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The first thing to know about Dr. Thomas E. Woods, Jr.’s’ book Our Enemy, the Fed is he’s giving it away. Click the link, get your copy and read the whole book. Clearly, such intellectual charity is not only rare but in the educational spirit of Mises.org. The subject matter is light-heavy but Woods, author of the bestseller Meltdown (reviewed here), navigates it with the smooth skill of a master, making the reader experience satisfying from beginning to end.

The title reflects another insight, paralleling as it does Albert Jay Nock’s Our Enemy, the State. Most of us were raised to believe government and its agencies serve our best interests. As libertarian scholarship has shown the truth is the exact opposite, particularly with government’s sleazy relationship with money and banking. Admittedly, it’s a hard idea to accept since it involves a pernicious breach of trust, but Woods makes it abundantly clear. To our overlords we are easily-duped chattel.

Until Ron Paul decided to run for president and his End the Fed came along in 2009, the general public was mostly blind to the Fed’s existence. Austrians aside, the few who knew something about it — mostly university-trained economists on the take from the Fed — considered it a vital part of an advanced industrial economy. Yet the Fed had been around for 96 years when Dr. Paul’s book emerged. Given that it’s in charge of the money we use how did it remain in the shadows for tax-burdened citizens for nearly a century? What’s up with that?

The Federal Reserve Bank of St. Louis tells us the Fed’s congressional assignment is “to promote maximum employment and price stability.” (Bold in original) For these it talks about interest rates, and its aim is to increase the money supply so that prices rise gently at or around a 2 percent rate.

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

Oil prices aren’t the Fed’s biggest problem right now — American demand is, says an economist

April 24, 2024

Oil prices aren’t the Fed’s biggest problem right now — American demand is, says an economist

Inflation could see a resurgence in 2025, BlackRock strategists warned. Jonathan Kitchen/Getty Images

“I think what’s difficult for the Fed currently is actually the part of CPI that is being driven by demand, rather than the supply issues or the energy issues, which are perhaps easier to deal with,” Samy Chaar, the chief economist of Lombard Odier, told Bloomberg TV. The Swiss private bank managed 193 billion Swiss francs, or $212.8 billion, in assets at the end of December.

A key inflation metric for the Fed, the Personal Consumption Expenditures Price Index, was little changed in March over its 2.8% reading in February. Federal Reserve chair Jerome Powell highlighted the index earlier this week as he signaled that interest rate cuts may come later, rather than sooner.

The US economy has been strong, with job growth and retail sales also rising more than expected for the month of March.

“The problem with the US is the sticky part that comes from services. Services is demand, and that demand needs to come from somewhere — and that’s a robust economy,” Chaar told Bloomberg. A gauge from the Institute for Supply Management showed the US service sector expanded moderately in March.

“Consumers are consuming because they have jobs, because they have rising incomes,” Chaar said.

This means inflation is fueled by demand rather than oil supply, even if a rise in energy prices complicates the Fed’s job, he said.

The Fed is now trying to engineer a soft landing for the hot US economy without causing it to tip into a recession.

“I would say the biggest challenge here for the Fed is to manage the demand of the US economy,” Chaar said. “It comes from domestic America, not from the Middle East.”

What the Rising Gold Price Signals

April 24, 2024

What the Rising Gold Price Signals

The recent run-up in the gold price has not garnered the attention among the mainstream financial media outlets as it should. Gold has, in part, been overshadowed by the rise in the price of bitcoin and other cryptocurrencies.

Naturally, the financial press, which is really an arm of the government and its central bank, wants to ignore, as much as possible, references to gold as protection against the continuing increase in the price level which itself has been deliberately understated by monetary officials. The media and government understand that precious metals are the ultimate security against runaway inflation and economic collapse.

While the increase in the gold price has reached nominal highs, it and the price of silver have not passed their all-time 1980 highs in real terms. Adjusted for inflation, gold would have to rise to about $3590 an ounce while silver would have to surpass $50 an ounce. Both are poised to exceed these watermarks in the not-too-distant future.

Precious metals will continue to escalate unless the Federal Reserve radically changes its interest rate policy to combat inflation as former Fed Chairman Paul Volcker once did. Volcker raised interest rates to double-digit levels which caused gold prices to fall. While Volcker could get away with such actions (because, at the time, the U.S. was still a creditor nation), current Chair Jerome Powell cannot because of the enormity of public and private debt. Double-digit interest rates would collapse the economy and plunge millions of Americans into bankruptcy.

The rising price of gold is anticipating some of the promised policy actions of the Fed. Since the end of last year, the central bank has indicated that it would be cutting interest rates. In addition, Powell is considering ending the Fed’s “Quantitative Tightening” (QT) program. Both are highly inflationary.

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

Black swan hedge fund says Fed rate cuts will signal market crash

April 23, 2024

Black swan hedge fund says Fed rate cuts will signal market crash

Federal Reserve Board Building in Washington

NEW YORK, April 22 (Reuters) – While U.S. financial markets debate the timing of interest rate cuts, one tail-risk hedge fund is warning that investors should make the most of recent economic optimism while it lasts, as a shift to lower rates will signal a dramatic market crash.

“This is a case of be careful what you wish for,” said Mark Spitznagel, chief investment officer and founder of Universa, a $16 billion hedge fund specializing in risk mitigation against “black swan” events – unpredictable and high-impact drivers of market volatility.

Spitznagel’s view is not widely held. The much-anticipated shift to a less restrictive monetary policy by the Federal Reserve has helped buoy stocks and bonds in recent months, although signs of stubborn inflation have eroded expectations for how deeply the central bank will be able to cut interest rates in 2024.

Spitznagel argues that such a shift would likely take place only when economic conditions deteriorate, creating a challenging environment for markets.

“People think it’s a good thing the Federal Reserve is dovish, and they’re going to cut interest rates … but they’re going to cut interest rates when it’s clear the economy is turning into a recession, and they will be cutting interest rates in a panicked fashion when this market is crashing,” Spitznagel said in an interview with Reuters.

Funds such as Universa often use credit default swaps, stock options and other derivatives to profit from severe market dislocations. Generally they are cheap bets for a big, long-shot payoff that otherwise are a drag on the portfolio, much like monthly insurance policy payments.

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

Markets Are Biting Their Lips over Global Chaos

April 21, 2024

Markets Are Biting Their Lips over Global Chaos

And Fed Chair Powell is joining them because suddenly nothing is going right for his soft-landing plans!

Rising Middle-East tensions are driving up the price of crude oil and driving down the price of stocks and value of bonds. Analysts are saying oil could go to $100/bbl if the conflict between Israel and Iran goes any further. If Israel responds to the recent attack by Iran, some think Iran is likely to fight back with the West in a variation of what it has already done via its proxies. In the worst-case scenario for oil, Iran will block the Strait of Hormuz to tanker traffic, using its proxies to do there as they have already done on the other side of the Arabian Peninsula (or doing that directly, themselves, from Iran). That could raise oil to $130/bbl, which would blow the doors off inflation. Societe Generale puts the risk at $140/bbl if the US gets involved. For now, however, the oil market is just biting its lips … like this:

Well, that’s Fed Chair Jerome Powell, but he is biting his, too, as everything turns against his flight plans for a soft landing at the end of his own war … with inflation.

That’s because the Fed pumped so much money into the economy during the Covid lockdown fiasco that he can’t get the surplus money out quickly enough. As noted yesterday, and caught in the news again today, Powell has clearly pushed rate cuts back once again. In fact, Bank of America is now resetting its calendar for the first cut to March of next year (going for a different March than the one most analysts originally thought they would get…

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

“The Federal Reserve Is Clearly Trapped”: Lawrence Lepard

April 18, 2024

“The Federal Reserve Is Clearly Trapped”: Lawrence Lepard

Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week.

Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week. He gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely.

Larry was kind enough to allow me to share his thoughts heading into Q2 2024. The letter has been edited ever-so-slightly for formatting, grammar and visuals.

QUARTERLY OVERVIEW

Globally, the stock markets continued their 45-degree angle rise during the first quarter. Crude oil, and commodities broadly, also had a stair-step rise consistently during the quarter. Gold and silver and the miners were an interesting dichotomy. Bullion prices were flat to slightly down in January and February, and the miners were clobbered during those early months of Q1. However, in March the price of gold broke through the long-standing $2,070 ceiling and the miners responded, driving the Fund up by 25.4%. Gold miner indices were down 17% in the first two months before the March move.

Note that the gold mining stocks still have not provided any leverage to the price of gold. In fact, in the first quarter they did not even keep pace with the increase in the price of gold. With gold up 8.1% in the quarter, the gold mining indices were up 2%. Typically, gold miners provide 2x to 3x leverage in terms of returns; so with gold up 8%, the miners would typically have been up 16% to 24%. This supports our thesis that the miners are still undervalued and are going to mean revert with a vengeance as this bull market in gold continues. The gold mining shares have a long way to go before they reflect fair value.

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

What About Prices?

April 16, 2024

What About Prices?

Chapter 8 from my forthcoming book Rebuilding Economics from the Top Down

Inflation, having been quiescent for decades, became a serious issue once more with the bout of inflation that occurred after the peak of the government reaction to the Covid crisis. Though it did not reach the 12-15% levels of the mid-1970s to mid-1980s, and it has fallen sharply from its peak of 8.9% p.a. in June of 2022 to 3.2% in October 2023, it was still a serious break from the low inflation period from the mid-1980s until the beginning of the 2020s—see the top chart in Figure 19.

This is Chapter 8 from my forthcoming book Rebuilding Economics from the Top Down, which will be published by the Budapest Centre for Long-Term Sustainability and the Pallas Athéné Domus Meriti Foundation. I am serialising the book chapters here. A watermarked PDF of the manuscript is available to supporters.

The original Neoclassical (and Austrian) explanation for inflation is that it is caused by “too much money chasing too few goods”, with government money creation being the culprit, and with “long and variable lags” between government deficits and actual inflation:

The lag between the creation of a government deficit and its effects on the behavior of consumers and producers could conceivably be so long and variable that the stimulating effects of the deficit were often operative only after other factors had already brought about a recovery rather than when the initial decline was in progress. Despite intuitive feelings to the contrary, I do not believe we know enough to rule out completely this possibility. If it were realized, the proposed framework could intensify rather than mitigate cyclical fluctuations; that is, long and variable lags could convert the fluctuations in the government contribution to the income stream into the equivalent of an additional random disturbance. (Friedman 1948, p. 254. Emphasis added).

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

The “Business” of Central Banking—Usury and Tax Farming

April 11, 2024

The “Business” of Central Banking—Usury and Tax Farming

Central banking is “a great business to be in, where you print money, and people believe it.”

That’s what the head of New Zealand’s central bank said recently in an unscripted moment of candor.

It led me to wonder about the nature of this strange “business.”

Let me put it into the simplest and most concise terms.

Central banks create fake money out of thin air and loan it to governments at interest.
Governments use violence and threats of violence to extract taxes from average citizens to pay the interest on the fake money the central banks created out of thin air.
Like the mafia, they can deploy violence to ensure there is no competition to their privileged racket.

That’s the unvarnished truth about central banking.

In short, it’s the business of usury and tax farming.

(To me, a more practical modern meaning of usury is “enslaving people with financial trickery.” Central banking clearly fits the bill.)

The central bank is a powerful wealth transfer mechanism that enables governments to harvest the productive efforts of their citizens efficiently and surreptitiously.

The central bank’s currency debasement transfers wealth from savers to those closest to the money printer, namely governments and their cronies.

The central bank’s real mandate is to transfer as much wealth as possible via currency debasement to the political class without causing alarm among the plebs. Ideally, it happens gradually so nobody notices, like a child taking only a little money out of his mother’s purse each day so she doesn’t notice.

However, sometimes their theft spirals out of control, and it’s impossible for the plebs not to notice.

Consider this.

The Federal Reserve—the central bank of the US—has printed more fake money in recent years than it has for its entire existence.

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

This Double Whammy Will Unleash Unprecedented Money Printing… or Break the U.S. Economy

April 11, 2024

This Double Whammy Will Unleash Unprecedented Money Printing… or Break the U.S. Economy

Deficits, Deficits, and More Deficits, Unravelling Social Security, Money Printer Going Brrr

“A government big enough to give you everything you want is a government big enough to take from you everything you have.”

~ Gerald Ford

The Federal Reserve is gearing up to cut rates and fire up the money printer this year. And you can see why…

You have Joe Biden, who’s in dire need of a push to turn the tide in the upcoming election. Then you have U.S. banks sitting on a hefty $480 billion in unrealized losses on government securities. The Fed is poised to lend a helping hand to both.

But then there’s another reason that tells me that the Fed won’t likely stop soon once it starts up the proverbial money printer.

Let me elaborate.

Numbers Straight Out of a Horror Flick

Every six months, the Congressional Budget Office (CBO) releases a rolling 10-year “Budget and Economic Outlook.” Most people ignore reading material of this sort, but I’m always eager for it because it showcases just how utterly incompetent governments can be.

If you open the most recent report, and scroll to Page 10, you’ll find Table 1-1: CBO’s Baseline Budget Projections. Look for the line labeled “Total Deficit.” These are government deficits, and I’ve marked them in the next image.

The first thing that should catch your eye from the table above is that the deficits will consistently worsen, starting at $1.5 trillion in 2024 and reaching about $2.6 trillion by 2024. That’s an increase of 71% in just a decade.

Alarmingly, this also means that the total cumulative deficit between 2024 and 2034 would hit an astounding $21.6 trillion.

If this isn’t a damning indication that the U.S. is rapidly heading towards complete fiscal ruin, I don’t know what is. But it gets even worse.

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

Global ‘Game Of Chicken’ Continues – MOAB >> NFP

April 5, 2024

Global ‘Game Of Chicken’ Continues – MOAB >> NFP

Today we will hit two topics, NPF and MOAB.

Let’s Start with NFP

About as good as it gets for the economy, not so good for Fed cuts.

Not only were the headline jobs better than the top estimates on Bloomberg (303k jobs). We also revised prior job reports up by 22k.

Wages are doing reasonably, with monthly wages coming in 0.3%.

What is most impressive to me is the unemployment rate coming down to 3.8%. That occurred while participation rate increased nicely. At 62.7%, it is just a smidge below the post covid high of 62.8%. The Household Survey (which is used for unemployment) added 498k jobs!

Definitely not “goldilocks” for the Fed, but good for the economy.

Yields should rise a bit and curves should be less inverted.
Stocks should probably react slightly negatively to the report as yields rise. But offsetting that yield rise is the sheer strength of the economy and the fact that the consumer should be in good shape.

What Does MOAB Have to do with Anything?

Nothing and everything. MOAB or Mother Of All Bombs isn’t front and center but Escalation and Expansion is. Thursday’s big drop in stocks was precipitated by fears that Iran was preparing to attack Israel. Part of why stocks were higher overnight and are still strong post NFP is because nothing happened overnight in terms of escalation and expansion (you can see that in oil too, which is hovering around unchanged).

We dealt with our thoughts on Hedging Geopolitical Risk at the start of the year and remain convinced of two things:

Long energy and energy stocks is the best hedge, since we like that sector already for a variety of reasons, and the next potential shoe to drop, would be cracking down on Iran’s 3.5 million barrels of oil being sold daily.

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

Proposal to Move Bank Regulation Goalposts Signals Underlying Problems in Financial System

April 5, 2024

Proposal to Move Bank Regulation Goalposts Signals Underlying Problems in Financial System

If a formula spits out a number you don’t like, just change the formula so you get a better number!

That’s exactly what the Bureau of Labor Statistics did to the Consumer Price Index formula in the 1990s. Because the CPI kept indicating price inflation was too high, the BLS tweaked the formula to spit out a lower inflation number.

Now the International Swaps and Derivatives Association (ISDA) is trying to talk the Federal Reserve into changing the formula for the supplementary leverage ratio (SLR) to make bank balance sheets look better.

This proposal sends some alarming messages about the stability of the banking system and confidence in U.S. government debt.

What Is the SLR and Why Do They Want to Change It?

The SLR is calculated by dividing the bank’s tier 1 capital (capital held in a bank’s reserves and used to fund business activities for the bank’s clients) by all assets on the bank’s balance sheet, including U.S. Treasuries and deposits at Federal Reserve Banks.

Banks use the SLR to calculate the amount of equity capital they must hold relative to their total leverage exposure. Regulations imposed after the 2008 financial crisis require category I, II, and III banks to maintain an SLR of 3 percent. “Globally Systemically Important Banks” are required to keep an extra 2 percent SLR buffer.

During the pandemic, the Fed temporarily altered SLR requirements, allowing banks to exclude Treasuries and reserves from the formula’s denominator. This made it easier to maintain the required SLR ratio.

As a Federal Reserve note explained, the banking system “exhibited considerable strains” during the reign of COVID-19. As the pandemic unfolded and governments began shutting down economies, banks quickly liquidated risky assets and increased their cash holdings. This resulted in a “sharp increase in bank deposits.”

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

The Fraud Inherent in Fractional Reserve Banking

April 3, 2024

The Fraud Inherent in Fractional Reserve Banking

“Our current banking system is not free market capitalism.”

Suppose you bring a fur coat to a dry cleaner and later discover that the owner allowed his wife to wear it before cleaning it (an episode from Seinfeld). Or suppose you gave your car keys to a hotel valet and was told he lent your car to teenagers who took it for a joyride while you were sleeping at the hotel. You would not be too happy and for good reason. When you surrendered your clothes or your car keys, it was a bailment. You retained ownership and gave the clothes or car keys for safekeeping. In no shape or form did you surrender ownership of the items or lend out your property.

Suppose you lived in the eighteenth century and had a hundred ounces of gold. It’s heavy, and you do not live in a safe neighborhood, so you decide to bring it to a goldsmith for safekeeping. In exchange for this gold, the goldsmith gives you ten tickets on which are clearly marked as claims against a total of ten ounces. Now, gold is heavy and burdensome to carry, so in a short period of time, those claims will start circulating in place of gold. This is the creation of near monies. This doesn’t mean you have given up your ownership claims on gold but have instead used a simpler way of transferring ownership on this gold.

Of course, the gold now just sits in the vault, and no one usually comes to get some of it or even checks that it is still there. Quickly, the goldsmith realizes there is an easy, fraudulent way to get rich: just lend out the gold to someone else by creating another ten tickets…

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

The Meltdown of Commercial Real Estate

March 29, 2024

The Meltdown of Commercial Real Estate

Commentary

In case you’ve still got money in a bank, Bloomberg is warning that defaults in commercial real estate loans could “topple” hundreds of U.S. banks.

Leaving taxpayers on the hook for trillions in losses.

The note, by senior editor James Crombie, walks us through the festering hellscape that is commercial real estate.

To set the mood, a new study predicts that nearly half of downtown Pittsburgh office space could be vacant in four years. Major cities such as San Francisco are already sporting zombie-apocalypse downtowns, with abandoned office buildings baking in the sun.

So what happened?

The Fed’s yo-yo interest rates first flooded real estate with low rates and cheap money. Which were overbuilt.

Then came the lockdowns, which forced millions to figure out new workday patterns. People liked foregoing the long commute (not to mention the free money). Despite every effort, downtown businesses have not been able to get all workers back.

These days, everyone talks about hybrid models of working, some in-person and some remote. But judging from observation, remote is winning. In any case, even a 30 percent reduction in the footprint of office space once the leases are renewed could topple the entire sector.

The restaurant and retail sectors of downtown feel the pinch, with more closures all the time. Adding to the pressure are absurd levels of inflation and ever-riskier streets on matters of personal security. Put it all together and there is ever less reason to slog to the office.

When the Fed panic-hiked interest rates in the 2021 inflation, that put trillions of commercial real estate underwater even without other factors. Add to that crime, inflation, plus remote work, and you have a dangerous mix that could topple cities as we know them.

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

Wealth Gap And The Road To Serfdom

March 29, 2024

Wealth Gap And The Road To Serfdom

One of the most interesting conundrums is the surging wealth gap in America. Despite two of the largest bull markets in history since 1980, most Americans struggle with making ends meet and are unprepared for retirement. Such a reality starkly differs from the belief that rising asset prices benefit the masses.

For example, in a recent St. Louis Federal Reserve Bank analysis, total household wealth was $139.1 trillion, covering 131 million families. Of that total wealth, 74% was owned by just 13.2 million families, or roughly 10% of the population.

Notably, this measure of wealth includes the equity of the family’s home. While home equity is essential, it is not readily spendable without taking on debt to extract the value. Therefore, Americans’ “liquid wealth” is far more unequally distributed. However, such is hard to fathom given the endless parade of media and social media influencers extolling the virtues of “building wealth through investing.”

Interestingly, that survey came after the Government injected nearly $5 trillion into the economy, a massive surge in deficit spending, and the Fed’s $120 billion monthly injections doubled asset prices from the March 2020 lows. Unsurprisingly, in February, Fidelity published its latest analysis showing the number of retirement accounts with balances of more than $1 million surged toward a record. To wit:

“The number of seven-figure 401(k) accounts at Fidelity Investments jumped 20% in 2023’s final quarter to 422,000, marking a sharp recovery from the previous quarter’s 7.7% drop.

Gains in the stock market helped swell retirement balances last year as the S&P 500 advanced 24% following 2022’s 19% decline. The impressive run was powered in large part by the so-called “Magnificent 7” stocks that now make up roughly 30% of the market-cap weighted S&P 500 Index. The only time when the ranks of 401(k) millionaires at Fidelity was higher was in 2021’s fourth quarter, when there were 442,000 such accounts. Elsewhere, the number of seven-figure IRAs is at a record 391,600 accounts.” – Bloomberg

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

The Fed’s Dovish Twist – Only Surprising on the Surface

March 27, 2024

The Fed’s Dovish Twist – Only Surprising on the Surface

Rate Cuts, Money Printer Go Brrr, and Biden

“The Federal Reserve is not only too big to fail, it’s too big to be held accountable.”

~ Thomas Massie

Last week at its Federal Open Market Committee (FOMC) meeting, the Fed made it clear that it will go back to stoking inflation.

Leaving the Fedspeak aside, here’s the gist: The Fed wants to cut interest rates three times this year, each time by 0.25%, with the goal of reaching a range between 4.55% to 4.75%.

That’s the plan for 2024. But the Fed’s expectation is to lower them even further in 2025 and 2026.

Now, this is quite a turn… and quite an odd one at that in terms of the timing. First, you’ve got the stock market recently hitting all-time highs. Gold and Bitcoin are also hovering near their all-time highs.

And hold on a second, isn’t the Fed supposed to be fighting inflation? Didn’t it come in pretty hot recently?

It did.

The PCE (or Personal Consumption Expenditures) — the Fed’s preferred gauge for measuring inflation — jumped by 0.4% in January, hitting its fastest pace in almost a year.

The inflation report for December was not great either.

Leaving aside the fact that the whole core PCE thing is a sham because it excludes food and energy (the two things Americans depend on the most), the Fed, being all “data-dependent,” is shrugging off the data it doesn’t like.

Alright, that’s pretty noteworthy on its own, but that wasn’t the only jaw-dropping news from the Fed last week.

It came from Fed Chair Jerome Powell himself, who suggested that the central bank could ease quantitative tightening (QT) “fairly soon.”

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

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