Home » Posts tagged 'us federal reserve'

Tag Archives: us federal reserve

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Dear Governments, Spend as Much as You Can

Dear Governments, Spend as Much as You Can

This week we heard further details about more trillions in upcoming spending and even changing monetary issuance laws (for CBDCs) worldwide.

The International Monetary Fund (IMF), what critics might call a supranational leveraged buyout bank, was out this week making calls for governments worldwide to spend as much as they can.

The IMF also noted that monetary issuance laws would need to be changed in 104 nations to directly issue fiat Central Bank Digital Currency or CBDC for fuller global fruition.

Sounder money advocates yet to banned off of Twitter are predicably pissed off.

Global Government Bonds

SDBullion Market Update

Federal Reserve Chairman Jerome Powell had the following statement this week worth highlighting in our market update video.

Federal Reserve Chairman Jerome Powell had the following statement this week worth highlighting in our market update video.

There is nothing in any definition about how fiscal dominance, which considers our still having the dominant fiat currency of the world, utilizes yield curve control, with suppressed real interest rate yield, rigging inflation and unemployment data, while still dominating the world in most price discovery powers. 

Yet on the cusp of losing economic output dominance to over 2.5 billion Chinese and Indian residents, they tend to stack physical gold and silver as they get wealthier increasingly.

Another week of up then down spot price action for silver and gold. As we head into this Monday’s thinly traded Martin Luther King holiday, note that the spot gold price sits just below its 200-day moving average.

During gold bull markets outside of the global financial crisis, that is typically an excellent time to add to bullish and betting long positions.

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

How Will This Unwind? Amid Stimulus, Forbearance, Eviction Bans, Consumer Bankruptcies Dropped to Lowest in Decades. Commercial Chapter 11 Bankruptcies Highest in Years

How Will This Unwind? Amid Stimulus, Forbearance, Eviction Bans, Consumer Bankruptcies Dropped to Lowest in Decades. Commercial Chapter 11 Bankruptcies Highest in Years

Weirdest Economy Ever, as 20 million people still claim unemployment benefits.

Total bankruptcy filings by consumers and businesses in the US in 2020, across all chapters of bankruptcies, plunged by 30% from 2019, to just 529,000 filings, according to legal-services provider Epiq Systems. This was the lowest number of total bankruptcy filings since 1986.

The plunge in filings was largely driven by consumers, who account for 94% of total bankruptcy filings, and who were awash with stimulus money and extra unemployment benefits (historic Epiq data via American Bankruptcy Institute):

Bankruptcy filings by consumers alone plunged by 31% from a year ago to just 496,000 filings, the lowest since 1987. Following the Financial Crisis in 2011, consumer filings had surged to 1.38 million as consumers were unwinding their credit card debt, mortgages, and HELOCs. But not during this crisis. Though 20 million people are still claiming state or federal unemployment benefits, the opposite happened in the Weirdest Economy Ever.

Under a flood of stimulus money, consumers triggered a historic drop in credit card debt and a sharp drop in credit card delinquencies. Auto loan delinquencies also declined. But 5.5% of all mortgages are still in forbearance where borrowers don’t have to make mortgage payments – 2.7 million mortgages! And eviction bans allow renters to skip rent payments. And even consumers that were in arrears didn’t have to fend off creditors and landlords with a bankruptcy filing (historic Epiq data via American Bankruptcy Institute):

Total commercial filings under all chapters fell 15% to 33,000 filings, powered by a 40% drop in commercial Chapter 13 filings and a 14% drop in commercial Chapter 7 filings.

But commercial Chapter 11 filings – when a business attempts to restructure its debts while operating rather than liquidating – surged 29% to 7,128 filings, the highest since 2012 when the effects of the Financial Crisis were winding down.

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

 

Economic and Monetary Outlook For 2021

The most important event in the new year is likely to be the Fed losing control of its iron grip on markets. The dollar’s declining trend is already well established against other currencies and commodities, leading to this outcome.

Events in 2021 will be the consequence of a developing hyperinflation of the dollar. Foreign holders of dollars and dollar assets — currently totalling $27.7 trillion — are sure to increase the pace of reducing their exposure. This is a primal threat to the Fed’s policy of using QE to continually inflate assets in the name of promoting a wealth effect and continuing to finance a rapidly increasing federal government deficit by supressing interest rates.

Bubbles will then pop, leaving establishment investors exposed to a combined collapse of fiat currencies, bonds and equity markets, which could turn out to be very rapid. The question remaining is what will replace collapsing fiat currencies: limited issue distributed ledger cryptos, such as bitcoin, or precious metals, such as gold?

Clearly, when the dust settles, it will be gold for no other reason that central banks already own it in their reserves, and it has a long track record of success as money in the past.

This article examines the 2020 economic and financial background to likely developments in 2021 before arriving at its conclusions.

Introduction

It is that time again when we reflect on recent events and what might be ahead of us in the new year. 2020 was dominated by a pre-March descent into a financial slump, when the S&P500 index lost a third of its value between January and March, until the Fed cut its funds rate to zero on 16 March and followed up with a statement of intent to expand QE without limit on the following Monday.

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

 

This is a Recipe for Hot Inflation in 2021

This is a Recipe for Hot Inflation in 2021

Get ready for a tsunami of liquidity to hit the financial system.

President Trump has already signed a COVID-19 stimulus bill that will give $600 to most Americans. The House of Representatives has since passed a bill to increase the amount to $2,000.

So that’s a massive wave of money flowing into the economy.

On top of this, the Fed has just pumped $162 BILLION into the financial system in the last two weeks.

Chart, line chart Description automatically generated

To provide some perspective here.

During the apex of its monetary policy response to the Great Financial Crisis of 2008, the Fed was printing $80 billion in new money per month.

It just printed $162 billion in 14 days

Again, a tsunami of liquidity is going to hit the financial system in 2021.And unlike in 2008, this time it’s going to unleash hot inflation.

One of the most baffling aspects of policymakers’ response to the Great Financial Crisis of 2008 was the total lack of inflation appearing in the broader economy.

After all, in 2008 central banks embarked on the most aggressive monetary easing in history (up until that point). Between 2008 and 2016, central banks:

  1. Cut interest rates over 650 times.
  2. Printed over $12 TRILLION in new money.
  3. And pushed over $10 trillion bond yields into NEGATIVE territory.

And yet, for the most part, inflation was nowhere to be found. Yes, the cost of the living for most Americans continued to rise, but it didn’t rise any faster than it had in the preceding 30 years. Indeed, on a year over year basis, inflation never managed to stay above 2% for very long.

So where was the inflation?

It was in stocks, housing prices, and other assets. All of the money central banks printed never got into the real economy. It went to the banks. And the banks either used it to speculate in the stock market (investment banks) or they sat on it.

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

The Year Ahead: U.S. Faces Uncertain Economic Future

You’re standing in the back yard, filling up a wading pool for the kids with a garden hose. If you turn the hose off, the pool stops filling. Allow enough time, and the sun evaporates the water. Over the course of the summer, the water slowly dries up, leaving you with an empty pool and unhappy children – unless you turn the hose back on.

Starting in late February, governors across the U.S. turned off (or severely restricted) their economies to try and mitigate the spread of COVID-19.

They first felt the consequences in March, and the negative ripple effects are likely to continue well into 2021. The virus is still circulating at high levels despite 10 months of lockdowns and travel restrictions (some of which are still in place).

As we enter 2021, the deeper economic impacts are starting to become increasingly apparent. Even the more optimistic economic forecasts don’t look that great.

2021: Misplaced Optimism?

When the bar for economic improvement is just “do better than 2020,” it isn’t hard to beat expectations. “We see really strong growth potentially starting in the second quarter,” says Barclays economist Jonathan Millar. “It’s a pretty strong year.”

That optimism seems misplaced once you factor in the rest of this outlook:

That doesn’t mean the economy will be back to normal. The pandemic is leaving a legacy of millions of jobless Americans and thousands of shuttered businesses that will take years to reverse.  

According to Federal Reserve Chairman Jerome Powell, we’re lucky because 2021’s predicted unemployment rate fell from 5.5% to a mere 5%. That’s not much better than the current unemployment rate of 6.7%, and considerably worse than the pre-pandemic 3.8% unemployed in January 2020.

While that’s good news, it won’t offer much comfort to the millions of people who have already been out of work for much of 2020.

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

Plus ça change: A French Lesson in Monetary Debauchery

Plus ça change: A French Lesson in Monetary Debauchery

Fiscal policy shifted into turbo-charged, warp speed, overdrive early into the COVID related recession. To facilitate the borrowing binge, the Federal Reserve took unprecedented monetary actions. In 2020, the fiscal deficit (November 2019- October 2020) rose $3.1 trillion and was matched one for one with a $3.2 trillion increase in the Fed’s balance sheet.

The Fed is indirectly funding the government, but are they printing money? Technically they are not. However, they are inching closer through various funding programs in coordination with the Treasury Department.

Will the Fed ever print money? In our opinion, it is becoming increasingly likely as the requirements to service the interest and principal on existing debt, plus new debt, far exceeds what the economy is producing.

Given the increasingly dire mismatch between debt and economic activity, we think it is helpful to retell a tale we wrote about in 2015.  This article is more than a history lesson. It effectively illustrates the road on which the U.S. and many other nations currently travel.

This story is not a forecast but a simple reminder of what has repeatedly happened in the past.  

As you read, notice the lines French politicians use to persuade the opposition to justify money printing.  Note the similarities to the rationales used by central bankers, MMT’ers, and neo-Keynesian economists today. Then, as now, monetary policy is promoted as a cure for economic ills. As we are now constantly reminded, massive monetary actions have manageable consequences, and failure is blamed on not acting boldly enough.

Our gratitude to the late Andrew D. White, on whose work we relied heavily. The exquisite account of France circa the 1780-the 1790s was well documented in his paper entitled “Fiat Money Inflation in France” published in-1896. Any unattributed quotes were taken from his paper.

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

Inflation Expectations Solidly On The Rise

Inflation Expectations Solidly On The Rise

Expectations Can Drive Inflation

Inflation expectations appear to be solidly on the rise and that spells big problems for the financial system. For years the central banks across the world have claimed deflation has driven or allowed their QE policies to remain. This is central to their ability to stimulate. The moment inflation begins to take root or becomes apparent much of their flexibility in policy is lost. The 2% inflation target central banks have deemed optimum is not valid. This argument is becoming harder to make since many people now feel so much money pouring into the financial system is beginning to move inflation higher.
Up until now, the law of diminishing returns has required larger and larger amounts of stimulus to be thrown at the financial system each time the economy begins to turn down. The continued appointment of dovish and easy money advocates to positions in high finance does little to reinforce confidence in the fiat currencies on which we rely. The rising value and interest in precious metals and cryptocurrencies such as bitcoin stand as evidence investors are seeking alternatives to the fiat currencies issued by nations and central banks.

Image
At Some Point Inflation Will Raise Its Ugly Head

In the past, I have put forth the idea that inflation could rule the day even if central banks are unable to keep the wheels on the bus and the economy collapses. This powerful force of inflation coupled with slow economic growth is known as stagflation. Like inflation, it can devastate those improperly invested when it moves onto play. It is important to remember the cost of all commodities, goods, and services do not move and the same rate or even necessarily in the same direction.

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

The Most Hopeful Scenario for 2021

The Most Hopeful Scenario for 2021

Choose wisely, America, or the options for a positive outcome will vanish like mist in Death Valley on a clear July afternoon.

From the point of view of evolution, the most hopeful scenario for 2021 is the sudden and complete collapse of everything that is obsolete, inefficient, ineffective and sclerotic. When obsolete systems and entities pass away quickly, the cost and pain are processed and absorbed quickly as well: enterprises go bankrupt and their assets are liquidated, failed ventures close, and schemes that didn’t yield the desired benefits are scrapped.

This is the evolutionary process. Whatever has lost its selective advantages will succumb to selective pressures and fade away.

The problem arises when self-serving insiders siphon resources to keep their obsolete, inefficient, ineffective and sclerotic gravy-train protected from selective pressures. Keeping a terminally ill human alive is an analogy: it’s possible to extend the life of a terminally ill person at enormous expense and effort, but the patient isn’t restored to their previous health or vigor–that is no longer even a possibility. They are no longer their previous self, and this is why people choose to avoid extraordinary interventions in their final phase of life.

Economically obsolete / terminal entities, on the other hand, always choose extraordinary monetary interventions to keep their gravy-train alive, even if they bleed the rest of the economy dry in the process.

If the buggy-whip industry existed today, Congress would grant it billions of dollars in low-interest loans, tax breaks and direct subsidies so those who made fortunes in the buggy-whip industry would continue to prosper, not from a productive activity but from subsidies and loans that ultimately weaken the entire economy and society.

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

Fed’s New Paradigm Adds Helium to the Stock Bubble

Valuation are not only high, they are among the highest on record.
The Laws of InvestingThe Wall Street Journal asks Has the Fed Rewritten the Laws of Investing?

It has been an odd year with the Covid-19 crisis hammering the economy, but stocks recovering from sharp losses and then powering to new highs. As a result, standard measures show valuations are at rarely-seen levels that have typically ended in tears.

The S&P 500 trades at 22 times analysts’ expected earnings—its most expensive level since the dot-com bubble. It also trades at its richest multiple to its inflation-adjusted earnings over the past decade—the valuation method popularized by economist Robert Shiller —in nearly 20 years. The total value of U.S. stocks as a percentage of the U.S. economy, which Warren Buffett once called “the best single measure of where valuations stand at any given moment,” is now higher than at any point during the dot-com years.

Stocks vs Interest Rates

Some suggest stocks may not be as expensive as they seem because that interest rates are extremely low.

John Hussman has pointed out the fallacy of that theory many times. The Journal explains the fallacy this way.

The 10-year Treasury largely reflects investor expectations of what the overnight rates set by the Fed will average over the next decade. The Fed responds to what is going on with the economy, setting rates higher when it is trying to cool things down, lower when it is trying to heat things up. So low yields are tantamount to a low-growth, low-inflation economy—one in which profit growth would be low, too. Why pay up for stocks under that scenario?

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

The Fed Wrecked the World’s Most Important Market

The Fed Wrecked the World’s Most Important Market

Do you wish to know where the economy is heading? The bond market holds the answer, say the veterans.

The birds of the moment, the flighty birds, flock to the stock market. But the owls nest in the bond market.

The owls are the wiseacres.

The Federal Reserve’s hocus-pocus fails to trick them. They know the card is up the sleeve. And they enjoy exposing the fraud.

New York Times economics reporter Neil Irwin:

Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.

For example: Is inflation ahead? The bond market will tell you — Treasury bonds in particular.

Bonds and Inflation

Longer-dated Treasury notes will telegraph the signal. If they wire an inflationary message, their prices will fall. And their yields will rise.

(Bonds operate as seesaws operate. When prices go up, yields go down. When yields go up, prices go down).

Yields would rise because inflation would eat into the bond’s value… as the termite eats into wood. Under inflation a bond is a sawdust asset.

Bond purchasers would demand a higher yield to compensate them for inflation’s ravages.

That is, they would demand insurance against the termite’s evils.

The Message of the Bond Market

Does today’s bond market indicate inflation is ahead?

It does not. 10-year Treasury notes presently yield under 1% — 0.923%.

These are historic lows. 10-year yields average 4.40% across time.

In brief… the bond market indicates no inflationary menace. Inflation is as tame as a tabby.

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

What Would Happen If the Fed Ceased to Exist?

What Would Happen If the Fed Ceased to Exist?

Extremes get more extreme until risk breaks out; then the reversal will be as extreme as the bubble expansion.

What would happen if the Federal Reserve ceased to exist? We all know the answer: global markets would instantly collapse and the global financial system, now entirely dependent on Fed stimulus, intervention, manipulation, free money for financiers and endless printing of trillions of dollars out of thin air, would crash, leaving nothing but a steaming, fetid pile of corruption infested by the cockroaches scurrying around gobbling up the few crumbs left.

What would happen if the Federal Reserve ceased to exist? The Treasury would sell its bonds on the open market, where buyers and sellers would set the yield on the bonds. Private banks would take deposits and lend money at rates set by supply and demand.

We all know what would happen: yields and interest rates would explode higher in response to risk having to be priced in and every flimsy, worm-eaten enterprise that depended on zero-interest rates would collapse in a heap and every putrid, staggering zombie corporation would crumble to dust, and its phantom assets, illusions generated solely by the artificial spew of the Fed, would fall to their real value, i.e. near zero.

Let’s modify the question slightly: what would happen if the Fed’s policies stopped working? In other words, what if the Fed’s spew no longer created the illusion of risk-free gambling in bubble-valuation assets? What if risk raised its Gorgon-like head despite every intervention, every manipulation, and every foul burp of propaganda from the Fed?

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

Update on the Fed’s QE

Update on the Fed’s QE

No Wonder the Cry Babies on Wall Street are clamoring for more. Five SPVs, already on ice, will expire on December 31.

The Fed released details today of its corporate-bond purchases in November ($215 minuscule millions) and corporate-bond ETF purchases in November (zilch). Last time it bought any ETFs had been on July 23. It released details about its other activities in its Special Purpose Vehicles (SPVs), which are essentially on ice. Five of them will expire on December 31, including the SPV that handles the corporate bond purchases.

The Fed unwound its “repo” positions in early July down to zero, and more recently most its “central bank liquidity swaps.” Its purchases of residential mortgage-backed securities (MBS) have been in a holding pattern since mid-September. What it is still buying at a steady clip are Treasury securities, thereby monetizing part of the debt the government is adding monthly to its gigantic pile.

The net effect is that its total assets have edged up just 1.0% since June 24, with a dip in the middle, after exploding higher in the prior three months. This is the Fed’s tool to bail out asset holders during each crisis, and enrich them when there is no crisis:

There is now clamoring among the crybabies on Wall Street that the Fed should increase its asset purchases, and they’re pressuring the Fed to announce a big increase at the next meeting, because, I mean, how else are markets going to keep on going up?

In terms of 2020: Total assets on the Fed’s balance sheet for the week ended December 9 rose by $20 billion from the prior week to $7.243 trillion, but were down a smidgen from the peak on November 18, having gone essentially nowhere over the past five months:

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

Handout Economics: Bizarre New Game Played by Governors and Mayors Nationwide

If you willingly chose to quit your paying job, spent all of your savings, then demanded that someone else foot the bill for your lifestyle… that wouldn’t make sense. Well, not to most people.

But it sure seems like some states in the U.S. are doing that, by utilizing a form of “handout economics” after voluntarily choosing to shut down businesses in response to COVID-19.

One example would be Washington state, where Governor Jay Inslee has kept the state under various levels of “lockdown” since February 29. “Non-essential” business closures or restrictions resulted in record unemployment as high as 15.1% back in May.

Leaving alleged Nigerian unemployment scams aside, Inslee has since demanded that Congress send even more money his way. Quite strange, considering his decisions created Washington’s worker and tax revenue shortfalls.

In California, Governor Gavin Newsom also requested to dip his hands into the federal government’s coffers. This request came to account for the bloated state budget and skyrocketing debt caused in part by his decision to lock down the Golden State.

But to look at what seems to be a more interesting example, we head to San Francisco…

More “Mad Money Printing” and the Fed’s Problem

Around December 7, San Francisco Mayor London Breed issued yet another immiserating lockdown for the “Golden City.” She even admitted to the impacts on Twitter:

Small businesses are closing at alarming rates. People are behind on rent. This isn’t sustainable.

Local budgets have been crushed by this pandemic and we’re facing devastating decisions over the coming months around jobs and services.

As Mayor Breed should have expected, if she made the decision to shut down small businesses, they would eventually close. The people that worked there would become unemployed, and eventually get behind on their rent or mortgage payments. Without the added tax revenue stream, local budgets would get “crushed.”

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

BREAKING NEWS: Shocking Increase In U.S. Money Supply In Past Two Weeks

BREAKING NEWS: Shocking Increase In U.S. Money Supply In Past Two Weeks

The increase in the U.S. money supply in the past two weeks is absolutely shocking.  Something must be seriously wrong behind the scenes at the U.S. Treasury and Federal Reserve for the M1 Money Supply to increase more in the past two weeks than it did in six weeks during the beginning of the pandemic shutdowns in late March.

I wrote about this in my last subscriber video, INVESTOR WARNING: Markets Just Propped Up By Half-Trillion In Liquidity, Brace For Major Correction Ahead.  In just one week, the M1 Money Supply surged by $498 billion.  While that was stunning, I was quite shocked to see another huge increase in the past week.

The FRED – St. Louis Federal Reserve just updated their M1 Money Supply figures showing another increase of $312 billion, on top of the $498 billion added the week prior.  So, the total increase in the U.S. M1 Money Supply for Nov 16th to Nov 30th is a shocking $809 billion.  Compare that to the $388 billion increase from Mar 16th to Mar 30th when the pandemic shutdowns first began.

Do you know how much $810 billion equals?  That turns out to be four years of global gold mine supply totaling 440 million or 40 years of global silver mine supply of 32 billion oz.  This is beyond stunning to see this much of an increase without any news release by the U.S. Treasury or Federal Reserve.

Of course, it made sense to see the M1 Money Supply to increase after the pandemic shutdowns and stock market meltdown… BUT WHY NOW???  Take a look at the following chart from the St. Louis Fed (FRED).

From March 16th to April 27th, the U.S. M1 Money Supply increased $773 billion… six weeks.  Why on earth has the M1 Money Supply increased $810 billion… in TWO WEEKS!!!

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

For Stocks & Bonds, Upside Surprise of Inflation and Interest Rates “Could Prove Nasty”: Dudley

For Stocks & Bonds, Upside Surprise of Inflation and Interest Rates “Could Prove Nasty”: Dudley

Five reasons to “worry about faster inflation.” It’s “a greater danger precisely because it’s no longer perceived as such.”

“Given how completely financial markets have come to expect low inflation and interest rates, and how much support those expectations are providing to bond and stock prices, an upside surprise could prove nasty,” says former president of the Federal Reserve Bank of New York Bill Dudley, in a warning about how markets are ignoring the rising risks of inflation.

Companies have been raising prices, and they have been getting away with it. I’m not talking about prices at the gas station or grocery store which bounce up and down, but prices for things that are more stable, particularly services, where 70% of spending takes place, such as broadband services, shipping rates, and the regular highflyers, such as healthcare. Rents on a national basis are mix of plunging rents in some cities and surging rents in other cities. There has been inflation in goods too, including used-vehicle prices which have spiked by 15% since June,

Many of the restaurants that remained open raised their prices to deal with the additional costs and the decline in seating capacity during the Pandemic, and people are willing to pay those prices to support their restaurants. This happened across other industries that have cut capacity, triggering surging prices despite a decline in demand.

Some of these price increases happened because demand was red-hot, brought on by the sudden shifts to eating at home, working at home, learning at home, playing at home, and vacationing at home, and the other distortions brought about by the Weirdest Economy Ever. Other price increases happened because there were supply constraints due to the Pandemic, and the higher prices stuck.

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase