. The herd has seen what happens to those who call the top and then twist in the wind as the market continues rocketing higher.

Money managers live in segments of three months. If you miss one quarter, the clock starts ticking. If the S&P 500 beats your fund’s return a second time because you were bearish in a bubble, your doom is sealed.

When the bubble finally pops and everyone but a handful of secretive Bears is crushed, the rationalization will cover everyone’s failure: “nobody could have seen this coming.”

Actually, everyone can see it coming, but the tsunami of central bank liquidity has washed away any semblance of rationality. My friend and colleague Zeus Y. recently summarized the consequences of this decoupling of markets and reality:

“I used to be with the Bears until the uncoupling was complete when the Fed started guaranteeing non-investment grade junk bonds. At that point, any semblance of sanity, much less probity, much less integrity was gone. Rinse and repeat with digital dollars going into the tens and even hundreds of trillions of dollars.

For two decades we fiscal sanity-ists have been assuming SOME baseline reality. I see none in sight and still plenty of assets to plunder and pump and still resources to suck and suckers to shake down. The system is running hot and wild on its own algorithms, and actual people are lying back and simply lapping up the “passive” income created by delusion-made-reality.

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

 

Facing Inflation Threat, German Investors Loading Up on Gold

Facing Inflation Threat, German Investors Loading Up on Gold

While most American investors have faith that the Federal Reserve can and will successfully tighten monetary policy to fight inflation — or have simply bought into the “transitory” inflation narrative — Germans are loading up on gold as a hedge against growing inflationary pressures.

Through the first half of the year, gold coin and gold bar demand in Germany hit the highest level since 2009 – the aftermath of the 2008 financial crisis. First-half demand for bar and coins in Germany increased by 35% from the previous six months, compared with a 20% increase in the rest of the world, according to World Gold Council data.

Raphael Scherer serves as the managing director at Philoro Edelmetalle GmbH. He told Bloomberg that gold sales for the company are up 25% on what was already a strong 2020.

We have a long history of inflation fear in our DNA. Now the inflation risk is picking up. The outlook for precious metals is very positive.”

Given Germany’s experience with hyperinflation under the Weimar Republic, it comes as no surprise that Germans are wary of inflation.

Gold investment took off in the country in the wake of the 2008 financial crisis and has been strong ever since. The global recession after the ’08 meltdown led to extremely loose monetary policy in Germany. The country has been in a negative interest rate environment for several years, and the Bundesbank has done billions in quantitative easing. Two and five-year government bonds have traded at negative yields since 2015.

The World Gold Council summarized why Germans tend to turn to gold when inflation looms.

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

Fed Prints Money or the Whole Thing Blows Up-Craig Hemke

Fed Prints Money or the Whole Thing Blows Up-Craig Hemke

By Greg Hunter’s USAWatchdog.com (Saturday Night Post)

Financial writer, market analyst and precious metals expert Craig Hemke says the Fed has all but said it was going to delay the so-called “taper” of easy money policies–forever.  This is why gold and silver spiked as the dollar tanked on Friday.  Hemke contends, “The Chinese, four months in a row, have been net sellers of Treasuries. . . . They’re not buying them.  Well, somebody has got to buy.  Congress just announced this week that they came to a deal where they are going to spend $4.1 trillion on what is allegedly called infrastructure. . . . The money has got to come from somewhere. There is this notion that they are just going to raise taxes on rich people.  Rich people are just going to change how they spend and do their taxes.  Who is going to loan us money?  It’s not going to be the Chinese or other foreign countries because they don’t have confidence in us anymore.  So, the money is going to come from somewhere.  Of course, the Fed is going to keep monetizing the debt because if they don’t, interest rates have got to rise to a point people are willing to loan it to the U.S.  If interest rates go to 3% or 5%, the whole thing blows up.”

Hemke points out, “All we can do is prepare for a time when this finally implodes because it will.  Confidence will eventually collapse.  Confidence is like Hemmingway’s explanation of how he went bankrupt.  He was asked, ‘How did you go broke?’  He said, ‘At first slowly, and then, all at once.’…

…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 dollar’s debt trap

The dollar’s debt trap

I start by defining the currencies we use as money and how they originate. I show why they are no more than the counterpart of assets on central bank and commercial bank balance sheets. Including bonds and other financial issues emanating from the US Government, the individual states, with the private sector and with broad money supply, dollar debt totals roughly $100 trillion, to which we can add shadow banking liabilities realistically estimated at a further $30 trillion.

This gives us an idea of the scale of the threat to asset values and banking posed by higher interest rates, which are now all but certain. The prospect of contracting financial asset values is potentially far worse than in any post-war financial crisis, because the valuation base for them starts at zero and even negative interest rates in the case of Europe and Japan.

I focus on the dollar because it is everyone’s reserve currency and I show why a significant bear market in financial asset values is likely to take down the dollar with it, and therefore, in that event, threatens the survival of all other fiat currencies.

Introduction

Dickensian attitudes to debt (Annual income twenty pounds, annual expenditure twenty pounds ought and six, misery) reflected the discipline of sound money and the threat of the workhouse. It was an attitude to debt that carried on even to the 1960s. But the financial world changed forever in 1971 when post-war monetary stability ended with the Nixon shock, exactly fifty years ago.
…click on the above link to read the rest of the article…

Inflation Is Winning, and Here’s Why the Fed Seems Content To Let It Happen

The U.S. Treasury publishes its balance sheet annually. The most recent, for fiscal year 2020, is so egregiously out of whack it might be hard to wrap your head around:

Total Assets: $5.95 trillion
Total Liabilities: $32.74 trillion
Net Position (total assets minus total liabilities): -$26.80 trillion

All figures above have been rounded to the nearest billions. The net position also factors in -$3.1 billion in “unmatched transactions and balances,” which is odd. (Looks like everybody has a little trouble balancing the checkbook…)

But the obvious focus? Liabilities outweigh assets more than five to one.

How will the U.S. government try to correct this imbalance? It’s almost certain they will use one of the only tools they have: inflation.

In fact, the latest official inflation numbers have come in, which continue the trend of rising price inflation (see chart):

Consumer prices up 4.7 percent since February 2020

Graph courtesy of the U.S. Bureau of Labor Statistics

Unlike the Fed, which likes to focus your attention on what Wolf Richter calls its “lowest lowball inflation measure” that ignores important prices, the BLS chart includes food and energy.

That’s bad enough. If, however, we use the same measures the Federal Reserve employed in 1990 like John Williams of ShadowStats does, the picture gets a lot worse:

July PPI Surged to New, Historic Extremes
Tempered by Unusual Factors, July CPI-U Held at 13-Year High for a Second Month, Just Shy of a 41-Year High
ShadowStats Alternate CPI Held at Its 41-Year High

Don’t let the name “ShadowStats” fool you. These numbers are based on the Federal Reserve’s own historic metrics that were retired in favor of the current, less-alarming measures.

Inflation is bad, and it doesn’t seem likely to get better any time soon…

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

More Money Doesn’t Mean More Wealth

The Federal Reserve has targeted a 2% inflation rate for years, as though it’s a holy grail. As though 2% inflation was an economic panacea that would perfectly balance employment, business investment and bank lending.

Recently, the Fed has loosened the reins on inflation and let it charge ahead. Quite a bit – two consecutive months over 5%, two and a half times their self-imposed target.

For many, the big question is whether this is (to use Chairman Powell’s much-maligned phrase) “merely transitory,” a “blip” caused by supply-chain disruptions and post-pandemic recovery that’ll work itself out soon…

Or whether this is more akin to Carter-era inflation. The kind that shows up unannounced like college acquaintance, invites itself in and makes itself at home on your sofa. Finds the remote, turns on a game, and settles in for the long haul.

There’s no crystal ball. Instead, we have the bond market (it’s the next-best thing), which has consistently predicted long-term inflation rates of 2% or less for the last 20 months.

Is this proxy for a crystal ball cracked? Possibly. Many analysts point to the Federal Reserve’s insatiable demand for Treasury bonds, claiming that distorts the bond market and its signals beyond human interpretation.

Some voices have given up on condemning inflation, and instead have chosen to welcome it.

Inflation raises worker pay!

Here’s a rather hilarious “explainer” on the economic benefits of inflation. The best part:

Rising prices make it easier for companies to put up wages. They also give employers the flexibility not to increase wages by as much as inflation, but still offer their staff some sort of raise. In a world of zero inflation some companies might be forced to cut wages.

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

Peter Schiff: Central Banks Have Created the Mother of All Bubbles

Peter Schiff: Central Banks Have Created the Mother of All Bubbles

The Federal Reserve and other central banks around the world have pumped trillions of dollars into the global economy and depressed interest rates to artificially low levels to blow up the mother of all bubbles. In his podcast, Peter Schiff explained how the recent acquisition of Afterpay by Square reveals the extent of this global bubble economy that will inevitably have to pop.

Square paid $29 billion in an all-stock deal to purchase payment processor Afterpay. It was the biggest corporate takeover in Australian history.

Shares of Square rose 10% on the deal. As Peter noted, this isn’t typical. Normally, when a company buys another company at a premium and issues a bunch of stock, the acquiring company’s stock price drops.

But not in today’s crazy bubble world. In this bizarro world, the acquiring company goes up.”

Peter said Square overpaid for a company that he doesn’t think has much value whatsoever.

Afterpay is touted as an alternative to a credit card. When you buy something using Afterpay at a participating retailer, you only have to pay 25% at the point of sale. You then make three more payments to Afterpay over a six-week time period. In effect, the consumer gets a six-week interest-free loan.

Afterpay has been viewed as a big competitor for traditional credit card companies, but Peter pointed out this really isn’t the case.

Everybody, or most of the people, who are using Afterpay, are using their credit cards to pay Afterpay. All Afterpay is is another middleman that is getting in the way between the transaction.”

Afterpay generates revenue by charging merchants between 4 and 6% for every sale. Visa and Mastercard typically charge about 2%.

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

Tough Questions Generate Weak Common Assumptions

Tough Questions Generate Weak Common Assumptions

Picture Of Space Tourists 

An article suggesting how common space travel is about to become highlights how willing people are to accept opinions as fact. Most people make assumptions based on a number of factors. These include what they see, what they hear, and more importantly, based on the general direction that things have been going. This means we as a population have developed “kind of a feeling” about what the future is likely to hold. Sadly, the way people form assumptions is heavily swayed by mainstream media and big tech’s hold over how we get information. We live in a world where reason and critical, independent thinking is in very short supply. This has created a situation where, we may someday find that we as a society, have been a bit overly optimistic about our potential. Black swan events do occur and when they do they can be game-changers. The world and life as a whole is full of risk. With this in mind I write this article to address a few questions that have been bothering me and a few other people that make a concerted effort to see past the hype, propaganda, and bull shit we are constantly fed by those with an agenda.

Frontline, on PBS, recently ran a program titled, Power Of The Fed. It reiterates how when COVID-19 struck, the Federal Reserve rapidly stepped in to avert an economic crisis. It looks at how as America’s central bank continues to pump billions of dollars into the financial system daily, who is benefiting, who is not, and whether their policy is working. The question is also raised as to what happens if they try to turn off the flow of easy money

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

Quantitative easing: how the world got hooked on magicked-up money

Going cold turkey would finish off a dysfunctional global financial system that’s now hopelessly addicted to emergency infusions. The only solution is surgery on the system itself

The world economy is a mess. The system, notionally governed by the invisible hand of the market, is no longer governed in any meaningful way: private excess puffs up bubbles that government indulgence ensures can never burst. We seem condemned to volatile commodity prices, wild capital flows, worsening imbalances in trade, taxation and income, and—before long—the next sovereign debt crisis. And then there’s inequality. During lockdown, the total wealth of billionaires rose by $5 trillion to $13 trillion in 12 months, the most dramatic surge ever registered on the annual Forbes billionaire list.

Where do such riches come from? Compared to before the pandemic, there’s less real economic activity: we are collectively poorer. And yet within a year of the great panic of March 2020, many asset prices were surging. Wall Street and the City of London are again awash with liquidity—and in a speculative mood. One vogue is for something called SPACs, or “special purpose acquisition companies.” That sounds so vague as to bring to mind the South Sea Bubble companies of 1720, whose pitch is remembered as “carrying on an undertaking of great advantage but nobody to know what it is.”

How is this mismatch between financial markets and underlying reality possible? Because just like in the aftermath of the Great Recession, the civil servants in our central banks spotted the dreadful potential of unchecked panic, and rode to the rescue of private speculators by flushing the system with made-up money through a process we’ve come to know as quantitative easing.

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

Too Much Money Chasing Too Few Goods and Services

Too Much Money Chasing Too Few Goods and Services

Inflation can be considered a tax, an especially regressive one, falling harder on those with lower income and/or assets.

As we’ve noted previously, the Federal Reserve’s “M2” monetary aggregate began growing significantly faster than the “GDP” measure of economic output in the United States beginning around 2008, amidst the 2007-2009 financial and economic crisis.

With the federal government’s massive fiscal and economic “stimulus” policies arriving together with a pandemic and government lockdowns, M2 growth has recently risen dramatically higher than GDP growth.

Earlier this week, the Bureau of Labor Statistics (within the U.S. Department of Labor) reported that the Consumer Price Index (CPI) rose in June at one of its fastest growing rates in more than a decade. Some people have been pointing to the fact that year-over-year changes in the CPI may be high recently in part because the comparisons to last year’s levels were amidst the onset of the pandemic. But in the second quarter of 2021, compared to the first quarter of 2021 and on a seasonally adjusted basis, the CPI rose at an annualized rate of more than 8 percent, which is the highest quarterly growth rate since the third quarter of 1981.

It’s always worthwhile to keep an eye on alternative inflation measures, given the estimation issues associated with government statistics, and considering the source of those statistics.

Along those lines, a recent survey of small businesses by the National Federation of Independent Business (NFIB) returned a result for prices that hasn’t been reached since 1981.

And the prices component of the monthly Institute for Supply Management survey of business purchasing managers rose in June 2021 to its highest reading since July 1979.

Inflation can be considered as a tax, and an especially regressive one, falling harder on those with lower income and/or assets. Inflation can be considered one cost of government.

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

The everything death spiral

The everything death spiral

Inflation is back in the establishment media headlines, as prices are rising across the economy.  But rather like generals fighting the last war, business and economic journalists are dusting off models of inflation last used in the early 1980s.  The idea, for example, that “inflation is always a monetary phenomenon” worked well as a description of the crises of the 1970s when the class structure was flatter and simpler and when planet Earth still contained massive volumes of untapped resources; including decent reserves of energy-cheap energy.

Throughout the post-war years – and largely as a consequence of energy-cheap energy – the workers’ share of the profits from manufacturing and trade had risen.  Various national versions of America’s suburban dream became available to skilled and semi-skilled workers across the developed states.  Where the wartime generation rented small terraced houses, the post-war generation bought roomy semi-detached homes.  Where the wartime generation walked to work, the post-war generation drove a car or rode a motorbike.  Where the wartime generation holidayed at a nearby seaside town, the post war generation took package holidays in Mediterranean resorts.

Insofar as it existed at all, unemployment was a choice or a “frictional” period of a few weeks as workers moved from one employer to another.  Only those few with complex problems, such as disabled people, people with mental illness or people with drug or alcohol dependency tended to be long-term unemployed.  And the lack of a pool of unemployed labour empowered trade unions by undermining management’s ability to threaten the sack.  If workers were fired they could easily find work elsewhere.  And firms that sacked workers often struggled to find replacements.

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

Gold “Relatively Cheap” Compared to Other Assets: TD Securities Head

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Expert says gold is still at bargain price, how Basel 3 could boost gold and silver prices, and what’s next after gold’s breakout.

TD Securities: Gold is “relatively cheap” compared to what could come

On May 20th, TD Securities’ head of global strategy Richard Kelly reviewed gold’s current price ($1887) compared to currencies in the current economic outlook. As Kelly noted, gold had quite a pullback from its $2,070 August high, falling to as low as $1,650 at certain points but mostly sticking to the $1,800 level.

Kelly believes this pullback might have frightened investors away from gold despite the metal’s tailwinds remaining in place:

Gold had a phenomenal run-up over the course of last year, and when that reversed, I think it scared a few investors off.

As he explains, the downwards pressure came along with a sudden rise in Treasury yields, one that seems to have caused investors to overlook the true state of the bond market. Optimism came quick as traders started believing that the Federal Reserve might start hiking interest rates as well as reining in its ultra-loose monetary policy in order to head off inflation.

Yet the Fed has consistently promised there’s no intention to start raising interest rates any time soon. Kelly himself believes that many of the top currencies, including the U.S. dollar as well as the euro, are showing undeserved strength (despite the dollar’s recent weakness). This is supported by the sheer scope of monetary supply expansion that has occurred over the past year.

…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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