THE COMING GLOBAL COLLAPSE WILL ECLIPSE THE TERROR OF 2008
February 8, 2014 Leave a comment
Today the man who has been one of the most accurate in the world at calling movements in gold warned King World News that the coming collapse will be far worse than the terror that engulfed the world 5 or 6 years ago. William Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, also warned KWN that the reaction by global governments to this coming collapse will be incredibly alarming for ordinary citizens.
Eric King: “Based on what you’ve been communicating to KWN, it appears you firmly believe that the 2008/2009 collapse is nothing compared to what’s in front of us?
Kaye: “That’s right. The 2008 collapse was just a warning shot. That’s all it was. And the reaction by governments around the world was simply one of panic.
“They (the governments) took the easy way out. Because of that they did not learn any of the lessons that should have been learned.
If you have a problem which was precipitated by excess leverage, and ultimately the market is dictating that you can’t service that debt, which was going to lead to enormous wealth destruction, ultimately you’ve got to learn to intelligently de-lever. But instead of doing that, additional layers of debt were piled on everywhere, while policies of financial repression were used to prevent interest rates from causing yet another financial convulsion.
But now we are getting to the point where the authorities are recognizing the fact that there is a major problem, and this cannot go on indefinitely. Look at the destruction that has already taken place in emerging markets because of the very slight withdrawal of the most extraordinary aspects of quantitative easing.
Now you have China trying to tackle, as best they can, a Leviathan in the shadow banking sector. Virtually all of the developed nations are trying to deal with the failed policies of the last several years. The problem with that is they are not going to be able to succeed. It would be one thing if they (central planners) had a hope in hell of coming to grips with the enormity of the problems they face, but the reality is they don’t.
So, yes, I’m very concerned about the future. I believe that ultimately the decisions that policymakers are going to be facing either this year or next year, are going to be one of default or debase. Neither of these sets of outcomes are going to be greeted well by financial markets. This will mean much lower equity markets, higher interest rates, and a global reset with respect to the existing global financial architecture. But what you are going to see in the future is going to be unprecedented. I don’t even think the experience of the Great Depression of the 1930s will properly describe what is in store for people.
My fear is that as social unrest breaks out pretty much everywhere, the governments of the world will use this as an opportunity to increase the ‘Orwellian’ police state. We have already seen signs of this in many countries, including the United States. But governments will crack down even further. So that will mean a further loss of freedoms for ordinary citizens, under the premise of restoring social order. I view these trends as quite disturbing and leading to a future that is increasingly fascist in my view.”
THE HORRIFYING END GAME AND THE COMING BIG CRASH
February 6, 2014
Today the man who has been one of the most accurate in the world at calling movements in the gold price spoke with King World News about the horrifying end game and the coming “big crash.” William Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, also warned KWN about forthcoming financial seizures and how this will dramatically impact people around the world.
Kaye: “While the carnage in the emerging markets has been intense, what we have seen in major Western markets has not been that big of a deal. But if we look out to 2015 and beyond, it’s likely to be very ugly for the West. We are extremely bearish just because the fundamentals in our view are bearish.
“But eventually the ‘Bernanke Put’ is likely to be replace by the ‘Yellen Put.’ I think if things do get markedly worse than what we’ve seen, if mid single-digit losses in Western markets turn into double-digit losses, you are going to see much more aggressive action by the major central banks.
Then, we will have to see how the markets respond to that. But if they respond the way they have since 2009, you could also get another spike higher, certainly by the second quarter, that could touch or even slightly exceed the prior highs before Armageddon sets in.”
Eric King: “KWN has been warning for years that all of this money printing was not going to do anything for these economies. It just creates misallocation of capital and asset bubbles. The reality is that the world financial system is going to implode if it stays on its current course.”
Kaye: “Well, that right. Everything the central bankers are doing around the world is not making things better — it’s making things worse. One of the ways it’s making things worse is by disconnecting financial markets from economic reality. That’s a major problem.
At some point that disconnect gets resolved, whether it’s later this year or 2015. I am confident that I can see the medium-to-longer-term outlook here: You simply can’t continue policies that are destructive to real economies. You also cannot continue with destructive policies that are damaging to employment and real incomes.
In the US, for example, we are back to labor participation rates that were last seen when the United Sates was in a deep recession in 1977 to 1978. This was the last time that labor participation rates were as poor as they are now in America. That’s when I was at Goldman Sachs, so I have a pretty clear recollection of that time period.
It was incredibly difficult for people graduating from top colleges to find a job during the late 1970s. Well, that’s exactly where we are once again in the United States. So the propaganda being issued from the United States government and the mainstream media that the US is on a recovery path is an outright lie.
If you look at Europe, in much of Europe the situation is even worse. So all these disastrous central bank policies have accomplished is to markedly increase the net worth of the super-wealthy, and impoverish virtually everybody else. And this simply can’t continue. You cannot have policies persist that create such disturbing imbalances.
And if we look at what they are doing over in Japan, ‘Abenomics’ is destroying the purchasing power and the savings of its own population. This should be a crime. But what Japan is doing, just like the Western nations, is leading to a global situation that is entirely untenable. In a way, we can throw in China as well with it’s shadow banking fiasco.
But the reality is that the debt bubble is just way beyond the Rubicon. There is just no way that any sensible measures can be taken globally to deal with the immense debts that have accumulated and continue to be accumulated around the world. So we are going to reach that point of reckoning, whether it’s this year or 2015. But my guess is that the ‘big crash’ is going to occur in 2015.
And as soon as interest rates are reset to a level that approximates anywhere close to an historic norm, the citizens of the world are going to be subjected to financial seizures that are going to make 2008/2009 look like a warm up act. That’s the end game.”
ERIC SPROTT: EXPECT A TERRIFYING SHOCK TO THE SYSTEM
February 6, 2014
With global stock markets getting a bounce after a turbulent start to 2014, today billionaire Eric Sprott warned King World News that investors around the world need to brace themselves for a terrifying shock to the global financial system. The Canadian billionaire also lashed out at the central banks for their failed policies.
Eric King: “Eric, what is the big threat going forward? What has you worried here?
Sprott: “The big threat to the financial world is the realization that all of these actions by central banks have created nothing.
“Even when I look back to the US and how we came out of 2008 — we’ve got an extra 20 million people on food stamps. There are no real signs of real growth here. I just think that people will figure out that we have all been boondoggled on this thing, to believe that something positive is happening, when in fact very, very negative things have been happening.
The Fed’s balance sheet has blown out. We never did restructure the banking system. We see that the European banks would have to raise $1 trillion in certain circumstances. And I can just imagine if they actually came to market (for $1 trillion) what the prices of the bank stocks would do — they would just collapse because I don’t think there is $1 trillion that wants to go into European bank stocks.
So all of the problems that we had in 2008 are still around, except magnified now. So that’s the big concern — that we all find out it was just a big Ponzi scheme and the market breaks. It’s the same decision I had to make back in 2000, before the Nasdaq crash, when I thought, ‘Boy, it looks like the Nasdaq is going to crash. What am I going to do?’ The obvious conclusion was you’ve got to own hard assets — things like gold and silver.”
Eric King: “Eric, how close do you think we are to where they (the central planners) are going to hit the wall with the money printing? You finally get to a point where you can’t have an impact on an economy at all (with the money printing). Are we getting close to that?”
Sprott: “You hit the wall, Eric, when problems in the banking system are allowed to manifest themselves — where some bank finally realizes, ‘Hey, we don’t have any capital here and we just can’t keep going on pretending that we are solvent when we are insolvent.’ And as we see this constant deterioration in the economic data, I think it will become apparent to everyone that things aren’t working.
If stocks start going down, of course it imperils all paper assets, and the banking system owns nothing but paper assets. My biggest concern in the financial arena has always been that the banks end up with problem loans. In Spain something like up to 25% of all loans are problem loans. You just know there is no way for the banks to survive without the support of the central banks, and these central banks are getting extended here. There is only so much they can do.
So you will see something (shocking) in the financial system — maybe it’s in the stock market, maybe it’s some bank going down. The valuations are bearing no relationship to what the underlying fundamentals are today, so something is going to break somewhere along the line.”
MAULDIN: “THE BIG ONE” AND WHAT INVESTORS MUST WORRY ABOUT
February 7, 2014
Today John Mauldin spoke with King World News about what is going to trigger what he calls “The Big One” and what investors around the world must now worry about. Mauldin, President of Millennium Wave Securities, also discussed when he expects “The Big One,” as well as the disastrous assumption central banks are making.
Mauldin: “At some point when we have a traumatic event, something that really gives us a reason to have a new valuation, then I think we see the big one. There is a new event out there, and the central banks are going to respond with more ‘Code Red’ policies.
It’s a very difficult time to be an investor … We now have to worry about what the f*** these politicians and central bankers are going to do in response to everything.
“They (politicians and central bankers) feel that they can substitute their wisdom for the wisdom of the market. And we know that this always ends badly.”
Eric King: “John, you talked about the ‘big one’ (big collapse), when is the big one going to come?”
Mauldin: “I can cogently argue that it’s going to happen this year, but then I can give you tons of reasons why it won’t happen until 2016. I’m not trying to be coy, I just don’t know what is going to be the driver. I suspect it’s going to be Europe, and a European crisis is further out.
Now, they could create a crisis with the stress tests they are going to be doing. My cynical nature says they are not going to hold real stress tests, so that’s not going to create a crisis that should be created. Their (European) banks are massively underfunded.
But eventually they are going with their sovereign debt issues, and budget deficit issues. They are going to have to figure out whether they want to be a fiscal union, or break up. I think they are going to stay together and it’s going to mean a massive restructuring of their treaty, but that’s in the future.
If we go back to what I was writing about in 1998 and 1999, I was talking about secular bear markets and how they last an average of about 17 years. We are 14 years into this one now. So 3 (more) years just gets us to the average. It could go on longer. But it really takes three really major events to bring valuations back down to those compelling low double-digit/single-digit valuations that become a spring-coil for the next secular bull (market).
So if you are a longer-term investor with some flexibility as to what you can and can’t do today, you should be hedged and you should be looking forward to the next secular bear market. That’s going to be the time when we see a true shift. Everybody will say, ‘Oh, I don’t want to touch equities ever again. I’m fed up with all this’ — just like it was in 1982. We will (then) see a secular bull and we will all get to be geniuses again for about 17 years.”
ELITE INSIDER PREDICTED MASSIVE CRASH IN 2012: “VERY LARGE PROBABILITY…AROUND MARCH 4, 2014″
February 4, 2014
We understand that Doomsday predictions are aplenty these days, but given what’s going on around the world right now it may be time to revisit the eerily prescient forecast of an elite insider.
Grady Means is a former advisor to Vice President Nelson Rockefeller, a former economist at the U.S. Department of Health, Education and Welfare, and has managed multi-billion dollar firms over his career. Back in October of 2012 Means penned a commentary and analysis for the Washington Times in which he noted that “America’s fall will take global economies with it.”
But he didn’t stop there. Means gave us a target date.
There is a very large probability that the real end of the world will occur around March 4, 2014.
The doomsday clock will ring then because the U.S. economy may fully crash around that date, which will, in turn, bring down all world economies and all hope of any recovery for the foreseeable future — certainly over the course of most of our lifetimes. Interest rates will skyrocket, businesses will fail, unemployment will go to record levels, material and food shortages will be rampant, and there could be major social unrest.
Any wishful thinking that America is in a “recovery” and that “things are getting better” is an illusion.
The central issue is confidence in America, and the world is losing confidence quickly. At a certain point, soon, the United States will reach a level of deficit spending and debt at which the countries of the world will lose faith in America and begin to withdraw their investments. Many leading economists and bankers think another trillion dollars or so may do it. A run on the bank will start suddenly, build quickly and snowball.
At that point, we will need to finance our own deficit, and we will not be able to do so. We will raise bond rates to re-attract foreign investment, interest rates will go up, and businesses will fail. Unemployment will skyrocket.
The rest of the world will fully crash along with us.
There’s a sentiment among those on Main Street, and as of today on Wall Street, that there is a major disconnect between company stock valuations and economic activity in the real world.
Despite their best efforts to convince us that we’re in a recovery, the establishment is running into a problem… reality.
This morning we learned that the Institute for Supply Management monthly report went kaboom, showing a large contraction in new production, indicating that retailers are pulling back on stocking their shelves. Perhaps the ISM report has something to do with consumer sentiment, which according to today’s Gallup survey on consumer spending suggests consumers are cutting costs wherever possible.
But that’s not all. Even the largest retailer in the world is having problems and seeing negative growth. Walmart announced that last November’s cuts to food stamp recipients hurt their fourth quarter sales, adding further credence to the notion that without direct government bailouts the stability of America’s companies comes into question.
Need we even mention that over 100 million Americans are not in the labor force, or that five million people may lose their unemployment benefits by the end of this year?
And, of course, let’s not forget that we’ve created more debt as a nation in the last five years than in all of the years from our country’s founding through the year 2008 combined.
Those investing in financial markets have certainly taken note. On top of the 326 point decline in the Dow Jones today, the market is down a combined 1,000 points from its peak just a month ago. And, with three well known bankers committing suicide in the last week, people are starting to pay attention.
No one really knows exactly why the market is falling or what happens next, but if you’re going to consider any prediction on the future of the financial and economic sector, why not consider what the elite have to say about it?
If there is a major financial collapse in the works as we speak, then Grady Means’ prediction should scare the hell out of you. If he’s right, then this isn’t just going to be a market crash.
We could well be facing the beginnings of an all-out financial Armageddon that will make 2008 look like a brief warm up.
This collapse, as noted by the US Treasury Department and Grady Means, is going to have generational effects – a depressive economic environment for our entire lifetimes.
Preparing for such a scenario is not easy. One must take into consideration everything from emergency supply lists to deal with the instantaneous collapse of our monetary system and financial markets, while also considering long-term strategies that involve the development of barterable trade skills and relocating to land that has productive capacity so you can grow your own food.
We had a reader recently comment about the coming collapse. She warned that preparing for a weeks- or months-long emergency is insufficient. She suggested that perhaps we need to consider the worst case scenario: years of joblessness, destitution and depression.
It’s happened before and it was so bad that we still talk about the Great Depression to this day.
Who’s to say it can’t happen again?
MEANS: U.S. ECONOMY ON SCHEDULE TO CRASH MARCH 2014
America’s fall will take global economies with it
By Grady Means | The Washington Times
October 25, 2012
Those wild and crazy Mayans put down their marker that the end of the world would occur on Dec. 21, 2012 — about two months from now. There is, of course, some small chance that they might be right. On the other hand, there is a very large probability that the real end of the world will occur around March 4, 2014.
The doomsday clock will ring then because the U.S. economy may fully crash around that date, which will, in turn, bring down all world economies and all hope of any recovery for the foreseeable future — certainly over the course of most of our lifetimes. Interest rates will skyrocket, businesses will fail, unemployment will go to record levels, material and food shortages will be rampant, and there could be major social unrest. Any wishful thinking that America is in a “recovery” and that “things are getting better” is an illusion.
The problem is not Medicare, which won’t quit on us for another six or seven years. Nor is it Social Security, which will not be fully bankrupt for another 15 years or so. The crisis is much more immediate and much more serious.
The central problem is that America is the bank of the world. What this means, simply, is that the dollar is the world’s currency (often termed the “reserve currency”). Throughout the world, nearly all traded goods, oil, major commodities, real estate, etc., are denominated in dollars. The world needs dollars, and the U.S. provides them and provides confidence that the dollar is the “safest” currency in the world. Countries get dollars by trading with us on attractive terms, which enables Americans to live very well. Countries support this system and cover their risk by investing in dollars through T-bill auctions and other mechanisms, which enables us to run budget deficits — up to a point.
The central issue is confidence in America, and the world is losing confidence quickly. At a certain point, soon, the United States will reach a level of deficit spending and debt at which the countries of the world will lose faith in America and begin to withdraw their investments. Many leading economists and bankers think another trillion dollars or so may do it. A run on the bank will start suddenly, build quickly and snowball.
At that point, we will need to finance our own deficit, and we will not be able to do so. We will raise bond rates to re-attract foreign investment, interest rates will go up, and businesses will fail. Unemployment will skyrocket. The rest of the world will fully crash along with us. Europe will continue to decline, and the euro will not replace the dollar. Russia will see a collapse in oil prices as market demand softens, and Russia will collapse along with it. China will find nowhere to export and also will collapse. The Russian and Chinese governments, which see all this coming and have been stockpiling gold to hedge against such a dollar collapse, will find that you cannot eat gold. There will be uprisings — think of the streets in Spain and Greece today — everywhere. Technological advances that traditionally drive productivity increases and economic growth will not be able to keep up with this collapse.
When might this all happen? Paul Volker indicates we might face a mess like this in the next year and a half. David Walker, former U.S. comptroller, i.e., the former chief accountant of the U.S. government, has suggested similar time frames for economic catastrophe. Most agree that the budget sequestration approach won’t work from either economic or political perspectives, and mindless across-the-board cuts in spending will only exacerbate a mess. The Federal Reserve’s third round of quantitative easing, in which we print money to buy our own bonds in order to goose economic and employment numbers, means we are floating our own debt, a good formula for sudden hyperinflation.
The next president will have about six months to fix this problem before it is too late. He must be fully prepared, able and willing to work with Congress and move quickly and decisively. During the election, the most important question to ask is, who understands all this and is prepared to prevent it? Everything else is noise.
ALL HELL WILL BREAK LOOSE AND THE DOMINOS WILL START FALLING
February 7, 2014
Today one of the most highly respected fund managers in Singapore warned King World News that all hell is going to break loose and the dominos are going to start falling. Grant Williams, who is portfolio manager of the Vulpes Precious Metals Fund, also spoke about what this will mean for investors around the world and also what kind of surprise to expect from the gold market.
Eric King: “What about the turmoil around the world, Grant? How bad do you expect this to get?”
Williams: “Eric, we’ve seen some pretty big moves here, particularly in Japan. We’ve also seen some big moves in other Asian markets as well. We’ve got political unrest in Thailand, and we also have a currency crisis all over the region.
“So it looks very, very shaky. Hot money has flowed into these markets and it is always a lot easier to get big sums of money into something then it is to get it back out again.
But all of this is a direct result of the Fed tapering. These guys at the Fed have insisted on this mantra that ‘tapering isn’t tightening,’ which is absolute nonsense. Of course a taper is tightening and we are seeing the effects of that here in Asia where there is the sucking sound of liquidity being drained out. Yes, we have seen a wobble in the Dow, but the real pain has been felt here in Asia.
But the most worrying thing that I have seen in the past couple of weeks were the comments made by the central bank governor of India, who essentially said, ‘Look, the cooperation between the world’s central banks is now gone and it’s every man for himself.’
And that’s going to turn into a problem by itself because if we don’t have these coordinated and unified interventions, actions, and interest rate policies that we’ve had, things could get very squirrelly, very quickly, in all kinds of places that most people aren’t even looking at. This is how all hell starts to break loose.
We had the Asian currency crisis in 1997 and that started with the Thai baht, but it spread to all kinds of places that no one saw coming. It really feels like if the central planners are not extremely careful that we could be on the edge of another one of those catastrophic situations. Something may happen in a tiny little market somewhere and it may start a whole lot of dominos falling.”
Eric King: “It sounds like you expect more dominos to fall, Grant.”
Williams: “It’s hard to see how they don’t, particularly if you have lost this cooperation between the central banks. This cooperation has been so important for the stability of the entire global financial structure. If in fact that cooperation has been lost, it’s very hard to see how they will stop these dominos from falling.
The key to keeping the system afloat has been the coordinated actions. If you get these central bankers going their own way, that is a recipe for all hell breaking loose. We’re seeing capital controls already in parts of South America — that’s only going to spread. We are also seeing chaos and capital controls in the Ukraine.”
All of these independent actions are starting to create more and more friction for the inner working of the financial system, and that’s exactly what will precipitate a breakdown. These disastrous events that countries and individuals thought they were isolated from are going to become more and more commonplace.”
Williams had this to say regarding gold: “We had a tremendous fall in Comex gold inventory in January, and this was ahead of the busy delivery month of February. So this demand for physical metal continues. These type of things will matter at some point.
If you look at one of the currency charts of an Argentinean currency, clearly something that had been going wrong for a long, long time suddenly mattered to people. We also saw an ETF that was denominated in Brazilian real lose 90% of its assets in a week. Now, no one can tell me something happened in Brazil that day which meant there should be a 90% collapse. It’s just something that didn’t seem to matter, all of the sudden mattered.
I think something similar is going to happen with gold. One day people are going to want physical gold and it’s suddenly going to matter because they can’t get it — they can only get paper. When that happens, you will see a massive reset higher. The fact that it hasn’t happened yet doesn’t mean it won’t. When the chaos really breaks loose around the world, it won’t matter if people bought physical gold at $1,500 or $1,250, they will just be glad they own it.”
THE FINAL SWINDLE OF PRIVATE AMERICAN WEALTH HAS BEGUN
by Brandon Smith | alt-market.com
February 5, 2014
I began writing analysis on the macro-economic situation of the American financial structure back in 2006, and in the eight years since, I have seen an undeniably steady trend of fiscal decline.
I have never had any doubt that the U.S. economy as we know it was headed for total and catastrophic collapse, the only question was when, exactly, the final trigger event would occur. As I have pointed out in the past, economic implosion is a process. It grows over time, like the ice shelf on a mountain developing into a potential avalanche. It is easy to shrug off the danger because the visible destruction is not immediate, it is latent; but when the avalanche finally begins, it is far too late for most people to escape…
If you view the progressive financial breakdown in America as some kind of “comedy of errors” or a trial of unlucky coincidences, then there is not much I can do to educate you on the reasons behind the carnage. If, however, you understand that there is a deliberate motivation behind American collapse, then what I have to say here will not fall on biased ears.
The financial crash of 2008, the same crash which has been ongoing for years, is NOT an accident. It is a concerted and engineered crisis meant to position the U.S. for currency disintegration and the institution of a global basket currency controlled by an unaccountable supranational governing body like the International Monetary Fund (IMF). The American populace is being conditioned through economic fear to accept the institutionalization of global financial control and the loss of sovereignty.
Anyone skeptical of this conclusion is welcome to study my numerous past examinations on the issue of globalization; I don’t have the time within this article to re-explain, and frankly, with so much information on deliberate dollar destruction available to the public today I’ve grown tired of anyone with a lack of awareness.
If you continue to believe that the Fed actually exists to “help” stabilize our economy or our currency, then you will never find the logic behind what they do. If you understand that the goal of the Fed and the globalists is to dismantle the dollar and the U.S. economic system to make way for something “new”, then certain recent events and policy initiatives do start to make sense.
The year of 2014 has been looming as a serious concern for me since the final quarter of 2013, and you can read about those concerns and the evidence that supports them in my article Expect Devastating Global Economic Changes In 2014.
At the end of 2013 we saw at least three major events that could have sent America spiraling into total collapse. The first was the announcement of possible taper measures by the Fed, which have now begun. The second was the possible invasion of Syria which the Obama Administration is still desperate for despite successful efforts by the liberty movement to deny him public support for war. And, the third event was the last debt ceiling debate (or debt ceiling theater depending on how you look at it), which placed the U.S. squarely on the edge of fiscal default.
As we begin 2014, these same threatening issues remain (along with many others), only at greater levels and with more prominence. New developments reinforce my original position that this year will be remembered by historians as the year in which the final breakdown of the U.S. monetary dynamic was set in motion. Here are some of those developments explained…
Taper Of QE3
When I first suggested that a Fed taper was not only possible but probable months ago, I was met with a bit (a lot) of criticism from some in the alternative economic world. You can read my taper articles here and here.
This was understandable. The Fed uses multiple stimulus outlets besides QE in order to manipulate U.S. markets. Artificially lowering interest rates is very much a form of stimulus in itself, for instance.
However, I think a dangerous blindness to threats beyond money printing has developed within our community of analysts and this must be remedied. People need to realize first that the Fed does NOT care about the continued health of our economy, and they may not care about presenting a facade of health for much longer either. Alternative analysts also need to come to grips with the reality that overt money printing is not the only method at the disposal of globalists when destroying the greenback. A debt default is just as likely to cause loss of world reserve status and devaluation – no printing press required. Blame goes to government and political gridlock while the banks slither away in the midst of the chaos.
The taper of QE3 is not a “head fake”, it is very real, but there are many hidden motivations behind such cuts.
Currently, $20 billion has been trimmed from the $85 billion per month program, and we are already beginning to see what APPEAR to be market effects, including a flight from emerging market currencies from Argentina to Turkey. A couple of years ago investors viewed these markets as among the few places they could exploit to make a positive return, or in other words, one of the few places they could successfully gamble. The Fed taper, though, seems to be shifting the flow of capital away from emerging markets.
The mainstream argument is that stimulus was flowing into such markets, giving them liquidity support, and the taper is drying up that liquidity. Whether this is actually true is hard to say, given that without a full audit we have no idea how much fiat the Federal Reserve has actually created and how much of it they send out into foreign markets.
I stand more on the position that the Fed taper was actually begun in preparation for a slowdown in global markets that was already in progress. In fact, I believe central bankers have been well aware that a decline in every sector was coming, and are moving to insulate themselves.
Is it just a “coincidence” that the central bankers have initiated their taper of QE right when global manufacturing numbers begin to plummet?
Is it just “coincidence” the taper was started right when the Baltic Dry Index, a global indicator of shipping demand, has lost over 50% of its value in the past few weeks?
Is it just “coincidence” that the taper is running tandem with dismal retail sales growth reports from across the globe coming in from the final quarter of 2013?
And, is it just a “coincidence” that the Fed taper is accelerating right as the next debt ceiling debate begins in March, and when reports are being released by the Congressional Budget Office that over 2 million jobs (in work hours) may be lost due to Obamacare?
No, I do not think any of this is coincidence. Most if not all of these negative indicators needed months to generate, so they could not have been caused by the taper itself. The only explanation beyond “coincidence” is that the Federal Reserve WANTED to launch the taper program and protect itself before these signals began to reach the public.
Look at it this way – The taper program distances the bankers from responsibility for crisis in our financial framework, at least in the eyes of the general public. If a market calamity takes place WHILE stimulus measures are still at full speed, this makes the banks look rather guilty, or at least incompetent. People would begin to question the validity of central bank methods, and they might even question the validity of the central bank’s existence. The Fed is creating space between itself and the economy because they know that a trigger event is coming. They want to ensure that they are not blamed and that stimulus itself is not seen as ineffective, or seen as the cause.
We all know that the claims of recovery are utter nonsense. Beyond the numerous warning signs listed above, one need only look at true unemployment numbers, household wage decline, and record low personal savings of the average American. The taper is not in response to an improving economic environment. Rather, the taper is a signal for the next stage of collapse.
Stocks are beginning to plummet around the world and all mainstream pundits are pointing fingers at a reduction in stimulus which has very little to do with anything. What is the message they want us to digest? That we “can’t live” without the aid and oversight of central banks.
The real reason stocks and other indicators are stumbling is because the effectiveness of stimulus manipulation has a shelf life, and that shelf life is over for the Federal Reserve. I suspect they will continue cutting QE every month for the next year as stocks decline. Will the Fed restart QE? If they do, it will probably not occur until after a substantial breakdown has ensued and the public is sufficiently shell-shocked. The possibility also exists that the Fed will never return to stimulus measures (if debt default is the plan), and QE stimulus will eventually be replaced by IMF “aid”.
Government Controlled Investment
Last month, just as taper measures were being implemented, the White House launched an investment program called MyRA; a retirement IRA program in which middle class and low wage Americans can invest part of their paycheck in government bonds.
That’s right, if you wanted to know where the money was going to come from to support U.S. debt if the Fed cuts QE, guess what, the money is going to come from YOU.
For a decade or so China was the primary buyer and crutch for U.S. debt spending. After the derivatives crash of 2008, the Federal Reserve became the largest purchaser of Treasury bonds. With the decline of foreign interest in long term U.S. debt, and the taper in full effect, it only makes sense that the government would seek out an alternative source of capital to continue the debt cycle. The MyRA program turns the general American public into a new cash stream, but there’s more going on here than meets the eye…
I find it rather suspicious that a government-controlled retirement program is suddenly introduced just as the Fed has begun to taper, as stocks are beginning to fall, and as questions arise over the U.S. debt ceiling. I have three major concerns:
First, is it possible that like the Fed, the government is also aware that a crash in stocks is coming? And, are they offering the MyRA program as an easy outlet (or trap) for people to pour in what little savings they have as panic over declining equities accelerates? Bonds do tend to look appetizing to uninformed investors during an equities rout.
Second, the program is currently voluntary, but what if the plan is to make it mandatory? Obama has already signed mandatory health insurance “taxation” into law, which is meant to steal a portion of every paycheck. Why not steal an even larger portion from every paycheck in order to support U.S. debt? It’s for the “greater good,” after all.
Third, is this a deliberate strategy to corral the last vestiges of private American wealth into the corner of U.S. bonds, so that this wealth can be confiscated or annihilated? What happens if there is indeed an eventual debt default, as I believe there will be? Will Americans be herded into bonds by a crisis in stocks only to have bonds implode as well? Will they be conned into bond investment out of a “patriotic duty” to save the nation from default? Or, will the government just take their money through legislative wrangling, as was done in Cyprus not long ago?
The Final Swindle
Again, the next debt ceiling debate is slated for the end of this month. If the government decides to kick the can down the road for another quarter, I believe this will be the last time. The most recent actions of the Fed and the government signal preparations for a stock implosion and ultimate debt calamity. Default would have immediate effects in foreign markets, but the appearance of U.S. stability could drag on for a time, giving the globalists ample opportunity to siphon every ounce of financial blood from the public.
It is difficult to say how the next year will play out, but one thing is certain; something very strange and ugly is afoot. The goal of the globalists is to engineer desperation. To create a catastrophe and then force the masses to beg for help. How many hands of “friendship” will be offered in the wake of a U.S. wealth and currency crisis? What offers for “aid” will come from the IMF? How much of our country and how many of our people will be collateralized to secure that aid? And, how many Americans will go along with the swindle because they were not prepared in advance?
WORLD FINANCIAL REPORT – FEBRUARY 7, 2014
CALL FOR CALM AFTER $3 TRILLION GLOBAL STOCK WIPEOUT
Goldman to Fidelity Call for Calm After Global Stock Wipeout
By Weiyi Lim and Inyoung Hwang – Bloomberg
February 4, 2014
Panic is making an enemy of telephones for Catherine Yeung, the director for equities at Fidelity Investment Management Ltd. in Hong Kong.
“My children hate that BlackBerry,” said Yeung, whose clients have been calling amid two weeks of declines that erased $3 trillion from global stocks. She’s advising calm, noting that profits are rising and shares just got a lot less expensive.
“Being a contrarian and getting in when things seem bad is often a good thing,” she said in an interview today. “The companies we are looking into can still deliver attractive margins. Things are getting cheap.”
Strategists from Goldman Sachs Group Inc. to AMP Capital Investors and JPMorgan Chase & Co. are also telling clients to hang on after losses that began with currencies in Turkey and Argentina spread to developed markets. The Standard & Poor’s 500 Index slid 2.3 percent yesterday, capping its first 5 percent retreat in eight months, while Japan’s Topix index plunged 4.8 percent for its biggest decrease since June.
“We didn’t expect the U.S. would be this weak,” Kathy Matsui, chief Japan strategist for Goldman Sachs in Tokyo, said by e-mail. “Since we do not see sufficient reason to change our fundamental earnings outlook and stock prices have fallen, the market still appears attractive to us.”
The American equity gauge rose from a three-month low today, adding 0.9 percent to 1,757.17 as of 1:35 p.m. in New York.
Matsui’s 12-month forecast for the Topix is 1,450, about 27 percent above its level today. The index trades for about 15 times annual profits, close to the lowest in three years after all but 16 of its 1,775 constituents slid, the most since at least 1997. Twenty-one strategists tracked by Bloomberg predict the S&P 500 will reach 1,956 this year, on average, representing an 11 percent increase from its level now.
Forecasts like those did little to prop up shares in the U.S. yesterday after a report showed factory output expanded in January at the weakest pace in eight months and China’s official Purchasing Managers Index decreased to a six-month low as production and orders slowed. Signs of a weakening recovery come as the U.S. Federal Reserve affirms plans to cut stimulus that has propelled a 160 percent rally in the S&P 500 since 2009.
It’s worse in developing countries, as the MSCI Emerging Markets Index drops to a five-month low and losses in equity benchmarks from India, Russia, Brazil and Mexico exceed 4 percent for 2014. A custom Bloomberg index of the 20 most-traded emerging-market currencies has fallen about 2 percent this year.
Russia canceled a bond auction for the second consecutive week after the emerging-market rout sent yields on the nation’s bonds maturing in 2028 to record highs. The Finance Ministry scrapped the sale after “an analysis of market conditions,” according to a statement on its website.
“The optimism for Russia is long gone,” said Vladimir Tsuprov, the St. Petersburg-based chief investment officer of TKB BNP Paribas, the investment partner of the French bank, in a phone interview. “The only surprise for us was how quickly the ruble had declined in January. This was unexpected.”
Shocks began on Jan. 10, when the U.S. Labor Department said payrolls rose by 74,000 in December, below the 197,000 median forecast of 90 economists surveyed by Bloomberg.
Two weeks later, a report from HSBC Holdings Plc and Markit Economics Ltd. said Chinese manufacturing may contract for the first time in six months. That added to concern growth in the Asian nation, which buys everything from Chile’s copper to South Korea’s cars, is losing momentum. HSBC and Markit confirmed that manufacturing in the nation shrank in January.
Argentina’s peso started sliding as the central bank pared dollar sales to preserve international reserves that have fallen to a seven-year low. The central banks of India, Turkey and South Africa all raised interest rates to defend their currencies as they tumbled.
The result has been losses for seven of the last nine days in the MSCI All-Country World Index, erasing more than 5 percent. Stocks around the world are down for January after rising from September through December last year, the longest streak in a year.
“We’ve become addicted to having one decent month after another,” said Nicola Marinelli, who helps oversee $180 million as a fund manager at Sturgeon Capital Ltd. in London. “If you look back at what happened in 2011, 2008, this correction is simply one of thousands. So if you speak with dealers, speak with other investors, this isn’t a feeling of panic.”
Buying at the depths of the European sovereign-debt crisis in October 2011 would have generated a total return of 51 percent in the MSCI gauge, according to data compiled by Bloomberg.
While Fed bond buying is being curtailed, it’s because policy makers say the U.S. economy is strengthening. In announcing it will cut monthly purchases by $10 billion, the Federal Open Market Committee said on Jan. 30 that labor-market data “were mixed but on balance showed further improvement” and economic growth that has “picked up in recent quarters.”
The Fed left unchanged its statement that the target interest rate will be left near zero “well past the time” that unemployment falls below 6.5 percent.
“Short-term forces in the U.S. point to continued growth in all major categories of demand, while the long-term EM growth story remains intact,” David Kelly, the chief global strategist at JPMorgan Funds in New York, wrote in a note to clients today. His firm oversees about $400 billion. “The plain fact is that very low domestic interest rates for investors holding the vast majority of global financial assets should continue to pull money away from fixed income and towards equities.”
Some strategists say the losses aren’t over. Inflation-adjusted interest rates are still too low in developing nations for Citigroup Inc. to predict an end to the retreat in currencies. Argentina’s peso tumbled 19 percent last month, while South Africa’s rand plunged 5.7 percent and Russia’s ruble dropped 6.5 percent.
Stock markets may continue declining, sending the Nikkei 225 Stock Average down as much as 25 percent from the peak, according to Tim Schroeders, who helps oversee about $1 billion as a money manager at Pengana Capital Ltd. in Melbourne.
“Markets are vulnerable to a further correction,” Schroeders said by phone on Feb. 4. “The pullback could surprise some people. Perhaps the downside will be a little bit more than people think.”
Momentum in the U.S. stock market is slowing as the bull market enters its sixth year and after the S&P 500 surged 30 percent in 2013. Almost 200 companies in the benchmark gauge for American equities traded below their average level over the past 200 days yesterday, more than any time last year, according to data compiled by Bloomberg.
Investors are pulling money from exchange-traded funds that track emerging markets at the fastest rate on record. More than $7 billion flowed from ETFs investing in developing-nation assets in January, the most since the securities were created, data compiled by Bloomberg show.
Losses among commodities have been less than equities, with the S&P GSCI measure of 24 raw materials down 1.4 percent this year. Gold rallied 3.8 percent to $1,251.92 an ounce since the start of January. The London Metal Exchange index of six industrial metals including copper and aluminum fell 4.4 percent in 2014, the worst start to a year since 2010.
“There may not have been so many euphoric long positions in commodities as in equities,” said Bjarne Schieldrop, chief commodity analyst at SEB AB in Oslo. “Everyone and their grandmother have rolled into equities as they continued to get higher day by day. Thus, there are not so many heading for the door in commodities when things look less optimistic.”
The global economy will grow 3.7 percent this year, up from an October estimate of 3.6 percent, the International Monetary Fund said in revisions to its World Economic Outlook released Jan. 21, citing accelerating expansions in the U.S. and U.K. Economies of Japan, Europe and the U.S. are forecast to expand together for the first time since 2010, according to data compiled by Bloomberg.
Even as emerging markets crater, the outlook for global earnings remains robust. Profits in the MSCI All-Country World Index are forecast to increase 17 percent this year and 11 percent in 2015 and 2016, according to analyst forecasts compiled by Bloomberg. Nader Naeimi, who helps oversee $131 billion as a Sydney-based money manager at AMP Capital Investors, says people bailing now may regret it.
“Some investors are schizophrenic,” Naeimi said in a phone interview. “You have started to see fear back in the market which you hadn’t seen for some time. This is good from a contrarian perspective, to remove some froth from the market, reduce complacency and gives me a buying opportunity.”
The retreat since Jan. 23 has done little to dent the $9.6 trillion of stock value that was created worldwide in 2013, when the S&P 500 advanced 30 percent and the Topix climbed 51 percent. Speculation that developed-market equities were due for a retreat has built for months, including forecasts in January from Blackstone Group LP’s Byron Wien and Nuveen Investment Inc.’s Bob Doll Jr., who both called for a 10 percent drop.
“We should keep our calm,” said Karim Bertoni, a Geneva-based strategist at de Pury Pictet Turrettini & Cie., which manages about $3.3 billion. “A 10 percent decline wouldn’t be surprising,” he said. “It’s something that happens a couple of times of year, nothing per se unusual. That’s why so far I think we are more in a classic correction than anything else.”
SHARP FALL IN GLOBAL SHARE MARKETS
By Nick Beams
February 4, 2014
Global share markets experienced significant falls yesterday amid concerns that the predictions of improved economic and financial conditions in 2014 may not be fulfilled. Equity markets have had their worst start to the year since 2010.
Wall Street had the biggest downturn with the Dow Jones index down 326 points, or 2.08 percent, while the S&P 500 index lost 2.28 percent.
In Europe the German Dax index was down 1.3 percent, the French CaC index fell 1.3 percent, while in Britain the FTSE100 index was 0.7 percent lower. In Tokyo, the Nikkei index was down 8.5 percent for the month of January.
The immediate trigger for the US selloff appears to have been an unexpected fall in the Institute for Supply Management’s (ISM) purchasing managers’ index, which indicates future manufacturing activity, for January. It came in at 51.3, after forecasts of 56, and well down on the 56.5 recorded in December.
Another contributing factor may have been the sharp drop in car sales, down 12 percent at GM and 7 percent at Ford.
One market commentator described the ISM index result as “absolutely awful” and then expressed the hope that it was an “aberration.”
While the decline in the ISM index was largely attributed to the very cold winter weather in the US, there are also global processes at work in the market selloff. This month has seen a drop in Chinese manufacturing activity and turbulence in the financial systems of so-called “emerging markets” as volatile capital seeks safer havens in the US and elsewhere. In addition, there are growing concerns about the long-term impact of a slowdown in the Chinese economy.
The outlook for the eurozone is also causing downward pressure with predictions that the inflation rate will come down even further in January—a sign of further economic contraction. Moreover, the European Central Bank may move to cut interest rates again.
Wall Street experienced its biggest monthly fall in January since May 2012, with the Dow down 5.3 percent and the S&P 500 3.6 percent.
The S&P index rose 30 percent last year—its biggest annual increase since 1997—and last month was the first time it had experienced a January loss since 2010. The CBOE Vix index, sometimes known as the “fear gauge” last week jumped by 15 percent to reach its highest level in three months.
Overall, global markets have had their poorest start to the year since 2010, with the FTSE world equity index falling by 4.1 percent.
An analyst at Capital Economics, Mark Williams, said it would be a couple of months before an accurate assessment could be obtained, free of new year “distortions” but nearly all the available evidence pointed “in one direction—towards a further slowdown at the start of 2014.”
Most market commentators expressed the view that the downturn was a “correction” that markets had to have after the rapid rise in share prices last year. It has even been likened to winter pruning that makes way for growth in spring. But such reassurances ignore the completely speculative character of the share market boom.
The share price rise over 2013 was largely fueled by the US Federal Reserve Board’s “quantitative easing.” This program has pumped trillions of dollars of ultra-cheap money into financial markets and was accelerated in September 2012 with purchases of $85 billion worth of treasury bonds and mortgage-backed securities.
Over the past two months, the Fed has “tapered” its asset buying program by $20 billion, a significant factor in the turbulence in “emerging markets” that has seen a number of central banks lift their interest rates. This has led to the view that the present market downturn could be the start of something more than a “correction.”
As a comment in the Financial Times (FT) put it: “[A]s storm clouds gather over areas of emerging markets and US companies post meagre revenue growth for the fourth quarter, investors are faced with the question: was January just a small speed bump in the five-year US equity bull run, or the prelude for greater challenges in the form of heightened volatility and bouts of pronounced risk aversion?”
The article cited figures which demonstrate the speculative nature of the boom. According to Alhambra Investment Partners, “money borrowed to buy stocks hit $445bn at end of 2013, above the levels that characterised the market’s peaks in 2000 and 2007.”
“As soon as the calendar flipped from 2012, it was as if investors suddenly lost all caution and embraced as much leveraged risk as could possibly be attained,” it noted.
The FT estimated that last year total margin debt usage increased by $142 billion, the biggest rise in any 12-month period in history.
Such leveraging yield enormous profits while the market keeps rising. But once a downturn sets in, enormous losses can result. As stock prices fall, demands are made for portions of the borrowed money to be repaid, setting in motion a snowballing process as speculators are forced to sell off shares to meet these demands, sending the market lower and prompting calls for further repayments.
JAPANESE STOCKS IN FREEFALL
TOPIX Plunges Almost 5% To 4-Month Lows; Nikkei Down 15% In 2014
by Tyler Durden | ZeroHedge
February 3, 2014
UPDATE: USDJPY has re-tumbled back below 101.00, recoupling with S&P 500 futures from the tried-and-failed attempt to ramp stocks overnight. It seems the short-JPY-driven carry traders have backed away from risk for now, no matter how much the BoJ primes the pump.
Nikkei futures are under 14,000 and down 15% from Dec 31st highs.
Despite the hope-driven exuberance exhibited immediately post the Abe/Kuroda show, the USDJPY-pumping stock-momentum fest has ended – abruptly. Japan’s Nikkei 225 has lost all its gains and is now trading below US day-session lows (3-month lows) but it is the broader TOPIX index (more akin to the S&P 500) that is collapsing. Down almost 5% on the day (its biggest drop since the May collapse), the TOPIX is at 4-month lows. The TOPIX Real Estate index just hit a bear-market – down 20% from Dec 31st highs. Japanese sell-side shops are in full panic desparation mode as “suggestions” that a sub-14,000 Nikkei will prompt an acceleration of Japan’s QQE money-printing idiocy. This is getting ugly fast.
TOPIX collapses to 4-month lows…
As Bloomberg notes, the sell-side is in full panic mode…
Japan’s central bank will probably boost purchases of ETFs as early as this month if Nikkei 225 drops to about 14,000, Hidenao Miyajima, chief strategist at Parnassus Investment Strategies in Tokyo, says in interview.
But this won’t help as the ramp in USDJPY is not helping…
and The TOPIX Real Estate Index is in Bear market territory – down 20% from Dec 31st highs… and 6 month lows…
THE STOCK MARKET IN JAPAN IS COLLAPSING
By Michael Snyder | Economic Collapse
February 4th, 2014
Did you see what just happened in Japan? The stock market of the 3rd largest economy on the planet is imploding. On Tuesday, the Nikkei fell by more than 610 points. If that sounds like a lot, that is because it is. The largest one day stock market decline in U.S. history is only 777 points. So far, the Dow is only down about 1000 points during this “correction”, but the Nikkei is down more than 2,300 points. The Nikkei has dropped more than 14 percent since the peak of the market, and many analysts believe that this is only just the beginning. Those that have been waiting for a full-blown stock market collapse may be about to get their wish. Japan is absolutely drowning in debt, their central bank is printing money like crazy and the Japanese population is aging rapidly. As far as economic fundamentals go, there is very little good news as far as Japan is concerned. So will an Asian financial collapse precede the next great financial crisis in the United States? That is what some have been predicting, and it starting to look increasingly likely.
What happened to the Nikkei early on Tuesday was absolutely breathtaking. The following is how Bloomberg described the carnage…
At the end of January 2013, Japanese stocks trailed only Portugal for the biggest rally among developed markets. Now the Nikkei 225 Stock Average is leading declines, slumping 8.5 percent last month and today capping a 14 percent drop from its Dec. 30 peak.
Losses snowballed in Tokyo during a global retreat that has erased $2.9 trillion from equity values worldwide this year amid signs of slower growth in China and stimulus cuts by the U.S. Federal Reserve.
As Bloomberg noted, much of the blame for the financial problems that we are seeing all over the planet right now is being placed on the Federal Reserve.
The Fed created this bubble by pumping trillions of fresh dollars into the global financial system, and now they are bursting this bubble by starting to cut off the flow of easy money.
Most Americans simply do not realize that our financial markets no longer resemble a free market system. Instead, they are highly manipulated and distorted by the central banks, and the trillions of dollars of “hot money” that the Fed has poured into the global financial system has infected virtually every financial market on Earth…
On Wall Street they call it “hot money”—that seemingly endless flow of cash that goes to the most profitable country du jour—but in the real economy it’s gone cold.
That hot money has come mostly in the form of a low-yielding U.S. dollar, which investors have borrowed en masse to fund investments in other higher-yielding currencies across the globe. The so-called carry trade has helped fuel an investment bonanza across the world that has boosted risk assets thanks primarily to the U.S. Federal Reserve‘s easy-money policy.
But with the Fed tiptoeing away from what initially was an $85 billion-a-month infusion of liquidity, investors are beginning to prepare themselves for a world of rising rates in which the endless cash flow to emerging market economies begins to ebb, then cease.
We never fixed any of the fundamental problems that caused the last financial crisis. Instead, the Fed seemed to think that the solution to any problem was just to create more money.
It was an incredibly stupid approach, and now our fundamental problems are worse than ever as Marc Faber recently noted…
“Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007, we have had rapidly escalating household debt especially in emerging economies and resource economies like Canada and Australia and we have come to a point where household debt has become burdensome on the system—that is, where an economic slowdown follows.”
So what comes next?
Well, unless the Fed or other central banks intervene, we are probably going to have even more carnage.
At least that is what Dennis Gartman, the editor and publisher of “The Gartman Letter”, told CNBC on Tuesday…
“I just think you’re going to have a very severe, very substantive and really quite ugly correction that will probably make a lot of people wail and gnash their teeth before it’s done.”
Other analysts share his pessimism. According to Doug Short, the vice president of research at Advisor Perspectives, the U.S. stock market “still looks 67% overvalued“.
Most sobering of all is what Richard Russell is saying. In his 60 years of writing about financial issues, he has never been “so filled with foreboding regarding what lies ahead”…
I’d be lying if I said that I wasn’t worried about the way things are going. Frankly, I’m truly scared for myself, my family and the nation. I have the sinking feeling that the stock market is on the edge of a crash. If that happens, investor sentiment will turn quickly bearish. And the bear market will start feeding on itself. Ironically, the recent action occurred in the face of almost insane bullishness on the part of the crowd and on the part of investors.
Obviously smart heads and institutional money managers know that the US is semi dead in the water. And all the talk about an improving economy is just wishes and hopes. Bernanke’s dream of a flourishing new economy, improving without the need of the Fed’s help, is an idle dream.
I’ve been writing about the stock market for over 60 years and I can’t remember a time when I was so filled with foreboding regarding what lies ahead. The primary trend of the market, like the tide of the ocean, is irresistible, and waits for no man. What scares me the most in this current situation is that I see no clear island of safety.
You can read the rest of his very disturbing remarks right here.
U.S. stocks may not totally crash this week, this month or even this year, but without a doubt a day of reckoning is coming. As a society, our total consumer, business and government debt is now equivalent to approximately 345 percent of GDP.
The only way that the game can continue is to keep pumping up the debt bubble even more.
Once the debt bubble stops expanding, it will start collapsing very rapidly.
Those that foolishly still have lots of money in the stock market better hope that the Federal Reserve decides to intervene in a major way very soon.
Because if they don’t, there is a very good chance that we could indeed have a “market bloodbath” on our hands.
A THREAT TO GLOBAL FINANCIAL STABILITY: THE FED’S TAPER SENDS GLOBAL SHARES AND EMERGING MARKETS TUMBLING
By Mike Whitney | Global Research
February 06, 2014
The selloff that began in May 2013, when the Fed announced its plan to scale back its asset purchases, resumed with a vengeance on Monday as global shares were slammed in heavy trading sending the Dow Jones for a 326 point-loss on the day.
The proximate cause of the rout was a worse-than-expected manufacturing report and sluggish construction spending, but the underlying source of the trouble was the Fed’s decision to wind down QE which, according to Bloomberg news, “helped drive the S and P 500 up 157 percent from a 12-year low in 2009.” The Fed’s tightening has reversed the dynamic that pushed equities into the stratosphere and generated an unprecedented boom in the emerging markets. Now capital is fleeing the EMs to the safety of US Treasuries while jittery investors ditch stocks and wait to see if the storm passes or gradually gains strength.
The mood on Wall Street has turned bearish overnight as markets in Europe and Asia continue to hemorrhage led by another bloodletting on Japan’s Nikkei which has slumped by a full a 14 percent since its Dec. 30 peak. Societe Generale’s emerging market strategist, Benoit Anne, summed up the mood in a terse note to her clients saying, “There is no point spending too much time trying to pick and choose when faced with a severe market crisis like the one we are witnessing in front of our screens. Right now, sell everything.”
Markets have entered a new phase in the ongoing financial crisis, a crisis which originated on Wall Street where trillions of dollars of fraudulently-manufactured “toxic” assets were produced by a criminal bank cartel and sold to unsuspecting investors around the world. Rather than write down the losses and restructure the banking system, policymakers at the Central Bank and US Treasury opted to conceal the damage with massive bailouts, financial repression, zero rates and regular infusions of liquidity, all of which helped to hide the rot at the heart of the system. The Fed’s plan to taper has removed the veil and exposed the weakness of an undercapitalized system that has been made more unstable by 5 years of misguided policy. This is real source of the problem.
Just as the Fed’s uber-accommodationist policy lifted stocks to record highs in the months preceding its taper announcement, so too, the withdrawal of central bank support is likely to increase the pace of the decline. That is why we expect the taper to be implemented in a stutter-step manner, stopping and starting sporadically depending on conditions in the market. Naturally, this will undermine the Fed’s attempts to send investors a clear message about the direction of policy. It also means that new Fed chairman Janet Yellen is going to spend less time trying to maintain the Fed’s mandate of “price stability and full employment” then simply putting out fires. Here’s a clip from Naked capitalism with some background on the turmoil:
“Since Bernanke started talking about “tapering off” Quantitative Easing, the bond markets have freaked out. This is a very logical reaction….Bernanke and other Federal Reserve economists appear bewildered by this phenomenon. The impression one gets from their follow-up comments is that they wished they could ask bond speculators “did you read the damn speech?” The answer, of course, is no and for good reason.
All investors need to know is the conditions under which QE … will be pursued has changed. Now the substantive change may actually be relatively minor, but that’s irrelevant to speculators. The reason is very simple: those holding assets with longer maturities will take huge capital losses with relatively small changes in interest rates ……It is better to exit now when those future changes are uncertain then take even more massive losses.” (“Market rout continues, proving abject failure of Fed’s forecasts and policies”, Naked Capitalism)
This is the logic of selling early even though the reduction of asset purchases is still in its opening phase. There’s no sense in waiting until the last minute and taking a chance of getting trampled in the stampede to the exits. Just cash in and relax.
The Fed’s trillion cash injections have created a fantasy world of ever-rising stock prices that’s gradually giving way to the emerging reality of dismal earnings, chronic-high unemployment, droopy incomes, stagnant wages, swollen P/E ratios and a bloated financial sector that requires a larger and larger share of the nation’s wealth to avoid another devastating collapse. This is the situation we find ourselves in today, a situation that is papered over with propaganda about meaningless data points that fail to identify the real source of the problem, which is the gigantic capital hole created by the toxic assets that have not yet been written down, but are still sucking the life out of the bedraggled economy via debt servicing, rate and liquidity subsidies, and the reshaping of economic policy to preserve zombie institutions which need to be euthanized.
The problem is not hard to grasp, in fact, most people will understand what’s going on by just reading this two-paragraph excerpt from an article which appeared in Forbes magazine back in February, 2009. Here’s a clip from the piece titled “Zombie Firms and Zombie Banks”:
”Beginning in 1991, Japan experienced a financial crisis that has been documented and studied by many. Japan’s crisis was triggered by a real estate and equity price bubble followed by a collapse of equity and real estate prices. But unlike the examples I cited above, Japanese policymakers met the crisis with prolonged denial and then, when conditions forced recognition of the severity of the problem, very halting steps to address it. Banks were not forced to recognize the condition of their balance sheets and were encouraged to continue lending to firms that were themselves unprofitable. Anil Kashyap labels these “zombie firms.”
Zombie banks continued to direct capital to zombie firms. This charade continued for more than a decade, with the result that the once-powerful Japanese economy was completely stagnant for that period. The government’s main response was to dramatically increase spending on infrastructure and frantically try to get Japanese households to save less and consume more. The resulting “lost decade” of economic growth cost Japan more than 20% of GDP.” (“Zombie Firms And Zombie Banks”, Thomas F. Cooley, Forbes)
Sound familiar? This same phenom is playing out in the US today. The Fed has spared no expense to perpetuate the illusion that the zombie banking system is solvent and that the trillions of dollars in losses from worthless assets has somehow vanished into thin air. But they haven’t vanished. They are either hidden-away via accounting trickery, passed off to gullible, yield-crazed investors, or transferred onto the Fed’s bulging balance sheet. In any event, the debts are real, they’re impeding the recovery, they’re sucking the life’s blood out of the economy, and they’re clear and present danger to financial stability.
The red ink has to be purged, just as the rickety, Potemkin banking system has to be put out of its misery. We need a fresh start.
MASS LAYOFFS HIT NORTH AMERICA, EUROPE AND JAPAN
By Kate Randall
February 7, 2014
A wave of layoff announcements over the past week has exposed the reality of the economic “recovery” touted by the Obama administration and governments worldwide. Deep-going job cuts are hitting the manufacturing, pharmaceutical, technology and retail sectors across North America, Europe and Japan.
Despite stagnant revenues, reflecting sluggish economic growth, companies are reporting booming profits. These profit gains are almost entirely due to a relentless assault on jobs, wages and working conditions being carried out by the ruling class.
The layoff of tens of thousands of workers comes amid news of unprecedented compensation packages for the heads of major US corporations. It is combined with ruthless austerity measures in the US and across Europe. As the chasm between rich and poor continues to grow, social programs and benefits upon which millions rely are being gutted.
- Weatherford International plans to cut its global workforce by 7,000 by mid-2014. The oilfield services company, which currently employs more than 65,000 people, hopes to generate annual cost savings of $500 million with the job cuts.
- Vehicle maker Volvo announced Thursday that it will lay off 4,400 employees in 2014, including a previously announced reduction of 2,000 jobs. CEO Olof Persson said the layoffs would affect workers worldwide.
- Chemical maker Ashland Inc. will cut up to 1,000 jobs as part of a restructuring program being carried out under pressure from investors to boost “shareholder value,” i.e., share prices. With revenue remaining flat at $1.9 billion for the quarter ended December 31, Ashland aims to save $150 million to $200 million annually from the restructuring.
- Swiss drug maker Novartis plans to eliminate or transfer up to 4,000 jobs. The plan will affect up to 6 percent of the company’s workforce and is part of a larger plan to cut costs, including the closure of production sites. Pharmaceuticals are under increasing pressure from investors to restructure in response to expiring drug patents and government efforts to cut health care costs.
- British-Swedish multinational drug maker AstraZeneca has increased its job-cutting toll to 5,600, raising by 550 last year’s announced layoff of 5,050. The company expects the job cuts, to be completed by 2016, to bring annual savings of $2.5 billion.
- Japanese tech giant Sony confirmed that it will sell its struggling PC unit to investment firm Japan Industrial Partners and cut some 5,000 jobs in its TV, PC, marketing and other departments.
- A mass layoff program began this week at Dell Inc., the multinational computer technology company, with over 15,000 people expected to lose their jobs. A source speaking to the Register described the impending job cuts as “a bloodbath.”
- US tech companies have also announced layoffs. Massachusetts-based EMC Corp. has approved a restructuring plan that will result in layoffs “similar in size” to job cuts of more than 1,000 last year.
- Several hundred people will be laid off as early as this week at Disney’s Interactive group. The job cuts will come mostly from Disney’s Playdom unit, which produces games for social media platforms.
- Time Inc., publishers of People, Time, Sports Illustrated and In Style, began job cuts on Tuesday expected to number about 500.
- North American manufacturers are shedding workers as companies close plants and make across-the-board cuts. Five hundred workers will lose their jobs beginning next week as International Paper shuts down the remaining two paper machines at its plant in Courtland, Alabama and winds down production at the facility.
- GenCorp Inc. announced Tuesday it is eliminating 225 jobs nationwide as it seeks to “eliminate redundancies and achieve efficiencies” following its $550 million acquisition of Pratt & Whitney Rocketdyne.
- Pittsburgh-based US Steel is laying off nearly a quarter of the non-unionized workforce at its operations in Nanticoke and Hamilton, Ontario—about 175 workers. The steelmaker’s operations in Hamilton, which once employed 15,000, will be trimmed to around 820 workers.
- Michigan-based Kellogg Co. said Tuesday it will close its Charlotte, North Carolina snack factory by the end of 2014 at a cost of 195 jobs.
- Retailers in the US and Canada announced major layoffs along with store closures. RadioShack will close 500 of its 4,300 stores.
- Best Buy in Canada is laying off 950 workers at stores in British Columbia, Quebec, Manitoba, Alberta and Ontario.
- Sears Canada announced layoffs Wednesday for the second time this month, eliminating 634 jobs. Two weeks ago, the company said 1,600 positions would go as it moved ahead with plans to close its Canadian call centers and reduce warehouse staff.
- United Airlines said last Saturday it would drop its hub in Cleveland, slashing many of its daily flights and eliminating 470 jobs. The hub formerly served Continental Airlines, which merged with United in 2010.
Even as they continue to attack jobs and wages, the corporations, with the full backing of the Obama administration and governments worldwide, are sitting on massive cash reserves. US corporations are estimated to be holding a cash hoard of $1.5 trillion.
Instead of using this money for productive investment and an expansion of employment, the corporate-financial elite is using it to finance speculative operations and stock buyback programs that drive up share prices and further enrich corporate CEOs and big investors—at the expense of the living standards of billions of people around the world.
S&P DOWNGRADES PUERTO RICAN DEBT TO JUNK STATUS
Written by Bob Adelmann | The New American
February 5, 2014
Now that credit rating agency Standard & Poor’s has ended the suspense by announcing that it is cutting Puerto Rico’s $70 billion worth of general obligation bonds to junk status, questions about the island’s economic future abound.
Will Fitch and Moody’s follow suit as they warned they probably would back in December? If the country can’t arrange other financing to cover its budget shortfalls as it has been doing since 2000, what will happen? With 70 percent of triple-tax-exempt bond funds in the United States holding some Puerto Rican debt, how much money will their investors lose? What will happen when investment managers who can no longer legally hold junk bond debt in their portfolios try to sell what they already have? To whom? For how much?
What about the hapless 3.6 million taxpayers on that balmy tropical isle? Will they be required to suffer further mulcting? What about the American taxpayers? Will the Obama administration bail it out with their taxes?
The Puerto Rican government has managed to sell $70 billion worth of its paper to investors, taking advantage of the subsidy already provided by the federal government in the form of allowing interest payments to be free from taxes at the federal, state, and local level. Since Puerto Rico is a territory under the Constitution (see Article IV, Section 3), it is subject to congressional mandates in nearly every area, including citizenship, its currency (the dollar), the U.S. Postal Service, foreign affairs, military defense, communications, labor relations, the environment (yes, even the EPA), commerce, finance, and health and welfare (i.e., Social Security).
The downgrade from Standard & Poor’s came much more rapidly than even Michelle Kaske expected. On January 29 she suggested in Bloomberg that Puerto Rico was in danger of losing its investment-grade rating, noting that it would raise the cost of servicing the country’s existing debt by a billion dollars a year.
The very next day Kaske quoted analysts at UBS Wealth Management who expected at least one of the credit rating agencies to cut Puerto Rican debt to junk within the next 30 days. That same day, Standard & Poor’s pulled Puerto Rican bonds from its tax-free municipal bond index, explaining that they “no longer meet the objective established by this investable investment-grade index.” Four days later S&P made its announcement, with widely held speculation that Moody’s and Fitch aren’t far behind.
The downgrade no doubt also surprised Puerto Rico’s Governor Alejandro Garcia Padilla, who has made huge public relations efforts to explain that things aren’t really that bad in his country. On November 7 he announced that, thanks to his Jobs Now Act, his administration was halfway to his goal of creating 50,000 new jobs during his first 18 months in office. Since replacing incumbent Governor Luis Fortuño in January 2013, Padilla boasted:
We have surpassed 25,000 new jobs and there will be more, many more, because we won’t rest until desolation is replaced by the hope for a better, more prosperous and more just Puerto Rico.
He then listed just where those jobs were coming from and observers quickly noted that more than 15,000 of them were only “pledged” to be filled at some uncertain time in the future. Nevertheless Padilla pressed on, writing in the Huffington Post on January 16 that his administration had “enacted the most comprehensive, meaningful and sweeping pension reforms in Puerto Rico’s history. We saved the Commonwealth’s Employees Retirement System and guaranteed its solvency for decades to come.” He added:
My administration also enacted new fiscal measures that produced $1.35 billion in revenues….
We are … investing in renewable energy and natural gas projects….
Our efforts have reaped clear rewards: thousands of new jobs, a reduced deficit, pension reform, new revenue creation, and new investments.
It will not get easier, but I am confident that we have taken the right actions to rebuild Puerto Rico toward a brighter future.
His public relations efforts failed to persuade Standard & Poor’s. The headwinds facing Puerto Rico are just too overwhelming. The island’s government has run a deficit every year since 2000, and has financed it, up until now, by going to the credit markets. The country’s economy has been in recession for eight straight years. The unemployment rate is more than twice that of the United States, and its population is shrinking as those residents who can (more than 40 percent of them live at or below the poverty level) are moving to Florida for better job opportunities. It’s had to fund its chronic deficits with expensive short-term bank loans since at least last September when the storm clouds became too obvious for lenders to ignore. A fifth of the working population is employed by the government, the pension plans are underfunded by $30 billion, and the country, despite Padilla’s protestations to the contrary, now appears to be out of options.
Padilla has certainly tried every Keynesian trick in the book. According to CNBC, “taxes and fees have gone up on nearly everything and everyone. Personal income taxes, corporate taxes, sales taxes, sin taxes, even taxes on insurance premiums have been hiked or newly imposed.” The water company hiked its rates by 67 percent in order to service the debt on its own separate obligations. And those pension plan improvements have been financed by cuts in benefits, extensions in retirement dates, and increased contributions from present workers.
As all of this was coming to a head, David Agnew, co-chair of President Obama’s Puerto Rico Task Force, explained that the U.S. taxpayer wouldn’t be funding any sort of bailout for Puerto Rico:
[This] interagency team will offer strategic advice to assist Puerto Rico in promoting its economic development and maximizing the impact of existing federal funds [already] flowing to the island.
These efforts are not a federal intervention. Rather, these policy experts will share their expertise with the Puerto Rican officials leading the commonwealth’s economic efforts.
Just what are those “federal funds already flowing to the island?” In a little known backroom maneuver engineered by the Obama administration in cooperation with a law firm advising the country, the island’s government imposed an excise tax on every U.S. company that had a manufacturing facility operating on the island. It was announced on October 22, 2010, approved the next day, and signed into law three days later. The tax was projected to generate $6 billion over the next five years.
The lawyers pointed out that because Puerto Rico is considered a “foreign jurisdiction,” those excise taxes would be credited against any income taxes owed. Voila! The U.S. treasury — the U.S. taxpayers — would be paying the tax. But this isn’t really a bailout, according to Mary Miller, Treasury undersecretary for domestic finance who, picking her words very carefully, said, “I don’t want to convey that that translates into a direct ‘ask’ for federal direct assistance, because that is not contemplated at this time.”
As the financial unraveling continues in the Caribbean, tax analyst Martin Sullivan noted in Forbes:
A lot of powerful interests like the current situation. They include the government and both major parties in Puerto Rico, the Obama administration … and U.S. multinationals that can credit the tax.
The only ones on the short end of the stick are U.S. taxpayers, who are footing the bill.
It’s almost a law: Whenever an entity of any kind gets in trouble, be it a domestic carmaker or a foreign government, the final backstop is inevitably the U.S. taxpayer. So it is in Puerto Rico.
WHY SOME EMERGING MARKETS ARE HEADING FOR A BUST
by Frank Shostak | Mises Daily
February 5, 2014
In countries such as Turkey and Argentina a tighter stance implemented by central banks has set in motion an economic bust. In Turkey the central bank has raised the one week repo rate to 10 percent from 4.5 percent while in Argentina the 3-month Treasury bill rate climbed to 25.89 percent from 16 percent in early January. In Argentina an increase in rates took place once the central bank aggressively curbed its monetary pumping, while in Turkey the central bank raised its policy rate.
What prompted the tighter stance? The main reason was the sharp decline in the exchange rate of domestic currencies against the US dollar. The Turkish lira fell to 2.39 per US dollar from 1.76 liras in January last year — a depreciation of almost 36 percent. The price of the US dollar in terms of the Argentina peso jumped to 8 pesos from 5 pesos in January last year — an increase of 60 percent. Note that in the black market the price of the US dollar stood at 12.5 pesos.
The catalyst for the currency depreciation in both economies has been strong increases in the money supply on account of the loose monetary policies of the respective central banks. In Turkey the yearly rate of growth of AMS stood at 30 percent in August this year while in Argentina the yearly rate of growth stood at 40 percent. The underlying currency rate of exchange is set in motion by the relative increases in the money supply. This means that if Turkey and Argentina allow their money supply rate of growth to exceed the rate of growth of the US money supply, both Turkey’s and Argentina’s currency will weaken against the US dollar.
Observe that in Turkey and Argentina the strong increase in the money supply rate of growth was accompanied by strong increases in so called real GDP. In Turkey by Q1 2010 the yearly rate of growth stood at 12.6 percent while in Argentina in Q2 2010 the rate of growth stood at 11.8 percent. Given that GDP reflects changes in the money supply rate of growth we suggest that the growth in GDP mirrors the build-up of bubble activities. The stronger the GDP the stronger the pace of bubble formation is. Obviously then a tighter monetary stance is going to undermine the rate of growth of money supply and thus weaken the support for various bubble activities. It is this that sets in motion an economic bust. We suggest that a similar scenario is awaiting other economies that have been generating a strong real GDP rate of growth by means of monetary pumping.
-Albert Edwards: The Markets Will Become Locked In A ‘Freddy Kruger-Like’ Nightmare That Takes Stocks Down To Levels Not Seen In A Generation. Read more here-http://read.bi/1gRsvv7
-CHART OF THE WEEK: The One-Year Move Of Every Major Emerging-Market Currency. Read more here-http://read.bi/1lDnk3K
-”We are firmly convinced that the fundamental argument in favor of gold remains intact. There exists no back-test for the current era of finance. Never before have such enormous monetary policy experiments taken place on a global basis. If there was ever a time when monetary insurance was needed, it is today.” Ronald-Peter Stoferle
-”The emerging market turmoil has accelerated and increased as tapering has come into effect. We saw Argentina devalue their peso, which automatically caused a rush into gold. Gold has soared in peso terms and it’s a reminder that all of this means the onset of even more risk. The classic shelter during this turmoil has historically always been gold. The last time we spoke I suggested a major bottom had been made at $1,180. Gold then moved up into resistance in the $1,270 area, and now we are just backing and filling. But I think the next target after $1,270 is $1,325, and then there is a big gap to $1,600. So despite the pullback in gold, people need to fasten their seat belts.” John Ing
-”I understand that there was almost a revolt at the Fed. Certain members warned Bernanke to halt the Fed’s wild money creation, fearing that it would wind up in hyper-inflation. But the Fed cannot completely halt its QE. The Fed is now buying 90% of the Treasuries that are put out for sale. If the Fed halts its buying of Treasuries, who will buy them? Certainly not China or USA investors. Bernanke’s thinking or hoping is that continued Fed stimulus will result in the US economy becoming so strong on its own that in due time it won’t need any Fed stimulus.
However, matters are not working out in the way Bernanke wishes. The economy is still dragging its feet, and employment is still lagging. In the meantime, the banks, not the US populace, have prospered. The banks’ reserves have been swelling. What dissenting Fed members are worried about is that bank reserves are growing and are beginning to resemble water behind a dam, pressuring to be released. When the dam finally breaks, all assets will go through the roof, and, as usual, leave the ever-suffering middle class behind. So that’s the story and the problem of the era. As I said years ago, the choice is, “inflate or die.” Richard Russell
-”As the price of gold migrates higher, more and more of the mainstream population is going to wake up and understand that something is terribly wrong. As this awakening takes place, not only will it lead to more physical gold buying, but it will also lead to even more intense volatility in other financial markets, including bond and equity markets. All of this will serve to bring forward the actual day of financial Armageddon the actual fall off the cliff. This will be the beginning of a very disturbing secular trend not only financial markets, but more importantly for the livelihoods of billions of people around the world.” William Kaye
-”If you look at Europe, in much of Europe the situation is even worse. So all these disastrous central bank policies have accomplished is to markedly increase the net worth of the super-wealthy, and impoverish virtually everybody else. And this simply can’t continue. You cannot have policies persist that create such disturbing imbalances. And if we look at what they are doing over in Japan, ‘Abenomics’ is destroying the purchasing power and the savings of its own population. This should be a crime. But what Japan is doing, just like the Western nations, is leading to a global situation that is entirely untenable. In a way, we can throw in China as well with its shadow banking fiasco.
But the reality is that the debt bubble is just way beyond the Rubicon. There is just no way that any sensible measures can be taken globally to deal with the immense debts that have accumulated and continue to be accumulated around the world. So we are going to reach that point of reckoning, whether it’s this year or 2015. But my guess is that the ‘big crash’ is going to occur in 2015. And as soon as interest rates are reset to a level that approximates anywhere close to an historic norm, the citizens of the world are going to be subjected to financial seizures that are going to make 2008/2009 look like a warm up act. That’s the end game.” William Kaye
-”You hit the wall, Eric, when problems in the banking system are allowed to manifest themselves where some bank finally realizes, ‘Hey, we don’t have any capital here and we just can’t keep going on pretending that we are solvent when we are insolvent.’ And as we see this constant deterioration in the economic data, I think it will become apparent to everyone that things aren’t working. If stocks start going down, of course it imperils all paper assets, and the banking system owns nothing but paper assets. My biggest concern in the financial arena has always been that the banks end up with problem loans.
In Spain something like up to 25% of all loans are problem loans. You just know there is no way for the banks to survive without the support of the central banks, and these central banks are getting extended here. There is only so much they can do. So you will see something (shocking) in the financial system maybe it’s in the stock market, maybe it’s some bank going down. The valuations are bearing no relationship to what the underlying fundamentals are today, so something is going to break somewhere along the line.” Eric Sprott
-”To be clear, I turned bearish on the markets in 2014 precisely because of the implementation of the deficit-busting Affordable Care Act, soaring interest rates and crumbling currencies in emerging markets. Also, the Fed’s taper of QE, which will cause asset prices to tumble, and yet another debate and debacle regarding the debt ceiling. Expect global chaos this year to rival that of 2008, at least until the new Fed-head Janet Yellen re-institutes a protracted and substantial QE program.” Michael Pento
-”Of course. The global markets are subject to a complete unraveling. Go back to our September 2008 Trends Journal, when they came up with the grand scheme of the bailouts. Do you know what our headline was? It was, ‘D.C. Heist Wall Street Hijacks Washington.’ And I said to KWN last year, ‘This is no recovery, it’s a coverup.’ They are covering it up with unprecedented amounts of cheap money being dumped into the system. So we now have countries all over the world involved in covering up what will ultimately be the greatest Ponzi scheme collapse ever seen in history because this time it will be global. As this collapse unfolds, there will be nowhere to hide in the banking system, and there will be nowhere to run inside of the global financial Ponzi that exists today. All hell will literally break loose as it collapses and people are running out of time to get prepared.” Gerald Celente
-”What’s been interesting during this decline, at least up to this point, is that gold has found a bid as a safe haven. Often during broad-based declines, gold and silver decline with everything else because the sell decisions are made by margin clerks. So it is interesting, at least in the near-term, to see the separation of global equity markets and precious metals markets. This may represent safe haven and value-based buying, or the fact that the physical markets, which have been extremely strong, are beginning to get the upper hand against the financial futures or paper markets where volumes have been steadily declining.” Rick Rule
-”The paper boys are still trying to run this market. But the physical gold market, as many of the KWN guests have pointed out, is running out everywhere. So people should be buying all of the physical gold they can afford to and that they can get their hands on. At that point people shouldn’t get excited until the gold price is up $100 in a single day because then we will know that the paper manipulators have been overrun. But as I said, buy as much physical gold as you can right now because the smart entities, the Chinese and the global elites, that’s exactly what they are doing.” John Embry
-”Well, they should be worried. This is the direct result of the tapering decision because all of this hot money that left the United States seeking opportunity has created bubbles around the world. As the US now attempts to rein it in, it is coming back faster than it went in and so the impact on global markets has been and will continue to be extreme. But this is an extraordinarily dangerous strategy because these markets are so overvalued and vulnerable that they are subject to total collapse overnight if they become liquidity starved. So I think the Fed is playing a very dangerous game, and I suspect as the terror in global markets accelerates, at some point the Fed will desperately reverse their tapering.” John Embry
-”The Fed and other central banks have in the last hundred years created a time bomb and any single one of the crisis areas that I have outlined above could be the catalyst to make the world economy implode. Some people have made incredible fortunes in the last century due to the central bank policies. But what the masses have achieved is perceived wealth built on exponential increases in personal and government debts. And sadly, one way or another the masses will pay for this for a very long time. So the 100 years of the Fed is nothing to celebrate. It will in retrospect be seen as a lost century which destroyed the world economy for many generations to come.” Egon von Greyerz
-Emerging markets more vulnerable than ever to Fed tightening, warns BIS. Bank for International Settlements says there had been a “massive expansion” in borrowing on global bond markets by banks and companies in developing countries. Emerging markets may be even more vulnerable to an interest rate shock today than they were during the East Asia crisis in 1998, the Bank for International Settlements (BIS) has warned. The Swiss-based watchdog said there had been a “massive expansion” in borrowing on global bond markets by banks and companies in developing countries, leaving them exposed to “powerful feedback” risks as borrowing costs rise in the West.
“The deeper integration of emerging market economies into global debt markets has made emerging market bond markets much more sensitive to bond market developments in the advanced economies,” the BIS said in a working paper. “The global long-term interest rate now matters much more for the monetary policy choice facing emerging market economies than a decade ago,” it said. The findings are at odds with widespread claims that these states are mostly insulated from monetary tightening by the US Federal Reserve, purportedly because they have borrowed in their own currencies over recent years and have huge foreign reserves. Read more here-http://bit.ly/1euKpBT
-Currency crisis at Chinese banks ‘could trigger global meltdown.’ A rise in foreign funding at China’s banks poses a threat for international lenders. The growing problems in the Chinese banking system could spill over into a wider financial crisis, one of the most respected analysts of China’s lenders has warned. Charlene Chu, a former senior analyst at Fitch in Beijing and now the head of Asian research at Autonomous Research, said the rapid expansion of foreign-currency borrowing meant a crisis in China’s financial system was becoming a bigger risk for international banks.
“One of the reasons why the situation in China has been so stable up to this point is that, unlike many emerging markets, there is very, very little reliance on foreign funding. As that changes, it obviously increases their vulnerability to swings in foreign investor appetite,” said Ms Chu in an interview with The Telegraph. Ms Chu has been warning since 2009 about the growth of a shadow banking system in China that has helped fuel the credit expansion seen in the country in the wake of the Western financial crisis. However, fears are growing that the build-up of foreign borrowing by the Chinese, particularly in US dollars, is creating an even greater build-up of risk than that seen before the crisis of 2008. Read more here-http://bit.ly/1b5I2VQ
-ECB Keeps Rates Unchanged as Growth Counters Price Risk. The European Central Bank kept interest rates unchanged as officials chose to set aside concerns that inflation may stay low for too long. The 24-member Governing Council, convening in Frankfurt today, left the main refinancing rate at 0.25 percent. Read more here-http://bloom.bg/1jix8i3
-EU Said to Weigh Extending Greek Loans to 50 Years. The next handout to Greece may include extending the maturity on rescue loans to 50 years and cutting the interest rate on some previous aid by 50 basis points, according to two officials with knowledge of discussions being held by European authorities. The plan, which will be considered by policy makers by May or June, may also include a loan for a package worth between 13 billion euros ($17.6 billion) and 15 billion euros, another official said. Greece, which got 240 billion euros in two bailouts, has previously had its terms eased by the euro zone and International Monetary Fund amid a six-year recession. Read more here-http://bloom.bg/1g6jj12 and http://bit.ly/1cZJw2F
-Switzerland turns down Greece’s wish to retroactively tax Greeks’ bank deposits. Swiss Finance Minister Eveline Widmer-Schlumpf turned down the proposal of her Greek counterpart Yiannis Stournaras to impose taxes on Greeks’ bank accounts and transfer the money to Athens. Read more here-http://bit.ly/1iwWDZx
-Carney Seeks to Keep Low-Rate Outlook as BOE Holds Policy. Bank of England Governor Mark Carney and his colleagues are debating how they can reflect the strength of the U.K. economy in their forecasts without suggesting that interest rates are about to go up. Officials are compiling a new quarterly economic outlook, due to be published next week, and reviewing how to guide expectations after unemployment plunged to within a whisker of the threshold for considering an interest-rate increase. Carney says he’s in no rush to end emergency stimulus, and the Monetary Policy Committee kept the benchmark rate at 0.5 percent. Read more here-http://bloom.bg/1eut63Y
-Half of Britons cut back on takeaways, heating and clothes as families find themselves just 11 Days from the breadline. Read more here-http://dailym.ai/1b5w3aB
DOW JONES INDUSTRIAL AVERAGE CLOSE FEBRUARY 7, 2014: 15794.08
S&P 500 INDEX CLOSE FEBRUARY 7, 2014: 1797.02
NASDAQ COMPOSITE INDEX CLOSE FEBRUARY 7, 2014: 4125.86
VOLATILITY INDEX CLOSE FEBRUARY 7, 2014: 15.29
RICHARD RUSSELL: THE STOCK MARKET IS ON THE EDGE OF A CRASH
February 3, 2014
With continued chaos around the world and uncertainty in global markets, today KWN is publishing an incredibly powerful piece that was written by a 60-year market veteran. The Godfather of newsletter writers, Richard Russell, has issued a major warning that the stock market is now on the “edge of a crash.”
Russell: “As I write, fiat currencies around the world are sinking. Normally when this happens, gold will surge. But rising gold would be a red flag waving in the Fed’s face, and there’s no doubt in my mind that the Fed has been manipulating gold and preventing its rise.
I’ve been thinking about bull and bear markets. Bull markets are man-made, they are a product of man’s desire for more and more, a product of man’s insatiable greed. During a bull market investors disregard their need for God. After all, they are loaded with money, money made on their own, without the help of God. During bull markets, God is put aside and forgotten.
I believe bear markets are made by God. Bear markets remind men that their greed and crime must be atoned for. In bear markets investors become frightened and once again they seek the help and comfort of God. In bear markets the crime and greed of the previous bull market comes to light. Bear markets are God’s way of cleansing humanity. In bear markets the dirty water streams out from under the closet. In bear markets men turn to God again for peace and help and comfort.
I’d be lying if I said that I wasn’t worried about the way things are going. Frankly, I’m truly scared for myself, my family and the nation. I have the sinking feeling that the stock market is on the edge of a crash. If that happens, investor sentiment will turn quickly bearish. And the bear market will start feeding on itself. Ironically, the recent action occurred in the face of almost insane bullishness on the part of the crowd and on the part of investors.
Obviously smart heads and institutional money managers know that the US is semi dead in the water. And all the talk about an improving economy is just wishes and hopes. Bernanke’s dream of a flourishing new economy, improving without the need of the Fed’s help, is an idle dream.
I’ve been writing about the stock market for over 60 years and I can’t remember a time when I was so filled with foreboding regarding what lies ahead. The primary trend of the market, like the tide of the ocean, is irresistible, and waits for no man. What scares me the most in this current situation is that I see no clear island of safety.
In previous bear markets, such as 1973-74, I moved myself and my subscribers into cash, and all seemed well. In this bear market, I’m puzzled as to where safety lies. I have picked gold and silver … Time to repeat the Lord’s prayer with conviction. It’s no fun writing an advisory report at this juncture.
Question — will Janet Yellen pursue the same course that Ben Bernanke has chosen? Or will she finally take the Fed’s heavy hand off gold? My guess is that she will follow in Bernanke’s path and manipulate gold while continuing to print Federal Reserve notes by the trillions.
One amazing thing about a primary bear market is that it tends to expose all cheating and lying and criminal activity. As Warren Buffet put it, when the tide runs out at the nudist camp, the bathers can finally tell the men from the women.
Following the great crash of 1929, the market rallied into 1930 in a huge upside correction of the crash. The Dow hit a high in January, backed off during the month of February and then rallied to a second lower peak in March. Following its second lower peak, the Dow resumed its bear market action and headed persistently lower. It was here that the US economy started to fall apart in earnest.
If Bernanke understood markets he’d understand why he’s now fighting a losing battle with the US economy. By spending trillions of dollars at the 2009 lows, the Fed was able to trigger a huge and overdue upward correction of the crashing primary bear market. Thus, the bear market was temporarily held back.
Returning to the present, the great market advance since the 2009 low was actually an upward correction of the bear market that started in 2000. All the market action since 2000 has been part of a huge, slow-building top. If we follow the 1929 pattern, the Dow may now decline for a month and then rally to a second lower peak. Following the second lower peak, the Dow will then decline persistently as the bear market resumes in earnest. As the situation becomes progressively more bearish, my best guess is that Yellen will continue to fight the primary bear trend with all the ammunition at the Fed’s command.
With the “down January” and the market suddenly stalling, I expect public sentiment to lose its good-time giddyness and to slowly turn bearish. I also expect the new bearish sentiment to feed on itself. I believe the public will soon demand HONEST statistics and data from the government. Remember, once the bear market is established, all the lying and nonsense will come to an end.
Late Notes — It should come as no surprise to subscribers that the stock market got whacked badly today. Today I received a clear sell signal on the point & figure chart of the Dow, which suggests continued selling. Once the market is oversold, I expect a good rally, which will take the Dow close to the previous high. When that rally deteriorates and declines, I expect the market to embark on an extended and frightening bear market decline.
I expect steady bear market deterioration in the US economy to continue from here, regardless of what the market does. Already I hear talk of a possible 10% correction. These people are wrong. This is not a correction. It’s a continuation of the bear market. Meanwhile, gold’s upward creep turned into a surge today, with gold up $20.”
THE DOW HAS FALLEN MORE THAN 1000 POINTS FROM THE PEAK OF THE MARKET
February 4, 2014
That didn’t take long. On Monday, the Dow was down another 326 points. Overall, the Dow has now fallen more than 1000 points from the peak of the market (16,588.25) back in late December.
This is the first time that we have seen the Dow drop below its 200-day moving average in more than a year, and there are many that believe that this is just the beginning of a major stock market decline. Meanwhile, things are even worse in other parts of the world. For example, the Nikkei is now down about 1700 points from its 2013 high. This is causing havoc all over Asia, and the sharp movement that we have been seeing in the USD/JPY is creating a tremendous amount of anxiety among Forex traders. For those that are not interested in the technical details, what all of this means is that global financial markets are starting to become extremely unstable.
Unfortunately, there does not appear to be much hope on the horizon for investors. In fact, troubling news just continues to pour in from all over the planet. Just consider the following…
-Major currencies all over South America continue to collapse.
-Massive central bank intervention has done little to slow down the currency collapse in Turkey.
-Investors pulled more than 6 billion dollars out of emerging market equity funds last week alone.
-The CBOE Volatility Index (VIX) has risen above 20 for the first time in four months.
-Last month, new manufacturing orders in the United States declined at the fastest pace that we have seen since December 1980.
-Real disposable income in the United States has just experienced the largest year over year drop that we have seen since 1974.
-In January, vehicle sales for Ford were down 7.5 percent and vehicle sales for GM were down 12 percent. Both companies are blaming bad weather.
-A major newspaper in the UK is warning that “growing problems in the Chinese banking system could spill over into a wider financial crisis“.
-U.S. Treasury Secretary Jack Lew is warning that the federal government could hit the debt ceiling by the end of this month if Congress does not act.
-It is being reported that Dell Computer plans to lay off more than 15,000 workers.
-The IMF recently said that the the probability that the global economy will fall into a deflation trap “may now be as high as 20%“.
-The Baltic Dry Index is now down 50 percent from its December highs.
If our economic troubles continue to mount, could we be facing a global “financial avalanche” fairly quickly?
That is what some very prominent analysts believe.
Below, I have posted quotes from five men that are greatly respected in the financial world. What they have to say is quite chilling…
#1 Doug Casey: “Now is a very good time to start thinking financially because I’m afraid that this year, in 2014, we’re going to go back into the financial hurricane. We’ve been in the eye of the storm since 2009, but now we’re going to go back into the trailing edge of the storm, and it’s going to be much longer lasting and much worse and much different than what we had in 2008 and 2009.”
#2 Bill Fleckenstein: “The [price-to-earnings ratio] is 16, 17 times earnings,” Fleckenstein said on Tuesday’s episode of “Futures Now.” “Why would you pay 16 times for an S&P company? I don’t care about where rates are, because rates are artificially suppressed. Why isn’t that worth 11 or 12 times? Just by that analysis, you’d be down by a quarter or 30 percent. So there’s a huge amount of downside.”
#3 Egon von Greyerz of Matterhorn Asset Management: “Nothing goes (down) in a straight line, but the emerging market problems will accelerate and it will spread to the very overbought and the very overvalued stock markets and economies in the West.
So stock markets are now starting a secular bear trend which will last for many years, and we could see falls of massive proportions. At the end of this, the wealth that has been created in the last few decades will be destroyed.”
#4 Peter Schiff: “The crisis is imminent,” Schiff said. ”I don’t think Obama is going to finish his second term without the bottom dropping out. And stock market investors are oblivious to the problems.”
“We’re broke, Schiff added. ”We owe trillions. Look at our budget deficit; look at the debt to GDP ratio, the unfunded liabilities. If we were in the Eurozone, they would kick us out.”
#5 Gerald Celente: “This selloff in the emerging markets, with their currencies going down and their interest rates going up, it’s going to be disastrous and there are going to be riots everywhere…
…So as the decline in their economies accelerates, you are going to see the civil unrest intensify.”
Those that do not believe that we could ever see “civil unrest” on the streets of America should take note of what just happened in Seattle.
After the Seahawks won the Super Bowl, fans celebrated by “lighting fires, damaging historic buildings and ripping down street signs“.
If that is how average Americans will behave when something good happens, how will they act when the economy totally collapses and nobody can find work for an extended period of time?
We are rapidly approaching another great financial crisis. Unfortunately, we didn’t learn any of the lessons that we should have learned last time. It is being projected that the debt of the federal government will more than double during the Obama years, the “too big to fail banks” have collectively gotten 37 percent larger over the past five years, and the big banks have become more financially reckless than ever before.
When the next great financial crisis arrives (and without a doubt it is inevitable), millions more Americans will lose their jobs and millions more Americans will lose their homes.
Now is not the time to be buying lots of expensive new toys, going on expensive vacations or piling up lots of debt.
Now is the time to build up an emergency fund and to do whatever you can to get prepared for the great storm that is coming.
As you can see from the financial headlines, time is rapidly running out.
MARGIN DEBT HITS ALL-TIME HIGH: PRELUDE TO A CRASH?
By Mike Whitney | Global Research
February 04, 2014
The Fed’s easy money policies have pushed margin debt on the New York Stock Exchange (NYSE) to record levels laying the groundwork for a severe correction or another violent market crash.
In December, margin debt rose by $21 billion to an all-time high of $445 billion.
Buying equities on margin, that is, with loads of borrowed cash, is a sign of excessive risk taking the likes of which invariably takes place whenever the Central Bank creates subsidies for speculation by keeping interest rates pegged below the rate of inflation or by pumping trillions of dollars into the bloated financial system through misguided liquidity programs like QE.
Investors have shrugged off dismal earnings reports, abnormally-high unemployment, flagging demand, droopy incomes, stagnant wages and swollen P/E ratios and loaded up on stocks confident that the Fed’s infusions of liquidity will keep prices going higher. It’s only a matter of time before they see the mistake they’ve made.
The chart below illustrates how zero rates and QE lead to excessive risk taking. The correlation between the stratospheric rise of margin debt and the Fed’s destabilizing monetary policy is hard to avoid. This is what bubblemaking looks like in real time.
Chart: Seeking Alpha.
In the minutes of the FOMC’s December meeting, FOMC officials acknowledge the froth they’ve created in financial assets which is why they’ve begun to scale back their asset purchases. The Fed hopes that by gradually winding down QE they’ll be able to stage a soft landing rather than a full-blown crash. Here’s an excerpt from the FOMC’s minutes:
“In their discussion of potential risks, several participants commented on the rise in forward price-to-earnings ratios for some smallcap stocks, the increased level of equity repurchases, or the rise in margin credit. One pointed to the increase in issuance of leveraged loans this year and the apparent decline in the average quality of such loans.”
There you have it, the Fed sees the results of its work; the distortions in P/E ratios, the exuberant stock buybacks (“equity repurchases”), the deterioration in the quality of leveraged loans, and the steady rise in margin debt. They see it all, all the bubbles they’ve created with their gargantuan $3 trillion surge of liquidity. Now they have started to reverse the policy by reducing their asset purchase from $85 bil to $65 bil per month, the effects of which can already be seen in the Emerging Markets.
The bubble in Emerging Markets has burst sending foreign currencies plunging and triggering a sharp reversal in capital flows. The hot money that flooded the EMs,–(which lowered the cost of borrowing for businesses and consumers)–is entirely attributable to the Fed’s policy. QE pushes down long-term interest rates forcing investors to search for higher yield in other markets. Thus, the cost of money drops in EMs creating a boom that abruptly ends when the policy changes (as it has).
Capital is fleeing EMs at an unprecedented pace precipitating a dramatic slowdown in economic activity, higher consumer prices and widespread public distress. The Fed is 100% responsible for the turmoil in emerging markets, a fact which even mainstream news outlets blandly admit. Here’s an excerpt from an article in Bloomberg just this week:
“Investors are pulling money from exchange-traded funds that track emerging markets at the fastest rate on record…More than $7 billion flowed from ETFs investing in developing-nation assets in January, the most since the securities were created, data compiled by Bloomberg show…
Emerging economies have benefited from cheap money as three rounds of Fed bond buying pushed capital into their borders in search of higher returns…
The Fed’s asset purchases had helped fuel a credit boom in developing nations from Turkey to Brazil. Accumulated capital inflows to developing-country’s debt markets since 2008 reached $1.1 trillion, or $470 billion more than their long-term trend, according to a study by the International Monetary Fund in October.” (“Record Cash Leaves Emerging Market ETFs on Lira Drop“, Bloomberg)
The Fed doesn’t care if other countries are hurt by its policies. What the Fed worries about is how the taper is going to effect Wall Street. If the slightest reduction in asset purchases causes this much turbulence abroad, then what’s it going to do to US stock and bond markets?
The answer, of course, is that stocks are going to fall…hard. It can’t be avoided. And while the amount of margin debt is not a reliable tool for calling a top; it’s safe to say that the recent spike in investor leverage has moved the arrow well into the red zone. Investors are going to cash out long before the Fed ends QE altogether, which means the selloff could persist for some time to come much like after the dot.com bubble popped and stocks drifted lower for a full year. Now check out this clip from Alhambra Investment Partners newsletter titled “The Year of Leverage”:
“For the year, total margin debt usage jumped by an almost incomprehensible $123 billion, while cash balances declined by $19 billion. That $142 billion leveraged bet on stocks far surpasses any twelve month period in history. The only times that were even close to as leveraged were the year leading up to June 2007 (-$89 billion) and the twelve months preceding February and March 2000 (-$77 billion). Both of those marked significant tops in the market.” ( Alhambra Investment Partners newsletter titled “The Year of Leverage“)
Repeat: “The $142 billion leveraged bet on stocks far surpasses any twelve month period in history.”
Investors are “all-in” because they think that the Fed has their back. They think that Bernanke (or Yellen) will not allow stocks to fall too far without intervening. (This is called the “Bernanke Put”) So far, that’s been a winning strategy, but that might be changing. The Fed’s determination to taper suggests that it wants to withdraw its stimulus to avoid being blamed for the bursting bubble. (“Plausible deniability”?) That’s what’s driving the current policy. Here’s more on margin debt from Wolf Richter at Testosterone Pit:
“On the New York Stock Exchange, margin credit has been hitting new records for months. All three mega-crashes in my investing lifetime have been accompanied by record-setting peaks in margin debt. In September 1987, a month before the crash, margin credit peaked at 0.88% of GDP. In March 2000, when the crash began, margin credit peaked at 2.7% of GDP. In July 2007, three months before the downdraft started, margin credit peaked at 2.6% of GDP. Now, margin credit has already reached 2.5% of GDP.” (“Plagued By Indigestion, Fed Issues Asset-Bubble Warning”, Testosterone Pit)
Stock market crashes are always connected to massive leverage, loosey-goosey monetary policy and irrational exuberance (“excessive risk taking”), the toxic combo that presently rules the markets. The Federal Reserve is invariably the source of all bubblemaking and financial instability.
As we noted earlier, equity repurchases or stock buybacks are another sign of froth. Here’s an excellent summary on the topic by Alhambra Investment Partners:
“In the third quarter of 2013, share repurchases totaled $128.2 billion, the highest level since Q4 2007. For the twelve months ended in September 2013, aggregate share repurchases were an astounding $445.3 billion; the only twelve-month period greater than that total was the calendar year of 2007 and its $589 billion.
The common argument advanced in favor of such share repurchases is that companies are using cash to recognize undervalued stocks, but that is total hogwash…
…corporate managers are no different than the reviled stereotypical retail investor. Both leverage themselves further and further as the market goes higher, not in recognizing undervalued stocks or companies but in full froth of chasing obscene values via rationalizations.” ( Alhambra Investment Partners newsletter titled “The Year of Leverage”)
In other words, corporate managers are doing the same thing as your average margin investor. They are loading up on financial assets–not because they think they are a good value or because they expect higher earnings –but because Fed policy supports artificially-high prices. That’s what’s driving the bull market, the Fed’s thumb on the scale. Remove the thumb, and you have a whole new ballgame (as we see in the EMs). There’s also a bubble in high yield “junk” bonds which just had their second biggest year on record (Total issuance $324 billion) Investors are only too happy to dump their money into high-risk debt believing that companies never default or that the Fed will save the day again credit tightens and the dominoes start tumbling through the debt markets. According to Testosterone Pit:
“The cost of a high-yield bond on an absolute coupon basis is as low as it’s ever been,” explained Baratta, king of Blackstone’s $53 billion in private equity assets. Even the riskiest companies are selling the riskiest bonds at low yields… Why would anyone buy this crap?” (“Bubble Trouble: Record Junk Bond Issuance, A Barrage Of IPOs, “Out Of Whack” Valuations, And Grim Earnings Growth”, Testosterone Pit)
Why, indeed? Of course, the author is just being rhetorical, after all, he knows why people are piling into junk. It’s because the Fed has kept a gun to their heads for 5 years, forcing them to grab higher yield wherever they can find it. That’s how Bernanke’s dogwhistle monetary policy works. By slashing rates to zero, the Fed coerces investors to speculate on any type of garbage that’s available. That why junk “just had its second biggest year on record.” You can thank Bernanke.
Housing is also in a bubble due to the Fed’s zero rates, withheld inventory, government modification programs, and an unprecedented uptick in all-cash investors. Clearly, there’s never been a market more manipulated than housing. It’s a joke.
The surge of Wall Street liquidity has spilled over into housing distorting prices and reducing the number of firsttime homebuyers to an all-time low. The homeownership rate is actually falling even while prices climb higher, which is just one of many anomalies created by the Fed’s policy. (Who’s ever heard of a housing boom, where the number of firsttime homebuyers is dropping?)
Also, the Central Bank has purchased more than $1 trillion in mortgage-backed securities (MBS) via QE, which begs the question: How can housing prices NOT be in a bubble?
As we noted earlier, the Fed understands the impact its policies have had. They know the markets are overheated and they’re determined to do something about it. A recent article in Bloomberg explains the Fed’s plan for winding down QE “without doing damage to the economy”. Here’s a short excerpt from the piece:
“Janet Yellen probably will confront a test during her tenure as Federal Reserve chairman that both of her predecessors flunked: defusing asset bubbles without doing damage to the economy…
Yellen is ‘going to be trying to do something that no one has ever done,’ said Stephen Cecchetti, former economic adviser for the Bank for International Settlements, the Basel, Switzerland-based central bank for monetary authorities. She needs ‘to ensure that accommodative monetary policy doesn’t create significant financial stability risks,’ he said in an interview…
The Fed’s ‘first, second and third lines of defense” for dealing with such imbalances is to rely on supervision, regulation and so-called macro-prudential policies, such as mortgage loan-to-value restrictions, Bernanke told the Brookings Institution in Washington on Jan. 16. ….Only as a last resort would it consider raising interest rates.’ (“Yellen Faces Test Bernanke Failed: Ease Bubbles“, Bloomberg)
You got that?
So the Fed is going into the “bubble-deflating” biz.
And uber-dove Yellen is going to put things right. She’s going to eliminate the price distortions and gradually return the markets to normalcy.
She’s going to wind down QE and start to reduce the Fed’s $4 trillion balance sheet.
And she’s going to do all of this without raising interest rates or sending stocks into freefall?
Right. It’s a pipedream. The first sign of trouble and old Yellen will be scuttling across the floor of the New York Stock Exchange with a punch bowl the size of Yankee Stadium.
You can bet on it.
MARC FABER FEARS “A VICIOUS CIRCLE TO THE DOWNSIDE” IS JUST BEGINNING
February 5, 2014
“It’s not just tapering that is putting pressure on markets,” Marc Faber warns in this brief clip. “Emerging economies have practically no growth and we have a slowdown in China that is more meaningful than strategists are willing to believe,” he adds and this is “causing a vicious circle to the downside” in inflated asset markets as most of the growth in the world over the last five years has come from emerging markets. Faber suggests Treasuries as a safe haven in the short-term; but is nervous of their value in the long-term as “debt is becoming burdensome on the system.”
“A lot of economic growth was driven by soaring asset prices”
“For the next three to six months probably they are a better place to be than equities,”
“I don’t like [10-year Treasurys] for the long-term because the maximum you can earn is something like 2.65 percent per annum for the next 10 years, but Treasurys are expected to rally because of economic weakness and a stock market decline. In the last few years at least there was a flight into quality – that is, a flight into Treasurys.”
On China and shadow banking defaults:
“China can handle it by printing money but it will again have unintended negative consequences… but the
problem is real… but it’s not just in China…”
Faber warned of the risks of the present global credit bubble and said another slowdown could follow on the back of rising consumer debt levels – which had previously helped to create growth.
“Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007, we have had rapidly escalating household debt especially in emerging economies and resource economies like Canada and Australia and we have come to a point where household debt has become burdensome on the system—that is, where an economic slowdown follows.”
MARKET MANIPULATIONS BECOME MORE EXTREME, MORE DESPERATE
Paul Craig Roberts and Dave Kranzler
February 8, 2014
In two recent articles we explained the hows and whys of gold price manipulation. The manipulations are becoming more and more blatant. On February 6 the prices of gold and stock market futures were simultaneously manipulated.
On several recent occasions gold has attempted to push through the $1,270 per ounce price. If the gold price rises beyond this level, it would trigger a flood of short-covering by the hedge funds who are “piggy-backing” on the bullion banks’ manipulation of gold. The purchases by the hedge funds in order to cover their short positions would drive the gold price higher.
With pressure being exerted by tight supplies of physical gold bars available for delivery to China, the Fed is growing more desperate to keep a lid on the price of gold. The recent large decline in the stock market threatened the Fed’s policy of taking pressure off the dollar by cutting back bond purchases and reducing the amount of debt monetization.
Thursday, February 6, provided a clear picture of how the Fed protects its policy by manipulating the gold and stock markets. Gold started to move higher the night before as the Asian markets opened for trading. Gold rose steadily from $1254 up to a high of $1267 per ounce right after the Comex opened (8:20 a.m. NY time). The spike up at the open of the Comex reflected a rush of short-covering, and the stock market futures looked like they were about to turn negative on the day. However, starting at 8:50 a.m., here’s what happened with Comex futures and S&P 500 stock futures:
At 8:50 a.m. NY time (the graph time-scale is Denver time), 3,225 contracts hit the Comex floor. During the course of the previous 14 hours and 50 minutes of trading, about 76,000 total April contracts had traded (Globex computer system + Comex floor), less than an average of 85 contracts per minute. The 3,225 futures contracts sold in one minute caused a $15 dollar decline in the price of gold. At the same time, the stock market futures mysteriously spiked higher:
As you can see from the graphs, gold was forced lower while the stock market futures were forced higher. There was no apparent news or market events that would have triggered this type of reaction in either the gold or stock market. If anything, the trade deficit report, which showed a higher than expected trade deficit for December, should have been mildly bullish for gold and bearish for the stock market. Furthermore, at the same time that gold was being forced lower on the Comex, the U.S. dollar index experienced a sharp drop in price and traded below the 81 level of support. The fall in the dollar is normally bullish for gold.
The economy is getting weaker. Fed policy is obviously failing despite recent official pronouncements that the economy is improving and that Bernanke’s monetary policies succeeded. A just published study by Jing Cynthia Wu and Fan Dora Zia concludes that the the positive impact of the Federal Reserve’s policy of quantitative easing is so slight as to be insignificant. The multi-trillion dollar expansion in the Federal Reserve’s balance sheet lowered the unemployment rate by little more than two-tenths of one percent, raised the industrial production index by 2 percent, and brought about a mere 34,000 housing starts. http://econweb.ucsd.edu/~faxia/pdfs/JMP.pdf
The renewal of the battle over the debt ceiling limit is bullish for gold and bearish for stocks. However, with the ongoing manipulation of the gold price and stock averages via gold and stock market futures, the normal workings of markets that establish true values are disrupted.
A rising problem for the manipulators is that the West is running low on gold available for delivery to China and other Asian buyers. In January China took delivery of a record amount of gold. China has been closed since last Friday in observance of the Chinese New Year. As China resumes purchases, default on delivery moves closer.
One way for the Fed and bullion banks to hold off defaulting on Chinese purchases is to coerce holders of gold futures contracts to settle in cash, not in delivery of gold, by driving down the price during heavy Comex delivery periods. This is what likely occurred on Feb. 6 in addition to the Fed’s routine price maintenance of gold.
As of Thurday’s (Feb. 6) Comex report for Wednesday’s (Feb. 5) close, there were about 616,000 ounces of gold available to be delivered from Comex vaults for February contracts totaling slightly more than 400,000 ounces, of which delivery notices for 100,000 ounces were given last Wednesday night. If the holders of the other 300,000 contracts opt to take delivery instead of cash settlement, February contracts would absorb two-thirds of Comex gold available for delivery.
The Comex gold inventory has been a big source of gold shipments from the West to the East, resulting in a decline of the Comex gold inventory by over 4 million ounces–113 tonnes–during the course of 2013. We know from reports from Swiss bar refiners that the 100 ounce Comex gold bars are being received by these refiners and recast into the kilo bars that the Chinese prefer and shipped to Hong Kong. With the amount of physical gold in Comex vaults rapidly being removed, the Fed/bullion banks use market ambush tactics such as those we describe above to augment and conserve the supply of gold available for delivery.
Readers have asked if gold can continue to be shorted on the Comex once no gold is left for delivery. From what we have seen–the fixing of the LIBOR rate, the London gold price, foreign exchange rates, the price of bonds and the manipulation of gold and stock market futures prices–we don’t know what the limit is to the ability of the Fed, the Treasury, the Plunge Protection Team, the Exchange Stabilization Fund, and the banks to manipulate the markets.
GREGORY MANNARINO: FED RATTLING EMERGING MARKETS TO KEEP U.S. PROPPED UP
By Greg Hunter’s USAWatchdog.com
Analyst and stock trader Gregory Mannarino says the market meltdown this week was caused by the Fed and weak economy. Mannarino says, “We understand there is a dynamic that has been changing here in the market with regard to the Fed’s purchasing mortgage-backed securities and bonds. This has rattled the emerging markets. They’re having problems with their currencies . . . The Federal Reserve has created an environment of distortions. By them pulling back some of this liquidity from the global economy, they’ve caused problems in these emerging markets, and this is being done on purpose.” What is the Fed trying to accomplish by destabilizing emerging market countries? Mannarino claims, “So, by rattling the emerging markets here, they are going to force investors into U.S. equities and into the U.S. bond market. It’s sort of a backdoor stimulus. . . . This just keeps the party going. That’s all this is.”
This may work in the short term, but it is not long term bullish for the markets. Mannarino warns, “We have this issue with the U.S. economy. They have been force feeding us nonsense . . . that we are in some kind of recovery. . . . This ISM number we got (Institute of Supply Management), we have not seen a pullback like this since 1980. It rattled the market. . . . We’re also getting mediocre earnings reports. We got unemployment numbers that are not good. So, this is spooking the market.” Looking at the big picture of the global economy, Mannarino goes on to say, “I am still a bull here in regards to the U.S. equity markets, but we all know where this is going. This is going to end terribly at some point. A complete financial meltdown is happening. You can see this already how the Federal Reserve has distorted this beyond the point of ridiculousness. Now, they are forcing the emerging market investor to look to the U.S. equity markets. At some point, people are going to see this whole thing is not sustainable. We are going to have a crisis of currency, a crisis of debt that is going to rock the core of the earth—period.”
This is a confidence game according to Mannarino. He says, “This is all about perception, not reality. If we were really in some type of a recovery, would we be talking about extending unemployment benefits for people? Would we be talking about more stimulus? Of course not, because there is no recovery. This is just smoke and mirrors across the board.” Don’t expect the market to plunge just yet because Mannarino says, “The Fed is counting on turmoil in the emerging markets to drive money into the U.S. market to keep the system propped up.”
Mannarino contends what you are seeing now is just a short term trade. In the longer term, Mannarino predicts, “Without a doubt, this is going to blow up. . . . I’ve been saying this for years now–we are headed for a pan global financial cataclysm. That’s a fact.” So, how does Mannarino plan to protect himself from this surefire coming calamity? Mannarino says, “I pull my gains out of the market, and I turn them into hard assets. I am the biggest precious metals bull out here. I can’t imagine a better place to be than in gold or silver, especially silver.”
Join Greg Hunter as he goes One-on-One with Gregory Mannarino of TradersChoice.net.
ABYSMAL JOBS NUMBER SPARKS STOCK MARKET RALLY…HERE’S WHY
Published on Feb 7, 2014
NON-FARM PAYROLLS MISS HUGE! MARKET DOESN’T GIVADAMN!
Published on Feb 7, 2014
CHRISTOPHER GREENE: QE5, STOCK MARKET CRASH, AND DOLLAR COLLAPSE
Published on Feb 3, 2014
KEISER REPORT: STAGED RUMBLE IN WALL STREET JUNGLE
Published on Feb 6, 2014
In this episode of the Keiser Report, Max Keiser and Stacy Herbert compare Wall Street to World Wrestling Entertainment where alleged competitors adopt stage personas and meet each other in a choreographed, scripted and over-acted competition. And just as people are betting on the pre-determined outcomes in the WWE ring, they’re doing the same in the rigged financial markets. In the second half, Max interviews Doug Casey of CaseyResearch.com about his new book, RIGHT ON THE MONEY. They also discuss Argentina, the dollar, art and gold.
U.S. TREASURY BONDS
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YIELDS FALL AS JOBS DATA DISAPPOINTS
* Yields fall after payrolls, 5-yr notes lead rally
* Employers add 113,000 jobs, fewer than expected
* Fed buys $659 mln notes due 2024-2031
* Yellen testimony, retail sales and supply focus for next week
By Karen Brettell
February 7, 2014
NEW YORK, Feb 7 (Reuters) – U.S. Treasuries yields fell on Friday after employers hired far fewer workers than expected in January, suggesting a loss of momentum in the economy at the same time as the Federal Reserve pares its bond purchase program.
Nonfarm payrolls rose only 113,000 in January, below economists’ expectations of 185,000 jobs, and job gains for December were barely revised higher. The unemployment rate also hit a new five-year low of 6.6 percent.
Five-year notes outperformed other maturities on Friday, suggesting that traders are now focused on targets the Fed has set for raising interest rates.
“It shows that markets are more attuned to the forward guidance idea,” said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. “There’s been a decline in confidence about the near term momentum of the economy and we can see that with the rally in fives.”
The rapid drop in U.S. unemployment will now make re-crafting the Federal Reserve’s easy-money promise a top priority for new Chair Janet Yellen, who will probably avoid tying policy to specific targets in the labor market.
It was more than a year ago that the U.S. central bank first promised not to raise interest rates until joblessness fell to at least 6.5 percent, a pledge that policymakers thought would hold until at least mid-2015.
Yellen is due to give her first testimony before the House Financial Services Committee on Tuesday and Thursday.
Five-year notes gained 9/32 in price to yield 1.47 percent, down from 1.54 percent before the data. Seven-year notes rose 10/32 in price to yield 2.12 percent, down from 2.19 percent.
Some covering of short positions by traders that had bet a stronger number would send yields higher before the data was also seen adding to Friday’s rally.
The report was seen as unlikely to sway the Fed from continuing to make reductions in its bond purchase program, however, with the next Fed meeting not scheduled until March.
“I think you would have to have significant weakness or you would need to see this disappointing trend extend another month or two,” said David Coard, head of fixed income sales and trading at Williams Capital Group in New York.
The Fed last week said it would reduce its monthly bond purchases by $10 billion to $65 billion and it is expected to continue cutting in $10 billion increments.
Retail sales data on Thursday will also be watched next week for signs of strength in consumer spending.
The Treasury will also sell $70 billion in new coupon-bearing debt next week, including $30 billion in three-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds.
The Fed bought $659 million in notes due 2024 to 2031 on Friday as part of its ongoing purchases. It will purchase between $2.25 billion and $2.75 billion in notes due 2021 to 2023 on Monday.
Benchmark 10-year Treasuries were last up 7/32 in price to yield 2.68 percent, down from 2.72 percent before the data was released. Thirty-year bonds rose 2/32 in price to yield 3.67 percent, down from 3.68 percent.
WEEKLY ADDRESS: EXPANDING OPPORTUNITY FOR THE AMERICAN PEOPLE
Published on Feb 8, 2014
In this week’s address, President Obama says he will do everything he can to make a difference for the middle class and those working to get into the middle class, so that we can expand opportunity for all and build an economy that works for the American people.
MILLIONS OF AMERICANS TEETERING ON EDGE OF FINANCIAL RUIN
February 5, 2014
A poll conducted by NBC News and Marist paints a bleak financial picture for millions of Americans. Nearly 20 percent, more than 40 million Americans, say they have a difficult time making ends meet.
The poll follows the results of a report released last year by the U.S. Census Bureau. It showed household income steadily declining since the Great Recession began in 2007. Median income in 2012 was $51,017 a year, down from $51,100 the year before. In 1999, median income was $56,080 when adjusted for inflation. The report also showed 46.5 million Americans mired in poverty.
Last January the Commerce Department reported personal income had fallen 3.6% that month, the largest decline in 20 years. Taxes and inflation made the decline even bigger. Disposable personal income fell by 4%. It was the largest loss in half a century.
According to the NBC News/Marist survey the tipping point is $50,000 a year. 30 percent of adults earning less than $50,000 per year describe their finances as weak while only 5 percent of those who earn more say the same. “Americans 45 to 59 years old, who may still be supporting their children while at the same time caring for parents, are more likely than other age groups to say their money situation is faltering. One in five members of this generation — 20 percent — says their household finances are weak.”
Debt is a factor. The poll revealed that nearly 10 percent, 22 million Americans, are trapped in debt. “Americans who earn less than $50,000 a year are four times more likely than those who make more to be overwhelmed by their level of debt. 16 percent of those with an annual salary less than $50,000 experience significant financial stress compared with only 4 percent who earn more.”
As of January 2014 the average credit card debt in America stood at $15,279. The average mortgage debt is $149,925 and the average student loan debt load is $32,250. In total, Americans owe a staggering $11.36 trillion in debt and $856.9 billion in credit card debt.
Census Bureau figures and polls, however, do not show the primary reason for declining incomes and the erosion of the middle class. Obama and the new Federal Reserve boss, Janet Yellen, say income inequality is a serious problem, yet they do not explain why and they never will.
The precipitous decline in middle class wealth is largely the fault of the Federal Reserve and government economic policy. The Federal Reserve enables deficit spending by government and fractional reserve lending by banks. It does this by creating money out of nothing. This influx of new money dilutes the value of existing currency and creates inflation. This represents an invisible tax government never talks about.
“Unfortunately no one in Washington, especially those who defend the poor and the middle class, cares about this subject,” Ron Paul notes. “Instead, all we hear is that tax cuts for the rich are the source of every economic ill in the country. Anyone truly concerned about the middle class suffering from falling real wages, under-employment, a rising cost of living, and a decreasing standard of living should pay a lot more attention to monetary policy. Federal spending, deficits, and Federal Reserve mischief hurt the poor while transferring wealth to the already rich. This is the real problem, and raising taxes on those who produce wealth will only make conditions worse.”
The NBC News/Maris poll says most Americans believe the economy is getting better and their financial situation will improve. Unfortunately, there is little evidence to bear this out. So long as the Federal Reserve controls money, the situation will continue to get worse. The solution to income inequality and encroaching rates of poverty is not a tax on the rich. It is abolishing the Federal Reserve and eliminating the control the financial class on Wall Street has over the issuance of money.
28 SIGNS THAT THE MIDDLE CLASS IS HEADING TOWARD EXTINCTION
By Michael Snyder | Economic Collapse
February 5th, 2014
The death of the middle class in America has become so painfully obvious that now even the New York Times is doing stories about it. Millions of middle class jobs have disappeared, incomes are steadily decreasing, the rate of homeownership has declined for eight years in a row and U.S. consumers have accumulated record-setting levels of debt. Being independent is at the heart of what it means to be “middle class”, and unfortunately the percentage of Americans that are able to take care of themselves without government assistance continues to decline. In fact, the percentage of Americans that are receiving government assistance is now at an all-time record high. This is not a good thing. Sadly, the number of people on food stamps has increased by nearly 50 percent while Barack Obama has been in the White House, and at this point nearly half the entire country gets money from the government each month. Anyone that tries to tell you that the middle class is going to be “okay” simply has no idea what they are talking about. The following are 28 signs that the middle class is heading toward extinction…
#1 You don’t have to ask major U.S. corporations if the middle class is dying. This fact is showing up plain as day in their sales numbers. The following is from a recent New York Times article entitled “The Middle Class Is Steadily Eroding. Just Ask the Business World“…
In Manhattan, the upscale clothing retailer Barneys will replace the bankrupt discounter Loehmann’s, whose Chelsea store closes in a few weeks. Across the country, Olive Garden and Red Lobster restaurants are struggling, while fine-dining chains like Capital Grille are thriving. And at General Electric, the increase in demand for high-end dishwashers and refrigerators dwarfs sales growth of mass-market models.
As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.
#2 Some of the largest retailers in the United States that once thrived by serving the middle class are now steadily dying. Sears and J.C. Penney are both on the verge of bankruptcy, and now we have learned that Radio Shack may be shutting down another 500 stores this year.
#3 Real disposable income in the United States just experienced the largest year over year drop that we have seen since 1974.
#4 Median household income in the United States has fallen for five years in a row.
#5 The rate of homeownership in the United States has fallen for eight years in a row.
#6 In 2008, 53 percent of all Americans considered themselves to be “middle class”. In 2014, only 44 percent of all Americans consider themselves to be “middle class”.
#7 In 2008, 25 percent of all Americans in the 18 to 29-year-old age bracket considered themselves to be “lower class”. In 2014, an astounding 49 percent of them do.
#8 Incredibly, 56 percent of all Americans now have “subprime credit”.
#9 Total consumer credit has risen by a whopping 22 percent over the past three years.
#10 The average credit card debt in the United States is $15,279.
#11 The average student loan debt in the United States is $32,250.
#12 The average mortgage debt in the United States is $149,925.
#13 Overall, U.S. consumers are $11,360,000,000,000 in debt.
#14 The U.S. national debt is currently sitting at $17,263,040,455,036.20, and it is being reported that is has grown by $6.666 trillion during the Obama years so far. Most of the burden of servicing that debt is going to fall on the middle class (if the middle class is able to survive that long).
#15 According to the Congressional Budget Office, interest payments on the national debt will nearly quadruple over the next ten years.
#17 More Americans than ever find themselves forced to turn to the government for help with health care. At this point, 82.4 million Americans live in a home where at least one person is enrolled in the Medicaid program.
#18 There are 46.5 million Americans that are living in poverty, and the poverty rate in America has been at 15 percent or above for 3 consecutive years. That is the first time that has happened since 1965.
#19 While Barack Obama has been in the White House, the number of Americans on food stamps has gone from 32 million to 47 million.
#23 It is hard to believe, but an astounding 53 percent of all American workers make less than $30,000 a year in wages.
#24 Approximately one out of every four part-time workers in America is living below the poverty line.
#25 According to the most recent numbers from the U.S. Census Bureau, an all-time record 49.2 percent of all Americans are receiving benefits from at least one government program each month.
#26 The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.
#27 Only 35 percent of all Americans say that they are better off financially than they were a year ago.
#28 Only 19 percent of all Americans believe that the job market is better than it was a year ago.
As if the middle class didn’t have enough to deal with, now here comes Obamacare.
Not only that, but millions of hard working Americans are going to end up losing their jobs or having their hours cut back thanks to Obamacare. For example, a fry cook named Darnell Summers recently told Barack Obama directly that he and his fellow workers “were broken down to part time to avoid paying health insurance“…
And the Congressional Budget Office now says that Obamacare could result in the loss of 2.3 million full-time jobs by 2021.
Several million people will reduce their hours on the job or leave the workforce entirely because of incentives built into President Barack Obama’s health care overhaul, the Congressional Budget Office said Tuesday.
That would mean job losses equal to 2.3 million full-time jobs by 2021, in large part because people would opt to keep their income low to stay eligible for federal health care subsidies or Medicaid, the agency said. It had estimated previously that the law would lead to 800,000 fewer jobs by that year.
But even if we got rid of Obamacare tomorrow that would not solve the problems of the middle class.
The middle class has been shrinking for a very long time, and something dramatic desperately needs to be done.
The numbers that I shared above simply cannot convey the level of suffering that is going on out there on the streets of America today. That is why I also like to share personal stories when I can. Below, I have posted an excerpt from an open letter to Barack Obama that a woman with a Master’s degree and 30 years of work experience recently submitted to the Huffington Post. What this formerly middle class lady is having to endure because of this horrible economy is absolutely tragic…
Dear Mr. President,
I write to you today because I have nowhere else to turn. I lost my full time job in September 2012. I have only been able to find part-time employment — 16 hours each week at $12 per hour — but I don’t work that every week. For the month of December, my net pay was $365. My husband and I now live in an RV at a campground because of my job loss. Our monthly rent is $455 and that doesn’t include utilities. We were given this 27-ft. 1983 RV when I lost my job.
This is America today. We have no running water; we use a hose to fill jugs. We have no shower but the campground does. We have a toilet but it only works when the sewer line doesn’t freeze — if it freezes, we use the campground’s restrooms. At night, in my bed, when it’s cold out, my blanket can freeze to the wall of the RV. We don’t have a stove or an oven, just a microwave, so regular-food cooking is out. Recently we found a small toaster oven on sale so we can bake a little now because eating only microwaved food just wasn’t working for us. We don’t have a refrigerator, just an icebox (a block of ice cost about $1.89). It keeps things relatively cold. If it’s freezing outside, we just put things on the picnic table.
You can read the rest of her incredibly heartbreaking letter right here.
This is not the America that I remember. What in the world is happening to us?
PRESIDENT OBAMA SPEAKS ON THE FARM BILL AND THE ECONOMY
Published on Feb 7, 2014
President Obama says that the farm bill is not just about helping farmers — it’s also a jobs bill, an innovation bill, an infrastructure bill, a research bill, a conservation bill. February 7, 2014.
U.S. SENATE FAILS TO PASS BILL TO EXTEND UNEMPLOYMENT BENEFITS
By Joseph Kishore
February 7, 2014
The US Senate failed to move forward with a three-month extension of federal unemployment benefits yesterday, leaving 1.7 million long-term unemployed workers without any cash assistance.
The vote on Thursday fell one short of the 60-vote supermajority required to end debate, with a handful of Republicans joining Democrats in supporting the measure. Even if the bill were to pass the Senate, it would still have to clear the Republican-controlled House of Representatives. Including family members, some 5 million people have been affected already by the December 28 expiration of extended benefits, a number that is growing by close to 1 million every month.
The Democratic Party and the Obama administration are engaged in a cynical charade over the benefits. The crisis facing the long-term jobless is seen as an opportunity to posture as opponents of inequality in the run-up to the 2014 mid-term elections. Even as the White House issued a statement criticizing Republicans for blocking the bill, the administration prepared to sign a bill that will cut food assistance by $8.7 billion over the next decade.
The cut-off of extended unemployment benefits at the end of last year was the result of a decision by the Democrats not to include an extension of the program in a budget deal worked out with the Republicans. “We know it’s a political game,” said Republican Senator Orrin Hatch, commenting on the Democratic maneuvers.
The two parties are engaged in behind-the-scenes negotiations over the jobless benefits, including discussions over other social cuts to pay for them and the introduction of changes that will further restrict access. Both parties are carrying out a strategy to use the unemployment crisis to blackmail workers into accepting poverty-level wages.
The proposal that failed in the Senate Thursday would have paid for the estimated $6 billion cost by reducing the amount of money corporations are required to pay into pension plans. This would have the effect of boosting corporate profits and increasing taxable income. The end result would be to short-change corporate pension funds, which would be used to justify pension benefit cuts in future years. This procedure is euphemistically called “pension smoothing.”
After initially putting on a show of opposing the Republican demand that any extension of jobless benefits be paid for elsewhere, the Democrats are now fully committed to balancing an increase in social spending with equal cuts targeting the working class elsewhere. “We have done virtually everything the Republicans asked,” Senate Majority Leader Harry Reid commented on Thursday.
Any extension will likely include further restrictions in eligibility and a reduction in the duration of benefits for those who qualify.
Also being discussed behind the scenes are proposals to “reform” the unemployment benefit system. In his State of the Union address last month, President Obama referred in passing to the need for “reforming unemployment insurance so that it’s more effective in today’s economy,” without indicating what reforms he was talking about. Various measures are being discussed, including stricter rules to force workers to accept low-paying jobs.
The failure to extend unemployment benefits comes amidst a continued jobs crisis. The supposed economic recovery touted by the Obama administration is a fiction, with the decline in the official unemployment rate due largely to the departure of millions of people from the labor force.
The civilian labor force participation rate currently stands at 62.8 percent, the lowest level since 1978 and down 4.5 percentage points from its peak in 2001. The overall employment-to-population ratio, another measure of real unemployment, stands at 58.6, only slightly higher than its post-2008 low.
STUDY: NEARLY HALF OF AMERICANS LIVING IN “LIQUID ASSET POVERTY”
By Nick Barrickman
February 4, 2014
A new study reveals that living standards for nearly half of the US population remain stagnant or have plummeted six years into the recessionary crisis. Released by the Corporation for Enterprise Development (CFED) last Thursday, Treading Water in the Deep End: CFED’s 2014 Assets & Opportunity Scorecard exposes the claims of government officials and media pundits that the average American citizen is doing better than ever.
“Reading the news, it would be easy to conclude that the economy is chugging along toward full recovery,” the reports’ authors write. “Yet, ask the average middle class American and their economic outlook is anything but healthy.”
The report ranks each state in terms of the standard of living of its residents as well as policies that have been implemented to help them reach financial security. It measures five different categories: financial assets, income, businesses and jobs, housing and homeownership, health care and education.
The report pays specific attention to what it terms “liquid asset poverty,” in which a four-person household maintains less than three months’ worth of savings, or $5,887, at any given time. Roughly 44 percent of all US households fall into this category, the report states.
“Liquid asset poverty means there is no ‘slack’ in a family’s budget,” the study notes. “If a liquid asset poor family faces an unforeseen expense, such as a broken down car or a medical bill, they have to borrow to cover the tab.” This can mean devastating consequences for the 56 percent of US households with subprime credit ratings.
Such households will oftentimes be refused typical loans, instead being forced to suffer the predatory rates of payday lenders. In the state of Mississippi, ranked 50th in the country for financial assets and income, more than two-thirds of households’ credit scores are considered subprime.
According to the authors, 89 percent of this section of the population is employed, 48 percent has at least obtained some college education and, of households with children, more than half are headed by both parents. Tellingly, the report notes that roughly one in four households possessing incomes of $56,113 to $91,356 yearly and considered to be “middle class” also falls into the category of “liquid asset poor.”
In homes with less than $18,193 in total assets, 78 percent fall into the ranks of “liquid asset impoverished.” The report found that 61 percent of African-American households fall into the latter category.
“Liquid asset poverty also means deferring future financial security—whether that is saving for retirement or investing in a home or college education,” the authors state. Across the country, employers are eliminating paid retirement plans, dropping the total percentage of workplaces carrying such benefits to 44 percent, down a percentage point from 2010.
Likewise, homeownership has fallen in the same period from 65 percent to 64 percent, while average college loan debt has increased to $29,400 in 2012 from $27,150 in 2011, an 8 percent increase in one year.
Other study findings show that the District of Columbia is the worst in the nation for the percentage of houses owned by their occupants, with only 41.5 percent of the District’s residents owning their homes, compared to a 63.9 percent national average. The economy of West Virginia consists of nearly one in three jobs being classified as low-wage (33.2 percent), second worst in the US. In Nevada, the report found that 25 percent of the state’s population was uninsured for health care, the lowest rate in the US.
Though the CFED report notes that there are often connections between the policies implemented at the state level and the resulting social outcomes, “Even with strong policies, it is more difficult to improve outcomes in states that have high levels of income inequality, a high cost of living and substantial demographic diversity.”
The report takes notice of New York, Connecticut and New Jersey, all of which rank in the top 10 on the report’s list of policy initiatives, and yet still trail in standard of living. This serves to underline the inadequacy of the measures being promoted at the state and federal level to alleviate poverty and suffering.
Many of the report’s rankings serve to obscure the social situation in many states. In Minnesota, ranked seventh in the report for instance, there is not a mention of the rapid decline in the state’s standard of living, which has plummeted since the financial collapse of 2008. A report released during the summer in 2013 showed that since the mid-2000s the state’s median income has fallen by $13,000, the steepest decline of any state.
The CFED study is the latest in a series of reports which expose the hoax of the so-called economic recovery being promoted by the Obama administration and a servile media, as well as underlining the effect that government austerity policies have had on the population.
The December jobs report showed that the economy had added only 74,000 positions during the holiday season, half the amount needed to simply keep up with population growth. Likewise, a US Census report released in September showed that the poverty rate in America has risen to more than 15 percent, the highest in a generation.
Similarly, a study released recently by Oxfam showed that the wealth of just 85 individuals dwarfs that of the poorest half of the world’s population. Likewise, a report released by UBS and Wealth-X in November found that the collective net worth of the world’s billionaires has doubled to $6.5 trillion since 2009.
SOCIAL INEQUALITY AND THE WAR AGAINST THE WORKING CLASS
By Andre Damon
February 7, 2014
Today, President Obama will sign a bill to cut $8.7 billion from the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps, slashing almost $100 per month in benefits for nearly a million households.
The attack on food stamps comes as Obama and the Democrats posture in the run-up to this year’s mid-term elections as opponents of social inequality and defenders of the poor and jobless. Nowhere in the establishment media is the glaring contradiction between what the Democrats say and what they do even discussed.
Obama’s action on food stamps is indicative of the state of politics and the reality of social life in America. It is the second cut in three months to a program that provides minimal assistance for the most vulnerable sections of society. The lie that there is simply no money for basic social programs is repeated even as new reports document the unprecedented rise in the wealth of the financial elite.
The levels of wealth accumulated by a tiny layer of society—in the United States and internationally—are almost unfathomable. A report commissioned by Bloomberg last month found that the world’s 300 richest people (0.000004 percent of the world’s population) had a net wealth of $3.7 trillion in 2013, an increase of $524 billion (13 percent) in one year alone.
Bill Gates, the world’s richest man, saw his wealth soar last year by $15.8 billion, to $78.5 billion. Warren Buffett, awarded the Presidential Medal of Freedom by President Obama in 2011, increased his wealth by $12.7 billion, to $60 billion, in 2012. Facebook CEO Mark Zuckerberg’s wealth nearly doubled, from $11.3 billion to $23 billion.
The astounding growth of the fortunes of the super-rich is tied to a record rise in the stock market, the direct and intended result of government policy. In the US, the Federal Reserve holds interest rates to near-zero and pumps tens of billions of dollars into the financial system every month, a policy copied by central banks in Europe and Japan.
The corporate-financial elite uses its control of the political system to carry out a vast redistribution of wealth. Unlimited funds are made available to the banks and corporations, while governments slash social programs and lay siege to the jobs, wages, pensions and health benefits of working people.
The scope of the attack makes clear that what is involved is a social counterrevolution. Every aspect of social life of the broad masses of people is affected:
Jobs and wages
Permanent mass unemployment is the result of relentless downsizing and cost-cutting by the corporate elite. Nowhere is the assault more ruthless than in America. This week, mass layoffs were announced by Dell, International Paper, Disney, Time Inc. and United Airlines, as well as many corporations based outside the US. Since 2009, wages in the auto industry, which the Obama administration singled out for restructuring, have declined an average of 10 percent, while manufacturing wages as a whole have fallen 2.4 percent. The nominal decline in the unemployment rate is mainly the result of millions of discouraged jobseekers leaving the labor market. The majority of new jobs pay near-poverty wages and provide little or no benefits.
Unemployment benefits, food stamps, social welfare programs
The cuts in food stamps are part of a broader attack on social programs. They follow the expiration of extended jobless benefits for 1.3 million long-term unemployed workers in the US. The percentage of long-term unemployed receiving cash benefits has fallen from two-thirds in 2010 to one-third today. The new bipartisan budget keeps in place $1 trillion in across-the-board “sequester” cuts over the next decade. The Obama administration has reduced domestic discretionary spending as a percentage of the gross domestic product to its lowest level since the 1950s.
In the 1980s, 60 percent of full-time private-sector workers age 25 to 64 in the US had a defined-benefit retirement plan. Now, that number has dropped to about 10 percent. Among the last holdouts are municipal employees, who are facing the gutting of their pensions in a wave of municipal bankruptcies. With the support of the Obama administration, a bankruptcy court judge in Detroit has given the go-ahead for overriding state constitutional protections and slashing city workers’ pensions.
The attack on workers’ pensions is coupled with the introduction of the Affordable Care Act, a “reform” that aims to dismantle the system of employer-sponsored health care and force workers to individually purchase health insurance on the private market. The scheme will cut health care costs for corporations and the government, boost the profits of insurance and health industry companies, and reduce coverage while increasing out-of-pocket costs for tens of millions of workers.
As the social conditions of workers are decimated, corporate deregulation, tax windfalls and government handouts to big business continue unabated.
The latest round of attacks on working people is a continuation of an offensive that has been ongoing for decades. The ruling class responded to the decline in the global economic position of American capitalism with a policy of deindustrialization, financial speculation and wealth redistribution from the bottom to the top. This was intensified following the collapse of the Soviet Union, which the corporate and financial elite saw as lifting a major restraint on the exploitation of the working class at home and imperialist aggression abroad.
The financial collapse of 2008 and the ensuing slump were seized on to further restructure class relations. The result: levels of social inequality that have not been seen since the years prior to the Great Depression of the 1930s.
The staggering growth of social inequality—to the point where less than 100 people control more wealth than the bottom 3.5 billion people on the planet—has destroyed any social basis for democracy. It underlies the preparations of the US and governments around the world for police state forms of rule, as exposed by Edward Snowden’s revelations of mass spying.
OBAMA’S JOB NUMBERS: NO REASON TO CELEBRATE
February 7, 2014
Earlier today Obama praised a reported increase in job numbers. The government will use the spike – which is, the establishment media notes, below expectations – to say we’re back on the road to recovery.
But we’re not back on the road to recovery. In fact, the job numbers cited by Obama represent about a third of what is needed to get the unemployed back to work – and more worrisome, especially if so-called amnesty is enacted – even less of what will be needed if a large influx of immigrants become legally able to look for work.
“In 2010, 1,042,626 legal immigrants came to the U.S. (We’ll use the same number for 2012, since it’s the latest data available).
This gives us 2,932,026 new workers in 2012,” a post of Skeptics notes.
“So to maintain our current employment rate, we’d need to create, on average, 244,336 jobs every month.”
Plus, adding salt to the unemployment wound, researchers said last September that illegal immigration is on the upswing after a downturn following the Great Recession beginning in 2007.
WHITE MEN (STILL) CAN’T WORK
by Tyler Durden | ZeroHedge
February 7, 2014
While The White House’s Jason Furman glistened in the after-glow of a falling unemployment rate this morning (and a very modestly improving labor-force-participation rate) despite dismal real job creation (which must be due to the weather – but is not!), we thought it perhaps of note that a very large segment of American – White men aged over 20 saw their labor force participation rate drop to a new record low.
ALMOST ONE IN FOUR 26-YEAR OLDS STILL LIVE WITH PARENTS
by Robert Wilde | Breitbart
February 6, 2014
A ten-year survey of millennials reveals that almost one in four (22.6%) 26-year-olds are still living with their parents.
The U.S. Department of Education report confirmed that, if you are tired of living with Mom and Dad, then do your homework and stay in school. According to the survey titled “Where Are They Now,” education makes a difference: generally those with more schooling were less likely to be living at home. The study shed some light on how older millennials have been faring during the Great Recession.
According to a Pew Research analysis of the 2012 data, lower levels of employment, an increase in college enrollment, and a decrease in young people getting married are major factors in the increase of millennials living at home.
The survey followed 13,000 high school students who were sophomores in 2002, and checked in with them in 2012 to see where are they now. Some of the results are:
- 10% living with roommate(s), prompting fellow millennial Katy Waldman to write an embarrassing Slate article bearing the headline, “More 27-Year-Olds Live With Parents Than Roommates”
- 53.8 percent made less than $25,000 from employment in 2011
- 40% had been unemployed for one or more months since January 2009
- 13% reported they were neither working for pay nor taking postsecondary courses
- 60.2 % of those who had enrolled in college, reported they had taken out student loans
FRY COOK SHIFTED TO PART-TIME WORK CONFRONTS OBAMA
By Andrew Johnson | National Review
February 4, 2014
During a Google Hangout session on Friday, fry cook Darnell Summers told President Obama that his hours were cut due to the Affordable Care Act. “We were broken down to part time to avoid paying health insurance,” he said. Summers explained that he makes $7.25 an hour and has been on strike four times seeking a wage increase. “We can’t survive, it’s not livin’,” he said.
The president responded by urging states to increase the minimum wage. “I am working to encourage states, governors, mayors, state legislators to raise their own minimum wage,” Obama said. “Obviously, the way to reach millions of people would be for Congress to pass a new federal minimum wage law. So far, at least, we have not seen support from Republicans for such a move.”
The president did not address Summers’s comments about the healthcare law.
HOW DID AMERICANS MANAGE TO LOSE $119 BILLION GAMBLING LAST YEAR?
The world lost a record of amount of money last year, and America led the pack
By John Aziz | The Week
February 5, 2014
The gambling industry around the world is huge, but the biggest market is the United States, where gamblers lost a staggering $119 billion in 2013:
That’s a crazy amount of money; more money than Bill Gates has (with $72 billion) or Warren Buffett (with $58 billion), and only $11 billion less than the two men put together.
What intrigues me is the question of why so many people gamble. After all, everyone knows that the odds are stacked against gamblers, whether they’re betting on slot machines, horse racing, football, roulette, bingo, or lotteries. Even the games where it is possible for a highly skilled player to consistently make money — blackjack and poker — are big losers for the vast majority of players. And why do some players — problem gamblers, around 1.8 percent of the population — end up losing vast amounts of money, going into debt, and sometimes even losing their families and homes?
Different individuals gamble for a mixture of different reasons. The reasons are subtly different for each individual, but are usually a mixture of the following:
1. Escapism, entertainment, and boredom: The places that people go to gamble — like casinos, hotels, card rooms, bookmakers, and even online gaming websites — offer an escape from everyday life, and the opportunity to do something different, usually with a possibility of hitting a large payday. The vast majority of people who play the lottery don’t win, but they all get the opportunity to dream about what they would do if they did win. In this sense, gambling can be seen as a form of entertainment, and those multi-billion dollar losses are the cost of being entertained, just as people pay to watch sports, listen to music, or play computer games.
2. Social activity: Gambling is a deep rooted part of American culture — 80 percent of Americans gamble at least once per year. Gambling with friends and family — whether that’s in a casino in Vegas, or a card game at home, or making football or basketball bets among work colleagues — is widespread.
3. Excitement and thrill: The sense of anticipation and risk creates an adrenaline rush and the payoff releases a surge of dopamine. Dopamine is a neurotransmitter associated with the feeling of pleasure, and even elation. When you receive a hug from a loved one, dopamine levels rise; when you engage in sex, dopamine levels spike; when you win a bet, they shoot up as well.
4. Self-esteem: Casinos roll out the red carpet and dish out complimentary drinks, free stays in suites, shopping vouchers, and other gifts for big-time gamblers. That can be a huge self-esteem boost. So too can giving away winnings to friends or family, tipping service staff large amounts, or making gifts to charity.
5. Self-delusion and the Dunning-Kruger Effect: Some gamblers believe they are lucky or special and will beat the odds and win, unlike the vast majority of gamblers. While this is true in the long run for a very tiny minority of sharp, mathematical gamblers in certain games like poker and blackjack — just as it is possible for a tiny minority of investors to beat the stock market — it is untrue for the overwhelming majority of players. Inexperienced gamblers (and investors) may fall victim to the Dunning-Kruger Effect — the tendency for unskilled individuals to overrate their skill and ability, and underrate the difficulty of the task at hand. They may also create narrative fallacies and rationalizations to justify their belief that they can beat the odds and win.
So that covers the behavior of many casual gamblers, but for problem bettors, the issue is often addiction. The primary addiction, however, may not always be to the rush of winning — some research suggests that gamblers get the biggest kick from coming close to winning, and then losing. And some gamblers may be addicted to the aforementioned escapism or self-esteem highs.
The global gambling industry forecasts that betting losses will continue to rise. And they’re probably right. After all, it’s been common knowledge for a very long time that most people lose at gambling in the long run. That’s what keeps casinos in business. And yet, people keep keeping them in business.
WHAT IS SUPPLY-SIDE ECONOMICS?
By Dr. Paul Craig Roberts | Global Research
Supply-side economics is an innovation in macroeconomic theory and policy. It rose to prominence in congressional policy discussions in the late 1970s in response to worsening Phillips Curve trade-offs between inflation and unemployment. The postwar Keynesian demand management policy had broken down. The attempts to stimulate employment brought higher rates of inflation, and attempts to curtail inflation resulted in higher rates of unemployment.
In other words, the Phillips curve (named after economist A. W. Phillips) trade-offs between inflation and unemployment were worsening. Each additional job created had to be paid for with a higher rate of inflation, and each reduction in inflation had to be paid for with a higher rate of unemployment.
The Phillips curve met its nemesis in stagflation, a new term that entered economics in the late 1970s. Milton Friedman summed up the demise of the Phillips curve with his article, “More Inflation, More Unemployment.”
The appearance of stagflation–simultaneous inflation and unemployment–was a serious problem for Congress, as I pointed out in the late 1970s in an article in The Public Interest, “The Breakdown of the Keynesian Model.” Simultaneous inflation and unemployment meant that the federal budget would soon be out of control. In those days Congress actually worried about such an outcome.
The Keynesian economic establishment could offer Congress no solution other than an “incomes policy.” An incomes policy was wage and price controls. Inflation would be controlled by suppressing wages and prices, while expansionary monetary and fiscal policies boosted aggregate demand to raise employment. Even Congress understood that aggregate demand could not rise if wages were suppressed.
Congress looked for a different solution, and I, being on the scene as a member of the congressional staff, gave them the solution. In Keynesian economics monetary and fiscal policies only affect aggregate demand. If these policies were expansionary, aggregate demand increases, thus boosting employment and inflation. If these policies were restrictive, inflation and employment would fall with consumer spending. The fault in Keynesian theory and policy was the assumption that fiscal policy had no impact on aggregate supply.
I was able to explain to members of Congress, both Democrats and Republicans who were concerned about stagflation, that some forms of fiscal policy directly increase or decrease aggregate supply. High tax rates mean that leisure is cheap in terms of forgone current earnings–thus there is less labor supply–and current consumption is cheap in terms of foregone future income streams–thus less savings for investments. Keynesian demand management had run into trouble, because the high tax rates on income reduced the response of supply to demand stimulus. Thus, prices rose instead of output.
The solution, I said, was to reduce the marginal income tax rates across the board. This would increase the responsiveness of supply to demand and cure stagflation.
Both political parties listened. In the House it was the Republicans who took the lead–Jack Kemp and Marjorie Holt. In the Senate, Republicans Orrin Hatch and Bill Roth stepped forward. However, in the Senate the lead was taken by Democrats, especially Russell Long, chairman of the Senate Finance Committee, Lloyd Bentsen, chairman of the Joint Economic Committee of Congress, and my Georgia Tech fraternity brother, Sam Nunn.
As a result of Rep. Jack Kemp being the first congressional spokesman for a supply-side policy and President Reagan’s adoption of the policy, supply-side economics is associated with Republicans. However, Republicans almost lost the issue to Democrats. The first official government endorsement of supply-side economics was in the late 1970s by the Joint Economic Committee of Congress under the chairmanship of Democratic Senator Lloyd Bentsen of Texas.
The Joint Economic Committee under Senator Bentsen’s leadership put out Annual Reports two years in a row calling for a supply-side policy. As the presidential election approached that put Ronald Reagan in the White House, the majority Democrats in the Senate had a meeting to decide whether to pass the supply-side tax rate reductions prior to the presidential election, thus pulling the rug out from under Reagan on his main plank. The Senate Democrats were inclined to move forward with the tax rate reductions, but the Senate Majority Leader convinced them that it would look like an endorsement of Reagan over their own party’s candidate (Jimmy Carter). The Senate Majority Leader said that immediately after the election, the Democrats would take control of the issue and pass the marginal tax rate reductions. The great surprise of the election was that the Democrats lost control of the Senate.
There was more opposition to Reagan’s tax bill from Republicans than from Democrats. Republicans believed that budget deficits ranked with the Soviet threat and were more willing to raise taxes than to reduce them. The Republican opposition was so strong that I had a hard time getting the tax bill out of the Reagan administration so that Congress could vote on it. In those days the great bogyman for Republicans was budget deficits, and deficits were what Treasury’s projections showed. Although the Treasury was, for the most part, committed to the President’s policy and believed that some part of the lost revenues from marginal tax rate reduction would be recovered, which is also what Keynesians believed, the Treasury’s revenue forecast was based on the traditional static revenue model that every dollar of tax cut would lose a dollar of revenue.
OMB director David Stockman and his economist Larry Kudlow covered up the revenue loss by assuming a higher rate of inflation. In those days the income tax was not indexed for inflation. Nominal income gains pushed taxpayers into higher tax brackets. The higher was inflation, the higher was nominal GDP and tax revenues. In order to raise the revenue forecast, Stockman only needed to raise the inflation forecast.
Senate Democrats complained to me that they were willing to cooperate with Reagan on the tax bill, but were being cut out. Sam Nunn, who had got “Reaganomics” passed in the Senate before Reagan was elected, only to have it nixed by President Carter, told me that no one in the Reagan administration had ever spoken to him or sought his support.
The White House chief of staff, James Baker, wanted a Republican “victory,” and proceeded to pick a fight with the Democrats who were willing to support President Reagan’s policy. I told Jim Baker that he was making a strategic mistake. By cutting out the Democrats, he was setting the policy up for criticism that would create the perception of failure. I told him that Stockman had hidden the deficit by over-estimating inflation, a ploy that contradicted the logic of our policy. If our policy was correct, inflation would be less than Stockman’s forecast. The tax revenues would not materialize, and the Democrats, cut out of the action, would seize on the deficits and pay the White House back for cutting them out of any credit for the new policy. (My prediction came true. Democrats, inured to deficits by decades of Keynesian demand management, suddenly became as rabid about budget deficits as Republicans.)
If I had known then just how corrupt politics was, I would have thought twice before warning Baker that the hidden deficits would be used to discredit the policy even if the policy cured stagflation. Baker was allied with George Herbert Walker Bush, Reagan’s VP, and the fight was on from day one for the succession to Reagan. Kemp was in the forefront, because he was identified with Reagan’s economic policy, and Bush had called it “voodoo economics.” If Baker could make Reagan’s policy appear to be successful only because Bush had moderated it, all the better for VP Bush’s claim to the succession.
Tip O’Neill, the Democratic Speaker of the House, offered an alternative supply-side tax rate reduction to the administration’s bill. Speaker O’Neill’s bill had a smaller reduction in marginal tax rates on personal income, but had a superior pro-growth tax reduction on the business side. The House Democrats’ bill offered expensing of business investment.
The Reagan administration was too fearful to propose expensing (immediate write-offs) of business investment, and here was the leading Democrat in the nation offering it to them. I told Jim Baker to jump on it, to work out a compromise with O’Neill on the size of the personal tax rate reductions and to give the Democrats equal credit for the policy.
That, I told Baker, would ensure the policy’s acceptance and success.
For political reasons Baker was more committed to giving Reagan a “victory” over Democrats than he was to the success of the policy. Baker wanted a headline. I wanted a policy. From Baker’s standpoint, if Democrats for political reasons turned against the policy, they would help to create welcome roadblocks to Jack Kemp’s challenge to George H.W. Bush for the succession.
Reagan’s version of supply-side economics carried the day over Tip O’Neill’s version. Deputy Assistant Treasury Secretary Steve Entin prepared a graph comparing the Reagan and O’Neill tax rate reductions. The Democrats’ tax cut was initially larger, but Reagan’s was better over time. That let Reagan go on national TV, point to the graph and say, “the Democrats have the best bill–if you only expect to live one more year.”
The history and explanation of supply-side economics are in my book, The Supply-Side Revolution (Harvard University Press, 1984). Books published by Harvard are peer-reviewed, which means that publication depends on a go-ahead from outside experts. A book that was “voodoo economics” or simply said that “tax cuts pay for themselves” or that “trickle-down economics works by giving the rich money to spend and some of it will trickle-down to help the poor” will not clear peer review.
Thirty-five to forty years after supply-side economics made its appearance in policy debates the vast majority of Americans, including apparently some economists and public intellectuals, have no idea what it is. For example, on February 1, 2014, Information Clearing House posted Bill Moyers interview of David Simon, “America as a Horror Show.” This important interview gets fouled in its opening lines when Simon declares: “Supply-side economics has been shown to be bankrupt as an intellectual concept. Not only untrue, but the opposite has occurred.”
Supply-side economics was not relevant to the interview. Yet off the bat Simon destroys the credibility of his interview. Supply-side economics cured stagflation exactly as supply-side economists said it would do. That was its only claim. I know. As Assistant Secretary of the Treasury for Economic Policy, I was in charge.
In 2013 The Supply-Side Revolution, which Harvard has kept in print for three decades, was published in China in the Chinese language. Why would a leading Chinese publisher translate and publish a 30 year old book about a subject that “has been shown to be bankrupt as an intellectual concept?” Why would Chinese economists request a publisher to translate and publish a book about a discredited and useless subject?
Why does Simon, a reporter who was on the Baltimore Sun’s city desk covering crime during the Reagan administration, think that he knows anything about supply-side economics?
How can America save itself when its public intellectuals have no idea what they are talking about?
As I am associated with supply-side economics and the Reagan administration, the coterie of Reagan haters will write in to the many sites that post my column with sarcastic comments denouncing me for “again defending Reagan.” I am not defending anyone. I am merely stating the facts. Anyone can find the facts. All they have to do is to look. But many had rather shoot off their mouths and demonstrate their ignorance. They can’t stand the thought of having one less reason for hating Reagan.
As I am an interested party, let’s turn to a non-interested one, Paul A. Samuelson, “the father of modern economics.” Samuelson was the doyen of Keynesian economics, America’s greatest 20th century economist, and the first American economist to win the Nobel prize. If anyone was harmed by supply-side economics, it was Keynesian economists’ human capital. Yet in the 12th edition of his famous textbook published in 1985, Samuelson shows how supply-side policy can cause aggregate supply to increase or decrease, a first for economics textbooks. Samuelson validates supply-side economics in principle and says that its policy impact varies from “modest” to “substantial,” depending on circumstances. He also says that in Britain, “the supply side policies appear to have had an unexpectedly large impact, improving both inflation and productivity more than many observers expected.”
Is the “foremost academic economist of the 20th century” (New York Times) another trickle-down, voodoo kook like me and Ronald Reagan?
I met Samuelson in his MIT office when I gave the annual State of the Economy address to the combined economic faculties and graduate students of Harvard and MIT sometime in the 1980s. Samuelson had an open mind and could absorb new thinking. At the conclusion of my address, I received a standing ovation. No one in the large liberal audience of professors and graduate students said I was a voodoo economist or an agent for the rich. I have debated in public forums Keynesian economists who are Nobel prize winners, such as James Tobin and Larry Klein. They were always respectful. At a meeting of the Eastern Economics Association, Tobin acknowledged that I was correct.
Supply-side economics dealt with the problem of its time–stagflation. Supply-side economics has no cure for an economy decimated by jobs offshoring and financial deregulation. The problems of today are different. I have made this clear in my book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West.
The George W. Bush tax cuts have nothing to do with supply-side economics. The Bush tax cuts were nothing but a greedy grab, but they are not a signifiant cause of today’s inequality. The main causes of the unacceptable inequality of income and wealth in the US today are financial deregulation and the dismantling of the ladders of upward mobility by the offshoring of manufacturing and tradable professional service jobs. The wages and salaries denied to Americans are transformed into corporate profits, mega-million dollar executive bonuses, and capital gains for shareholders. Financial deregulation unleashed massive debt leverage of bank depositors’ accounts, backed up with Federal Reserve bailouts of the banksters’ uncovered gambling bets. Neither tax increases nor reductions can compensate for these extraordinary mistakes.
Intelligent people over the centuries have stressed that failure to understand the past endangers the present and the future. Across the American political spectrum policymakers, economists, media, commentators, and the public are ignorant of the past and in denial about the present. Those trying to inform are few and far between, and they are constantly under attack from the very people they are endeavoring to inform.
What is the point of the effort to inform? Is it merely “sound and fury, signifying nothing”?
EMANUEL SEEKS TO BORROW $900 MILLION
City aldermen agreed to borrow almost $2 billion for capital improvement projects, upgrades to Midway Airport, lawsuit settlements and debt payments.
Mayor Rahm Emanuel’s administration is making preparations to issue up to $900 million in bonds this year to lower some of its borrowing costs, push other debt off into the future at an overall higher cost, cover legal settlements and pay for construction, building maintenance and equipment.
At the same time, the administration is making plans to double the city’s short-term credit line to $1 billion, Chief Financial Officer Lois Scott told aldermen at a City Council Finance Committee meeting.
The committee recommended giving the administration authority to put together two major bond deals and double the city’s the line of credit to $1 billion, even as the city carries an outsized debt burden in comparison to most other major cities. Chicago carries a high debt level for bonds previously issued, and it also owes more than nearly all other major U.S cities to its pension plans to cover current obligations
The Tribune’s “Broken Bonds” highlighted the city’s habit — both under former Mayor Richard M. Daley and Emanuel — of kicking its debt obligations down the road, at a higher cost to future generations. The city took out loans, some of which won’t come due for three decades, to cover short-term costs.
On Monday, Scott said the city plans to issue between $400 million and $450 million in bonds in March and the rest in the second quarter. Between $180 million and $200 million would be used to refund bonds, a move that could save the city money over the long haul.
But the city also would restructure up to $130 million in debt “to better align revenues with our obligations,” Scott said. That would push debt off 10 years further into the future and increase the overall costs.
At the same time, the city would take on between $90 million and $100 million in debt to pay off legal settlements made last year. The bulk of those settlements were made in connection with police misconduct cases.
Some of the borrowed money would be used to pay for the so-called aldermanic menu-money program, Scott also said. The 50 aldermen each get $1.3 million a year to spend at their discretion on local projects like repaving streets, reconstructing sidewalks or installing new lights.
Critics say legal costs and menu money projects should be funded out of annual revenue because they are basic yearly operating costs, rather than from money borrowed on a long-term basis.
No aldermen asked Scott for specific details on why the city needed to double its limits on taking out “commercial paper,” a way to meet financial obligations over the short haul that is akin to an individual putting costs on a credit card.
“The commercial paper program allows us to fund capital and equipment needs on an interim basis between bond deals,” Scott said. “The program will ensure the city has liquidity for unseen needs, such as retroactive salary payments and (legal) judgments.”
The city still is in talks with the police and fire unions about contracts the expired in mid-2012. If those are settled, the city could end up owing perhaps hundreds of millions of dollars in back pay.
Many aldermen, however, did ask about how much minorities and women in the financial industry would benefit from the transactions.
“These transactions are the largest opportunities for people to make money off of government, and so we want to make sure that everybody is included,” Ald. Walter Burnett, 27th, said. “It’s a lot of money. It’s enough for everybody. Folks should make sure everybody is included.”
THE DETROIT BANKRUPTCY AND RESTRUCTURING PLAN
By Jerry White
Last week, the Detroit news media leaked parts of the restructuring plan that Emergency Manager Kevyn Orr is set to implement in the largest municipal bankruptcy in US history. Euphemistically called a “plan of adjustment,” it outlines a savage assault that will set a precedent to escalate the attacks on the working class throughout the US and internationally.
The plan includes ending medical benefits for 23,500 retired city workers and forcing them onto Medicare or Obama’s insurance exchanges. Retirees will also see their already meager pension checks slashed as the city reduces payments to pension trust funds by as much as 75 percent.
Orr is organizing a fire sale of public assets, including the Detroit Institute of Arts and the municipal water and sewerage system, to pay off the Wall Street banks and other wealthy creditors who control the city’s debt. The elimination of 700 of 1,700 jobs at the water department is only the down payment on the massacre of city jobs to come.
The Detroit bankruptcy is part of the ruling class strategy to turn the clock back and return workers to conditions of economic peonage not seen since the 19th century. Flatly rejecting any Wall Street-style bailout for the population of Detroit, the Obama administration is using the bankruptcy as a test case to override state constitutions and other legal protections against the destruction of public employee pensions.
What is taking place is the wholesale theft of workers’ benefits and public assets by a parasitic financial elite that wants the wealth for itself. This criminal operation is being carried out by the politicians of both big business parties at the federal, state and local levels, sanctioned by the courts, and promoted by the media, which is systematically lying to the public.
Meanwhile, the White House and Congress have cut off benefits to the long-term unemployed, agreed to slash another $9 billion from the food stamp program, and passed a budget that will impose $1 trillion in cuts over the next decade. Obama’s health care “reform” is already gutting health insurance for millions and serving as a stepping stone to the privatization of Medicare and Social Security.
What is unfolding is a social counterrevolution, and it is not limited to the United States. All over the world, the operative word of every government, whether ostensibly “left” or right-wing, is austerity. Budget-cutting and “structural reforms” demanded by the global banks are being imposed to destroy whatever remains of the social rights won by the working class.
In Greece, where public workers have already seen 35 percent wage cuts and two-thirds of the youth and young workers are jobless, the restructuring measures imposed by the European Commission, European Central Bank and International Monetary Fund have reduced the country’s gross domestic product by a quarter since the onset of the global economic crisis in 2008—a steeper fall than during the Greek Civil War that followed World War II.
On January 1, the Spanish government implemented a new pension system that no longer links social security payments to the cost of living, but rather to a new “sustainability factor” based on life expectancy. This ensures that pensions will fall if the average lifespan increases.
Brutal austerity programs are being carried out in Italy, Portugal, Britain and Ireland and throughout Eastern Europe. The French government is about to step up its attacks on social programs, and currency crises in the so-called “developing” countries of Asia and Latin America are prompting governments to raise interest rates and slash social spending.
A report last month by the Council of Europe’s human rights commissioner pointed to Depression-level unemployment, falling food consumption and the “pauperization” of pensioners throughout the continent. Nils Muižnieks noted, “An increasing number of children are dropping out of school to find employment and support their families, risking life-long setbacks in educational achievement, and providing the conditions for job insecurity coupled with the re-emergence of child labor and exploitation.”
Whether in Athens, Madrid or Detroit, the working class is suffering an enormous historical retrogression, with no end in sight. Meanwhile, a tiny financial elite that controls every lever of political power is enriching itself almost beyond comprehension.
The fact that the world’s richest 85 individuals have more wealth than the bottom 3.5 billion people on the planet testifies to the irrationality, historical bankruptcy and failure of the capitalist system. It underscores the necessity for society, as a matter of survival, to put an end to capitalism and replace it with a system based on common ownership of the productive forces, genuine democracy and social equality—that is, socialism.
In less than two weeks, the Socialist Equality Party is holding the Workers Inquiry into the Bankruptcy of Detroit and the Attack on the DIA & Pensions. The event will be held February 15 at Wayne State University.
The Inquiry is based on the conception that the development of a powerful counter-offensive by the working class depends on a broader understanding of the social, political and economic forces behind the Detroit bankruptcy. Workers must understand that the looting of the city is part of an international process, which can be answered only by the development of a conscious political movement against the capitalist system.
There is no lack of outrage over the plundering of society by financial overlords, but everywhere the working class is confronted with a crisis of perspective and leadership. In Detroit, as in the rest of the world, the trade unions function as co-conspirators in the imposition of austerity and impoverishment of the working class. These right-wing organizations, based on nationalism and the defense of the profit system, long ago abandoned the defense of workers’ interests.
Last week it was reported that the United Auto Workers, the American Federation of State, County and Municipal Employees (AFSCME) and other unions had agreed to a proposal from Orr and federal mediators to accept the destruction of city-paid health benefits for retired city workers in return for control over a half-billion-dollar retiree health care trust fund, or VEBA.
The union executives will get a cut in the spoils from the bankruptcy by looting the VEBA and directly imposing health care cuts on rank-and-file union members.
DETROIT LOST CITY
U.S. FEDERAL BUDGET
HOUSE GOP CLOSING IN ON DEBT LIMIT PACKAGE
Leadership’s top option for the bill would suspend the debt limit until 2015. | AP Photo
House Republicans are moving toward introducing a bill that would lift the debt limit until the first quarter of 2015, while patching the Medicare reimbursement rate for nine months and reversing recent changes to some military retirement benefits, according to multiple sources familiar with internal deliberations.
The bill could come up for a vote as soon as next week.
Patching the reimbursement rate for doctors who treat Medicare patients — known as the Sustainable Growth Rate or “doc fix” — and changing cost of living benefits for the military could be costly. Under the emerging plan, House Republicans would seek to pay for those items with an extra year of cuts to mandatory spending and changes to pension contributions.
The House needs to act fast. Treasury Secretary Jack Lew on Friday sent a letter to congressional leadership that said that the “extraordinary measures” that the federal government uses to fund operations after the nation has reached the debt ceiling will not “last beyond Thursday, February 27.”
“At that point, Treasury would be left with only the cash on hand and any incoming revenue to meet our country’s commitments,” Lew wrote in the letter to congressional leaders, which was obtained by POLITICO.
Hiking the debt ceiling until February or March of 2015 could have tremendous political benefit for both parties. It would place the next borrowing limit deadline after the 2014 midterm elections.
This plan, which sources describe as the leadership’s top option for lifting the borrowing limit, would suspend the debt limit until February or March of 2015. If this cannot pass, Speaker John Boehner (R-Ohio) would likely be left to pass a debt limit increase without policy strings attached.
House Republicans have had a tough time coalescing around a debt limit plan.
Top GOP lawmakers proposed several legislative add-ons, including language that would mandate the construction of the Keystone XL pipeline and tweaking the military COLA formula. But rank-and-file Republicans balked: there’s a healthy pocket of them who would never vote to raise the debt limit, and others who thought the proposed legislative add-ons were too paltry.
Any bill would need to be presented to rank-and-file lawmakers before a vote — but time is short. The House is only in session for three days next week — it returns Monday evening and recesses Wednesday. The chamber then recesses for a week, and returns Feb. 25 — two days before Treasury says the debt ceiling must get lifted.
This plan could create some consternation in corners of the Capitol. For example, Republicans and Democrats have working to craft a more permanent SGR fix. The military COLA change was part of the recent bipartisan budget deal, written by Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.). Ryan recently told POLITICO that reversing the COLA changes would not blow up the budget accord.
TREASURY’S LEW WARNS THAT U.S. DEFAULT COULD HAPPEN QUICKLY
February 3, 2014
WASHINGTON (Reuters) – The Obama administration warned on Monday it could start defaulting on the government’s obligations “very soon” after it runs out of room to borrow under a legal cap on public debt.
Washington is due to reinstate a limit on its borrowing at the end of this week and Treasury Secretary Jack Lew said the administration can use accounting measures to stay under the new cap until the end of February.
After that time, “very soon it would not be possible to meet all of the obligations of the federal government,” Lew said at an event hosted by the Bipartisan Policy Center, a prominent Washington think tank.
U.S. politicians now partake in a regular dance around the country’s so-called debt limit. First, Congress authorizes spending that outstrips tax receipts. Then lawmakers balk over whether to OK enough borrowing to pay the bills. A rancorous debate ensues over putting public finances on a stable path.
Washington has danced perilously close to the edge of default several times since 2011, and this year some Republicans pledge to extract policy concessions from Democrats before they allow the debt limit to rise.
The administration has vowed not to negotiate on the matter, and Lew said public finances are in good enough shape that long-term fiscal problems don’t have to be solved this year anyway.
Federal debt ballooned during the 2007-09 recession and most analysts think Washington’s obligations to pay for health care for the elderly will stress the budget more as U.S. society ages.
But Lew said the sharp reduction in budget deficits over the last few years has bought America time to improve its fiscal outlook.
“I’m not sure this is the year for the long-term fiscal challenge to be dealt with,” Lew said. “We have a little time to deal with the longer term.”
It is unclear if Republicans, who are pressing for an overhaul of the government’s health care obligations, will put up much of a fight over the debt ceiling. U.S. House Speaker John Boehner, a Republican, said last month American “shouldn’t even get close to” default.
In October, Congress and the administration suspended a $16.7 trillion cap on borrowing until Feb. 7. If the debt ceiling isn’t raised by then, Treasury can juggle money between government accounts for a few weeks to keep just under the new limit.
Once it loses the ability to borrow, Treasury would pay its bills by relying on incoming revenue and any cash left in public coffers.
No one is sure when the money would run out and lead to missed payments on everything from Social Security pensions to interest on the national debt. Lew said the end of February is a particularly bad time to start relying on a cash cushion. This is because the government at that time is mailing out tax refunds, so the Treasury thinks it would burn through its remaining cash more quickly than it would at other times of the year.
Many economists think a U.S. default could trigger a financial panic and perhaps even an economic depression, and Lew urged lawmakers to act swiftly to raise the debt ceiling.
“Unnecessary delays or political posturing … could snowball into a manufactured crisis,” he said.
U.S. AT DEBT LIMIT AGAIN IN FEBRUARY
by Joel Skousen | World Affairs Brief
February 7, 2014
The Obama administration will run out of money to pay its bills in late February, it says, a bit sooner than predicted. The Voice of America noted that,
In December, Treasury chief Jacob Lew wrote to congressional leaders that the borrowing limit would be reached in late February or early March. But on Thursday, he urged Congress to raise the country’s borrowing limit again by the end of February, to make sure the country does not default on its debts.
The U.S. has accumulated $17.3 trillion in debt over the years and the figure grows by the day. The government suspended limits on the debt ceiling in October, but is reinstating it on February 7. At that point, Treasury officials can use what they call “extraordinary measures” to keep paying the country’s bills even as it edges closer to running out of cash.
But because of the gross mishandling of the last debt crisis, where House Speaker John Boehner gave in without any concessions, the nation has been so pre-conditioned against another showdown that the Republicans won’t put up another fight to stop spending, ever.
The leader of the Republican-controlled House of Representatives, Speaker John Boehner, said he does not know how any negotiations over the debt limit will play out, but that under no circumstances should the U.S. default. “All I know is that we should not default on our debt. We shouldn’t even get close to it,” he said.
The government doesn’t have to default, but as long as Congress allows Obama to declare the threat of default rather than cut spending on things other than interest payments, Congress will get the blame. The Republicans, if they really wanted to win this fight, could lay out a precise authorization for payment of essentials and require that the president pay those and only those obligations. Instead,
Congress is on the verge of approving a compromise $1.1 trillion government spending plan for 2014 that he [Obama] supports.
In other news from the Wall Street Journal, Small banks across the U.S. are facing a crunchtime decision over federal aid received during the financial crisis: repay the funds soon or face a steeper interest-rate bill. While most banks that accepted government funds paid them back long ago, some 80 lenders still owe a total of roughly $2 billion disbursed under the U.S. Treasury’s TARP program.
Raising the interest rate on these smaller banks will probably cause some of them to fail. While some constitutionalist pundits claim this move as an additional sign that the US is trying to crash the economy (which I disagree with), I see it as a move to destabilize and bring down some of the smaller banks and allow them to be bought up by the big banks—an extension of the predatory process that began in 2008.
DEBT UP $6.666 TRILLION UNDER OBAMA
By Ali Meyer
February 4, 2014
(CNSNews.com) – The debt of the U.S. government has increased $6.666 trillion since President Barack Obama took office on Jan. 20, 2009, according to the latest numbers released by the Treasury Department.
When President Obama was first inaugurated on Jan. 20, 2009, the debt of the U.S. government was $10,626,877,048,913.08, according to the Treasury Department’s Bureau of the Public Debt. As of Jan. 31, 2014, the latest day reported, the debt was $17,293,019,654,983.61—an increase of $6,666,142,606,070.53 since Obama’s first inauguration.
The total debt of the United States did not exceed $6.666 trillion until July 2003. In the little more than five years of the Obama presidency, the U.S. has accumulated as much new debt as it did in it’s first 227 years.
-CHART OF THE WEEK: CBO, Interest on debt to nearly quadruple over decade. For the next few years, deficits are looking pretty good. But the interest owed on the country’s cumulative debt is set to nearly quadruple over the next decade. The Congressional Budget Office projects that interest will be $233 billion this year, or 1.3% as a share of the economy. By 2024, it will reach $880 billion, or 3.3% of GDP. That means interest will account for the lion’s share of the $1.1 trillion deficit projected for that year and will come close to what will be spent on Medicare. Interest costs will jump for two reasons. The first is the improving economy, which is expected to push what have been historically low interest rates to higher, more typical levels. The second reason is that the underlying debt will remain very large and continue to grow. Read more here-http://cnnmon.ie/N9PxQV
DEFICIT TO FALL TO $514 BILLION, U.S. BUDGET AGENCY SAYS
By Kasia Klimasinska – Bloomberg
February 4, 2014
The U.S. budget deficit will fall to a seven-year low as a share of the economy, driven downward by stronger economic growth that has boosted tax revenue and helped contain spending, according to the Congressional Budget Office.
The fiscal 2014 deficit will narrow to $514 billion, or 3 percent of gross domestic product, from $680 billion last year, the CBO said today in Washington. The projected gap is down from 9.8 percent of GDP in 2009, the widest in records dating back to 1974, and is close to the average of the past four decades, the agency said. The budget was in surplus from 1998 to 2001.
Revenue that’s forecast to grow this year more than three times as fast as spending is helping the U.S. narrow a deficit that reached a record $1.4 trillion in 2009. While the CBO report showed a short-term improvement, it also sees deficits swelling again over the next decade as a result of rising health-care costs and interest payments on government debt.
The shortfall will exceed $1 trillion again starting in 2022 and reach $1.074 trillion, or 4 percent of GDP, in 2024, the report said. That will push publicly held debt to $21.3 trillion, or 79.2 percent of GDP, by 2024 from $12.7 trillion, or 73.6 percent, this year.
U.S. stocks rose, with the Standard & Poor’s 500 Index rebounding after the biggest drop since June, as Treasuries retreated. The S&P 500 climbed 0.8 percent to 1,755.70 at 1:39 p.m. in New York. The yield on 10-year Treasury notes climbed five basis points to 2.63 percent.
Narrowing deficits didn’t stop a political fight over raising the debt limit that contributed to a 16-day partial government shutdown in October. House Republicans tried unsuccessfully to attach policy provisions curbing the health-care law and promoting the Keystone XL pipeline in exchange for raising the debt cap and funding the government.
Today’s report further underscored the split between Democrats and Republicans over nation’s fiscal health.
Senator Patty Murray, a Washington Democrat who is chairman of the Senate Budget Committee, said the CBO numbers are “encouraging evidence that our near-term fiscal outlook continues to improve, although there is much more we need to do to tackle our long-term budget challenges.”
House Speaker John Boehner, a Republican from Ohio, said the report “confirms what the American people already know: further action is necessary to address the drivers of our debt.”
A suspension of the federal debt limit, enacted by Congress in October, is scheduled to expire Feb. 7. Treasury Secretary Jacob J. Lew has repeatedly urged Congress to act quickly to raise the cap, saying the government’s ability to meet its obligations will run out before the end of this month.
President Barack Obama and Senate Democrats insist they won’t negotiate on the debt limit increase this time. Senator John Thune of South Dakota, the third-ranking Republican, said his party probably will provide enough votes to pass an increase in that chamber without conditions.
Speaking yesterday at the Bipartisan Policy Center in Washington, Lew said the U.S. economy is “poised for growth in 2014,” and Congress should avoid another “manufactured crisis” over the debt ceiling.
The CBO’s projections support that forecast. Growth will accelerate this year and next as the Federal Reserve holds interest rates low until the second half of 2015, the agency said. The economy will expand 3.1 percent in the fourth quarter of 2014 from the same period last year.
“Economic activity will expand at a solid pace in 2014 and the next few years,” the nonpartisan agency’s report said. “Beyond 2017, CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades.”
The CBO projects the jobless rate will be at 6.7 percent in the fourth quarter of 2014 and 6.3 percent in the final three months of next year. The rate fell to 6.7 percent in December, a five-year low, as people left the labor force.
The Fed will end its program of buying long-term Treasuries and mortgage-backed assets in the second half of this year, the agency predicted. The federal funds rate, which has been near zero since December 2008, will stay there until the second half of 2015 before rising “at a rapid clip,” reaching 3.9 percent by the end of 2017.
“During the next few years, considerable slack will persist in the labor market, and inflation will stay below the Federal Reserve’s goal, so monetary policy will continue to support economic growth,” the CBO said.
CONGRESSIONAL BUDGET OFFICE REPORT IGNORES CRITICAL FACTORS
Written by Bob Adelmann | The New American
February 4, 2014
At first reading, the latest report on the government budget and the economy released on Tuesday by the Congressional Budget Office (CBO) is all sunshine and roses. In its summary of the 182-page report, the CBO noted that deficits this year (from last October to next September) will be even lower than initially estimated, dropping to $514 billion, down from $680 billion last year and $1.1 trillion in 2012. And, in the very short run at least, further declines in deficits are expected through 2015, perhaps touching a low of less than $500 billion before turning upward.
The deficits are shrinking, according to the CBO, mostly because of the increase in revenues thanks to the tax increases passed in January 2013, while the sequester cuts have slowed government spending slightly. For a brief moment the government was actually in a surplus last fall when the Treasury Department reported a $75 billion surplus for September, before returning to negative in the months thereafter.
Its outlook for the near term shows the economy growing at about three percent a year for the next few years, while the unemployment rate will continue to drop slowly. Beyond 2017 the CBO turns decidedly bearish, projecting that the economy will slow and workforce participation rates, currently near the lowest levels in decades, won’t improve much. That confluence of negatives will keep government revenues from increasing while government spending will once again resume its seemingly inevitable march higher, with total deficits of more than a trillion dollars being added to the national debt by 2024.
The CBO spent much time outlining many of its assumptions, and included frequent disclaimers that changes in government spending or unexpected downturns in the economy could throw their projections out the window. It acknowledged the aging of the workforce as Baby Boomers — the 76-million-person cohort born between 1946 and 1964 — become tax consumers rather than tax payers. Without saying so directly, the CBO predicts that much of the increase in deficits in the out years will result from ObamaCare’s deferred bills coming due. By 2017, all of the more than 20 Affordable Care Act taxes will have kicked in. And not only will the taxes kick in, but also the disincentives in ObamaCare which will, according to the CBO, eliminate the equivalent of 2.3 million full time jobs as workers are pushed into part-time work.
In addition, the CBO expects that the abnormally low interest rates which the Federal Reserve has engineered since the start of the Great Recession will finally begin to return to normal, which are estimated to nearly triple the government’s cost of servicing its enormous federal debt by 2024.
But the CBO’s crystal ball becomes especially murky after 2017. Said the report:
Beginning in 2018, CBO’s projections of GDP are based not on forecasts of cyclical movements in the economy but on projections of trends in the factors that underlie potential output, including total hours worked by labor, capital services (the flow of services available for production from the nation’s stock of capital goods, such as equipment, buildings, and land), and the productivity of those factors.
In CBO’s projections, the growth of potential GDP over the next 10 years is much slower than the average since 1950. That difference stems primarily from demographic trends that have significantly reduced the growth of the labor force. [Emphasis added.]
One of those critical demographic trends appears to be missing altogether from the CBO’s report: the huge decline in the country’s birth rate since the start of the Baby Boom generation. During the decade of the 1950s the birth rate was 25 per thousand of population. Today it is 14. This raises the inevitable question which the CBO failed to address: Where are the new workers going to come from to fund the Baby Boomers’ increasing dependence upon government promises? The CBO can talk all day about trends and cycles. It can make estimates about interest rates and assumptions about healthcare costs. But the birth rate isn’t an assumption. It is a fact. As Baby Boomers pile into the welfare wagon, who will be left to pull it?
The CBO did repeat its disclaimer: “Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term … and eventually increase the risk of a fiscal crisis.”
The CBO’s use of the word “eventually” is especially unnerving, first because their report now takes off the table any serious discussion in Washington about reining in government spending and second, exogenous events could turn their projections into confetti. As Andrew Nathan wrote in the January 2013 issue of Journal of Democracy,
[Tipping points] belong to that paradoxical class of events which are inevitable but not predictable. Other examples are bank runs, currency inflations, strikes, migrations, riots, and revolutions.
In retrospect, such events are explainable, even over determined. In prospect, however, their timing and character are impossible to anticipate. Such events seem to come closer and closer but do not occur, even when all the conditions are ripe — until suddenly they do.
UNITED STATES DEBT CLOCK FEBRUARY 8, 2014
U.S. NATIONAL DEBT: $17.33 TRILLION
U.S. TOTAL DEBT: $60.85 TRILLION
U.S. DEBT HELD BY FOREIGN COUNTRIES: $5.86 TRILLION
GROSS DEBT TO GDP RATIO: 107.62%
TOTAL U.S. DEBT PER CITIZEN: $191.656
SOCIAL SECURITY LIABILITY: $16.85 TRILLION
PRESCRIPTION DRUG LIABILITY: $22.29 TRILLION
MEDICARE LIABILITY: $88.65 TRILLION
TOTAL U.S. UNFUNDED LIABILITIES: $127.79 TRILLION
TOTAL U.S. DEBT AND U.S. UNFUNDED LIABILITIES: $188.64 TRILLION
TOTAL STUDENT LOAN DEBT: $1.07 TRILLION
FEDERAL RESERVE MONETARY BASE: $3.90 TRILLION
CURRENCY AND CREDIT DERIVATIVES: $725.73 TRILLION
GLOBAL DEBT AND THE HUMAN BUBBLE
Published on Feb 11, 2013
The American people are now facing a very serious situation. On January 17, 2013, the Government Accountability Office, the nonpartisan investigative arm of Congress released its annual audit of the U.S. government. The report covered fiscal years 2011 and `12. The conclusion of the report was this, “Absent policy changes, the federal government continues to face an unsustainable fiscal path.”
If the U.S. government does not stop the wild spending and develop serious, meaningful budget reform, and if the Federal Reserve does not stop printing money to monetize the government’s debt, the U.S. economy and the U.S. dollar will collapse. That means that all of your savings, all of your investments, your home and everything else will be destoyed before your eyes.
The mainstream media is not going to tell you what is going on. The federal government will never be able to pay back the debt that it owes. Members of Congress and the White House are aware of this. Other foreign countries that the United States owes money to such as Russia and China are also aware of this. So it’s now up to the Federal Reserve to keep the system going by printing money and extending the time of default out far enough so that some future world war can happen to justify the need to take total control over the United States through martial law. Millions of Americans will not survive this. After the take over of America, a world government will be created with a single world army, and a new world currency. It will still be controlled by the same powerful group of elite people, but this way they escape the blame for everything and keep their power over the masses, which is exactly the type of control that they want.
A DIRE WARNING FOR THE YOUNGER MEMBERS OF THE MIDDLE CLASS
Published on Nov 27, 2013
HOMELESS ROUND UP HAS BEGUN: DEPOPULATION AGENDA
Published on Jan 16, 2014
Under the radar from the prying eyes of the public, Citys have made it legal to get rid of their homeless problem. Is this coming to a town near you? In America they have made it a crime to be homeless. Where are they putting the people from these “Round Ups”? This is not a Conspiracy Theory Anymore… As The Federal Reserve continues to print money for Quantitative Easing and keep the interest rate near zero percent, another housing bubble is forming. Once it breaks up, there will be a lot of people turning into homeless. Not to mention Unemployment. Where will the Government put all these homeless people? They are now using a more suttle approach to round up homeless people under the banner of goodwill while secretly shipping these people away to relocation centers for Extermination. I Hope I’m Wrong. Stay At The Ready…
FEMA CAMP ROUNDUP HAS BEGUN
It starts with the poor and homeless, next the government will take the guns and then they will come for you. Executive Orders have been signed for the U.S. government to take over and initiate martial law in the United States whenever the President of United States gives the command.
November 6, 2013
JESSE VENTURA: FEMA CAMPS IN THE UNITED STATES WILL BE USED TO DETAIN AMERICANS
U.S. GOVERNMENT PREPARING FOR ECONOMIC COLLAPSE WITH GUNS AND WEAPONS
Published on Jul 12, 2013
PENTAGON PREPPING FOR ‘LARGE SCALE ECONOMIC BREAKDOWN’
August 26, 2013
High level government documents reveal that the Pentagon is preparing in full force for ‘large scale economic meltdown’ and massive revolt via the US public — exactly what we are criticized for doing.
You see the Pentagon and agencies like the Department of Defense (DoD) are in full scale emergency readiness in their own words for ‘cataclysmic’ events that are believed to ultimately ignite riots in the face of chaos and economic collapse, and it’s all out in the open. And it’s one of the reasons that we’re seeing such a massive amount of spying on activists of all kinds, alternative news writers and personalities, and basically anyone preparing for themselves.
The US government is dedicated to logging such information into a major database in order to ‘prepare’ for the coming collapse that they are predicting in their own documents for all to see. Collapse predictions that have turned into ‘war games’ by the Pentagon, which in 2010 were orchestrated to prepare for what the Pentagon dubbed ‘large scale economic breakdown’ and the disappearance of essential services like food.
In this same ‘war games’ exercise dedicated to domestic response, exercises were ran in order to prepare for ‘domestic order amid civil unrest’.
MILITARY TO STOP ‘DOMESTIC RESISTANCE’
A thread that is seen throughout these tests is the concept that civil unrest will unfold and prompt military action against the public. One of the largest examples of this is the US Army’s Strategic Studies Institute paper that talks about about the ‘threat of domestic crises’ that are expected to lead to massive unrest throughout the nation. Spurring more paranoia into the notion that every citizen is a terrorist, the report starts talking about everything from economic collapse to a loss of functional political order brought upon by a ‘hostile group within the United States’ that could access weapons.
In such scenarios, the report discusses how the DoD would then be ‘forced by circumstances’ to come in and stop ‘purposeful domestic resistance or insurgency”:
“DoD might be forced by circumstances to put its broad resources at the disposal of civil authorities to contain and reverse violent threats to domestic tranquility. Under the most extreme circumstances, this might include use of military force against hostile groups inside the United States. Further, DoD would be, by necessity, an essential enabling hub for the continuity of political authority in a multi-state or nationwide civil conflict or disturbance.”
To go along with this, and the idea of the military coming in to stop domestic resistance in the midst of an economic collapse, the Pentagon has gone and created a force consisting of 20,000 troops whose sole purpose is to be available for civil unrest and catastrophes – all based on the 2005 Homeland Security program to prepare for ‘multiple, simultaneous mass casualty incidents‘. Yet again we see this link.
But don’t worry, changes have been made just one month ago to allow for the Pentagon to directly have absolute authority over domestic emergencies and ‘civil disturbance’ at large. As reported in a Long Island news publication and properly summarized by The Guardian as further preparation for some form of domestic meltdown:
“Federal military commanders have the authority, in extraordinary emergency circumstances where prior authorization by the President is impossible and duly constituted local authorities are unable to control the situation, to engage temporarily in activities that are necessary to quell large-scale, unexpected civil disturbances.”
What does this mean exactly, to engage in the activity necessary to quell large-scale civil disturbances? Well, for one it is the blank check ability to go ahead and stop major protests amid domestic turmoil. The kind of protests we’re seeing around the world, from Egypt to Brazil. The kind of protests where citizens have had enough.
And going by the Pentagon documents mixed with the DoD papers, it appears the military believes America may take to the streets amid an economic collapse or ‘domestic disturbance’ of large caliber. And you can be sure that virtually all citizens that question the government are the targets of military intervention, as we see in the DoD’s own Army Modernisation Strategy, detailing ‘anti-government and radical ideologies that potentially threaten government stability‘ as a major threat.
Yes, you read that right. The DoD is classifying ‘anti-government and radical ideologies’ as something that threatens government stability. When a major ‘domestic disturbance’ comes along that all of these documents are discussing, such as perhaps in the form of mass protests, it’s the ‘anti-government extremists’ they will be coming after.
AFTER THE COLLAPSE: SIX LIKELY EVENTS THAT WILL FOLLOW AN ECONOMIC CRASH
By Mac Slavo | SHTFplan.com
January 20th, 2014
It’s not too difficult to understand that we are well on our way to a paradigm shift in America; in fact we’re in the midst of it right now. The writing is on the wall and can no longer be ignored.
The US government has run up trillions of dollars in debt, and given the recent debates over the country’s debt ceiling, we can rest assured that neither Congress or the President will act to curtail spending and balance the budget. We will continue adding trillions of dollars to the national debt clock until such time that our creditors no longer lend us money.
From the monetary side, the Federal Reserve’s response to this unprecedented crisis has been to simply “print” more money as is necessary. On top of the trillions in dollars already printed thus far, the Fed continues quantitative easing to the tune of about $80 billion per month. It’s the only arrow left in the Fed’s quiver, because failing to inject these billions into stock markets and banks will lead to an almost instant collapse of the U.S. financial system. Unfortunately, the current strategy is chock full of its own pitfalls, the least of which being the real possibility of a hyperinflationary environment developing over coming months and years.
On Main Street, average Americans have seen their wealth decimated. They’ve lost millions of jobs and homes over the course of the last five years. And if recent reports are any indication, the destruction of the middle class will continue unabated for years to come. The resulting effect is a vicious negative feedback loop that continues to build upon itself. Americans no longer have money (or credit) to spend to prop up the economy, thus more jobs will be lost, leading to more people requiring government assistance for everything from food to shelter.
We are, on every level, facing a collapse of unprecedented scale.
As noted by International Man Jeff Thomas of Casey Research, it’s not that difficult of an exercise to predict what’s coming next:
The number of people whose eyes have been opened seems to be growing, and many of them are asking what the collapse will look like as it unfolds. What will the symptoms be?
Well, the primary events are fairly predictable: they would include major collapses in the bond and stock markets and possible sudden deflation (primarily of assets), followed by dramatic inflation, if not hyperinflation (primarily of commodities), followed by a crash of several major currencies, particularly the euro and the US dollar.
We know a collapse is coming… If you’re paying attention you probably have the distinct feeling that we are in the middle of it right now. And guess what? The government and military know it’s coming too, as evidenced by large-scale simulations of exactly such an event and its fallout.
But the collapse of our financial system, or hyperinflation of our currency, or a meltdown in US Treasuries is only the beginning. We know some or all of these events are all but a foregone conclusion.
What we don’t know is the timing of the trigger event that causes the global panic to ensue and what will happen after these primary events take hold.
According to Jeff Thomas, while we can’t know for sure, the following “secondary events” are the most likely outcomes when the system as we have come to know it destabilizes.
The secondary events will be less certain, but likely: increased unemployment, currency controls, protective tariffs, severe depression, etc.
But, along the way, there will be numerous surprises—actions taken by governments that may be as unprecedented as they would be unlawful. Why? Because, again, such actions are the norm when a government finds itself losing its grip over the people it perceives as its minions. Here are a few:
- Travel Restrictions. This will begin with restrictions on foreign travel, including suspension/removal of passports. (This has begun in a small way in both the EU and US.) Later, travel restrictions will be extended within the boundaries of countries (highway checkpoints, etc.)
- Confiscation of wealth. The EU has instituted the confiscation of bank accounts, which can be expected to become an international form of governmental theft. This does not automatically mean that other assets, such as precious metals and real estate will also be confiscated, but it does mean that the barrier for confiscation has been eliminated. There is therefore no reason to assume that any asset is safe from any government that approves theft through bail-ins.
- Food Shortages. The food industry operates on very small profit margins and survives only as a result of quick payment of invoices. With dramatic inflation, marginal businesses (suppliers, wholesalers, and retailers) will fall by the wayside. The percentage of failing businesses will be dependent upon the duration and severity of the inflationary trend.
- Squatters Rebellions. A dramatic increase in the number of home and business foreclosures will result in homelessness for anyone whose debt exceeds his ability to pay—even those who presently appear to be well-off. As numbers rise significantly, a new homeless class will be created amongst the former middle class. As they become more numerous, large scale ownership of property may give way to large scale “possession” of property.
- Riots. These will likely happen spontaneously due to the above conditions, but if not, governments will create them to justify their desire for greater control of the masses.
- Martial Law. The US has already prepared for this, with the passing of the 2012 National Defense Authorization Act (NDAA), which many interpret as declaring the US to be a “battlefield.” The NDAA allows the suspension of habeas corpus, indefinite detention, and the assumption that any resident may be considered an enemy combatant. Similar legislation may be expected in other countries that perceive martial law as a solution to civil unrest.
The above list is purposely brief—a sampling of eventualities that, should they occur, will almost definitely come unannounced. As the decline unfolds, they will surely happen with greater frequency.
We could go point by point on this list and provide a plethora of evidence to validate Jeff’s claims, but that would take pages upon pages of references.
The fact is that the US government, for the last decade, has been moving increasingly closer to what can only be described as a police state. With watch lists, militarized police departments, legislative actions, and executive orders the government has already set the stage for these secondary events.
When the system itself is no longer able to support the tens of millions of Americans receiving monthly government assistance, one hiccup could set the whole thing ablaze.
While it can’t be avoided on a national scale, there are advance preparations that individuals and their families can make to, at the very least, insulate themselves from the secondary event triggers. This includes storing essential physical goods and keeping them in your possession. Things like long-term food supplies, barterable goods, monetary goods, self defense armaments and having a well thought out preparedness plan will, if nothing else, provide you with the means necessary to stay out of the way it all hits the fan.
CRISIS REALITY: “WITHIN AN HOUR THE STORES WERE EMPTIED”
by Mac Slavo | SHTFplan.com
January 21st, 2014
When toxic chemicals spilled into the Elk River in Charleston, West Virginia a couple of weeks ago we got another glimpse into what the world might look like in the aftermath of a major, widespread disaster.
There were several lessons we can take from this regional emergency and all of them are pretty much exactly what you might expect would happen when the water supplies for 300,000 people become suddenly unavailable.
Lesson #1: There will be immediate panic
Studies have suggested that the average person has about three days worth of food in their pantry, after which they would be left with no choice but to scrounge for scraps once their food stores run out. We saw this scenario play out after Hurricane Sandy, when thousands of unprepared people lined up at National Guard operated FEMA tents and temporary camps. That’s what happens when there’s no food.
With water, however, it’s a whole different matter.
Food we can do without for weeks, but lack of water will kill us in a very short time. The events following the Charleston chemical spill highlight just how critical fresh water is to maintaining stability.
A reader at The Prepper Journal web site shared his first hand account of the events as they played out. In a situation where water supplies are poisoned, whether by accident or on purpose, the anatomy of a breakdown accelerates significantly from three days to mere minutes:
Just yesterday that ban was lifted, but what if this had happened in your town? Would you be able to live comfortably with no water from the tap for 5 days? The news reports that I read stated that there was plenty of water and the stores never ran out. That is in direct contradiction to what Steve tells me:
Immediately after the announcement, the stores in the area were rushed for any bottled water products. Within an hour the stores were emptied. Do not let anyone tell you that everything was nice, peaceful and everyone conducted themselves gracefully. There were fist fights and scuffles for the last of the water.
After the order was issued no one could give any answers as to when drinkable water would be available. Those with water were either hording it or selling it at enormous prices.
48 hours after the ban, water began to be distributed to the everyday person. Hospitals and nursing homes received the first shipments. By the way the hospitals (except one) were not taking any new patients). If you got hurt or injured you were on your own or had to travel an hour away for treatment.
What if the spill was more serious or the supply of water non-existent? Would you have enough water on hand and the means to disinfect new sources to take care of your family? It is news like this that illustrates for anyone paying attention the importance of storing water.
If you live an area affected by a water supply contamination and have no water reserves, this report suggests that you have less than an hour to stock up. And during that hour there will be panic with the potential for violence being highly probable.
Lesson #2: Security forces will be deployed to maintain order
This is a no-brainer, but nonetheless worthy of mention.
We saw it after Hurricanes Sandy and Katrina – thousands of troops and militarized police deployed to prevent looting and rioting. The fact is that when the water and food run out people will be left with no choice but to rob and pillage. It becomes a matter of survival. Crowds will unwaveringly stampede to get to the resources they need. They’ll stomp over you if you happen to fall on the ground in a rush, because when the herd starts running nothing will stop it.
Imagine how these people will act when they are desperate for food food and water:
There is a reason the government has been preparing military contingency plans and simulations for events that include economic collapse or a massive natural disaster. They know what will happen if millions of people are left without critical supplies.
In Charleston, after water supplies started being delivered to grocery store chains, local government and the companies themselves brought on hired guards to keep the peace.
The Elk River event was limited in scope, affecting about 300,000 people in an isolated area, thus it was not that difficult of a situation to contain as FEMA and government could throw all of their resources and assets at the problem.
But imagine a scenario that involves multiple large metropolitan areas simultaneously in different regions of the country.
There are simply not enough personnel (or supplies) to respond to such a situation and maintain order.
Lesson #3: Despite hundreds of billions spent, the government is ill-prepared
It took emergency responders five days to get water to the Super Dome in New Orleans following Hurricane Katrina.
Following Sandy, FEMA had enough food and water to provide the absolute basic necessities to about 50,000 people.
In Charleston it took at least two days to get water supplies moving.
If this were a massive catastrophe it could be weeks before help arrives.
The Federal Emergency Management Agency has itself warned that it is not equipped to handle large-scale emergencies. It’s for this reason that they strongly recommend a minimum two week supply of food and water.
Considering that the majority of Americans have maybe three days worth of supplies, how many millions of mouths would need to be fed three square meals a day if we experienced a multi-city event?
It was recently reported that FEMA has in its possession about 140 million “meals ready to eat.”
In 2011 a FEMA/DHS organized National Level exercise simulated an earthquake on the New Madrid Fault in the Mid West. The simulation revealed that 100,000 people would be killed almost immediately, and another 7 million would be displaced from their homes.
They would only have one place to go – government managed FEMA camps. Those seven million people eating just two MRE’s per day would consume FEMA’s entire emergency food reserve within 10 days.
You probably already know the answer.
Prepare now, because the last place you want to be in is in the midst of crisis-driven panic.
-Mark Mobius loves diamonds. With rising global wealth, particularly in Asia, and the increased ability of governments to track individuals, there’s going to be a premium on wealth preservation that’s highly portable, he says. Portable as in, sewn into the lining of a jacket and secreted out of a country. “You’re increasing the quantity of money, the ability for people to buy more things, and diamonds are just one of those,” he said. “The thing about diamonds is portability.” To illustrate, Mobius tells the story of the execution of Czar Nicholas II’s daughters almost a century ago. Despite multiple gunshots, the story goes, the young Romanov ladies weren’t dying. The Bolshevik executioners eventually figured it out: 18 pounds of diamonds, the crown jewels, had been sewn into the girls’ corsets, and these were acting as flak jackets. The desire to hold and easily move wealth will increase as the world grows richer, Mobius forecasts. Says Mobius: “I love diamonds.” Read more here-http://on.mktw.net/LUFJJD
-Robert Genis: Are Diamonds-Gems in a Bubble? We should all know the story of tulipmania, the first recorded bubble event. It was analyzed in the famous 1841 book, Extraordinary Popular Delusions and the Madness of Crowds. The story is about the insane rise in tulip prices. Yes, the flower tulip that was brought from Turkey to Europe. In 1637 the prices of tulips started skyrocketing. Some prices reached 20x what they were previously. The rare Semper Augustus tulip sold for about 1,000 guilders and eventually rose to 5,500 guilders. To put it in perspective, that was the price of a luxury home in Amsterdam. Suddenly, prices collapsed and most were left bankrupt.
This is a classic case in which market irrationality or a bubble mentality took over. Tulipmania reflects the general cycle of a bubble: investors lose track of rational expectations, psychological biases lead to a massive upswing in the price of an asset or sector, a positive-feedback cycle continues to inflate prices, investors realize that they are merely holding a tulip that they borrowed money or sold their houses for, eventually prices collapse due to a massive sell off and many go bankrupt. Surely, we remember the dotcom and real estate bubbles? These were recent bubbles we all lived through in real time. Read more here-http://bit.ly/1c7P46X
GOLD CLOSE FEBRUARY 7, 2014: $1267.00
ERIC SPROTT: THE U.S. GOLD IS GONE
February 7, 2014
With the end of another wild week of trading in global markets coming to a close, today billionaire Eric Sprott told King World News that there is no gold left in vaults where the US gold as well as other foreign countries’ gold is supposed to be safely stored. The Canadian billionaire also spoke about happenings with the ETF GLD. Below is what Sprott, Chairman of Sprott Asset Management, had to say in Part II of this remarkable interview series.
Eric King: “Eric, what about the looting of GLD in 2013? Obviously we are not seeing that so far in 2014. What does that mean for 2014?”
Sprott: “Well, Eric, in fact we’ve had a couple of days when gold has (actually) gone into GLD. We are talking about 900 tons of gold that came out of the various ETFs (in 2013).
“If you have any contrarian in your spirit at all, this (gold) is the most contrary bet you can ever make. It would be most surprising as the year unfolds if we get buying in the (ETF) GLD.
Imagine for one second that instead of getting 900 tons (of gold) coming out of ETFs, we had 900 tons go into ETFs. That would be a dynamic 1,800 ton change, when we (only) mine something like 2,100 or 2,200 tons a year, ex-China, ex-Russia. That in itself would almost consume the year’s mine supply, let alone that China is going to buy more than the (entire) year’s mine supply based on the trends that we’ve experienced already.
I just think gold is threatening to blowout (to the upside), and I think when it does there will be lots of guys wanting to put money in. Then, of course, GLD will be forced to go out and buy some gold.”
Sprott added: “I really believe that the decline last year was orchestrated because the (Western) central banks have run out of gold. To think that the US Treasury, which theoretically had 8,000 tons of gold, could only deliver 5 tons to Germany (laughter ensues). The dots you can connect are so obvious that there is no gold there (in US vaults). You would think they could have done a hell of a lot better than that (delivering only 5 tons), but they couldn’t. So I think we will see a lot more spirited buying of GLD, and it’s impact on the physical market could be very dramatic.”
JAN SKOYLES: THE PAPER SILVER AND GOLD DOMINOES
Published on Feb 2, 2014
Writer and researcher Jan Skoyles joins us to discuss German gold, the paper silver and gold Ponzi, three dead international bankers in one week and the stunning work of her pal Koos Jansen, the man Harvey Organ calls the ‘go-to researcher” when it come to Chinese gold accumulation and the Shanghai Gold Exchange.
PETER SCHIFF: HOW GOLD WILL RISE IN 2014
February 5, 2014
CNBC’s Futures Now interviewed Peter Schiff about the conditions that will push the price of gold higher in 2014.
“The real momentum to a new surge in gold is going to be when the Fed comes back with another QE plan that’s even bigger. They can’t lower rates any more, we’re heading back to recession. What is Janet Yellen going to do to try to revive the economy? There’s only one thing she can do, and that’s print even more money… When everyone figures it out, there’s only one place to hide, and that’s gold.”
-Bill Fleckenstein: As The Fantasy Dies, Expect Huge Move In Gold. The gold bear market is over. We spent a lot of time testing this $1,200 range. The unanimity that gold must decline was almost as strong as the one that said stocks had to go higher in 2014. So if the bear market is over, the next thing is going to be the bull market. This $1,200 level has been tested and it’s not going to break. Everybody knows that the Chinese are inhaling gold. One of these days the Indians will get rid of this import tax and they will be back. At some point Americans are going to see they need it (gold). The real upside is going to be when Americans realize they need something like gold to protect themselves from the lunacy of the Fed.
But there was lot of pressure brought (to the downside), and that’s over with. At the margin, when people start to see the economic activity here and worldwide for what it is, which is really labored, and they stop looking at the news through the rose-colored glasses of an 1,800 point S&P, they will see that we’ve got a recipe for huge move in gold again because these policies don’t work and they are not going to stop. And one of these days people are going to realize that inflation is slowly eating them alive, but that moment of recognition is not here yet. I don’t recall in my 30+ years in this business seeing anything as universally and violently hated as gold.
But I think a lot of stock bulls believe that gold is their enemy. In other words, if gold goes up, then the Cinderella story can’t come true. And of course it (the Cinderella story) can’t. But I was surprised at how hated and how threatened people seemed to be by the price of gold. It just goes to show you that all markets have a huge psychological component. We’ve seen periods where people were stupidly drunk with optimism. You had complete lunatics like Dick Fuld leveraging up Lehman (Brothers) on baskets of crappy mortgage paper. Sentiment has huge moves in both directions. But the stock bulls, the people that never see problems coming, feel very threatened by it (gold), and so they love to hate it.
They need to hate gold or else their dream can’t come true. Of course their dream can’t come true, but they don’t understand that. Given the policies that are being pursued, there is going to be a lot of upside for gold. It could get kind of squirrelly (to the upside) at some point. With all of this gold that’s gone to Asia, if people get really bullish and the ETF needs to start taking down ounces, we don’t really know if those ounces are available. So, like I said, it might be kind of squirrelly on the upside. We don’t know where the big tonnage is going to come (from). If the guys that owned gold and sold it because it was acting badly, or they got sucked in to the ‘fantasy,’ come back to it like before, then I submit to you that the price is going to go a hell of a lot higher because a lot of that gold has gone to Asia and it’s not coming back. Read more here-http://bit.ly/1evG5ST
-Christian sees $1320 gold before end of Q1, $1900 long term. Overall Jeff Christian of the CPM Group is mildly bullish on gold suggesting an increase to the low $1,300s over the next two months and to substantially higher levels, but only over a several year period. Read more here-http://bit.ly/1cVUxln
-Ed Bowsher: I’ve never bought gold before but I’m buying it now. Read more here-http://bit.ly/1nUOj9G
-Bud Conrad: Now Is the Time to Buy Gold. Read more here-http://bit.ly/1fIQglS
-Clive Maund: Precious Metals Sector New Uptrend. Read more here-http://bit.ly/1gNDZQ7
-Nicholas J. Johnson: Demystifying Gold Prices. Read more here-http://bit.ly/1g3ng6L
-David Levenstein: Buy while the price of gold is still suppressed. While the price of gold remains suppressed, take advantage of the situation and accumulate more gold and silver, says David Levenstein. Read more here-http://bit.ly/1b3OJYn
-Eric Sprott on Economic Recovery and Performance in Emerging Markets, Gold & Stocks. Listen here-http://bit.ly/1lo8Ftj
-Frank Holmes: Gold Futures Tumble as Physical Sales in China Rise Ahead of Chinese New Year. In a commentary from Gluskin Sheff’s David Rosenberg, Rosenberg compared the reported U.S. inflation reading to the implicit inflation in owner’s-equivalent rent. According to the commentary, if one were to replace the imputed rent measure of the consumer price index with the actual transaction price measure of owner’s-equivalent rent, the inflation would be 5.3 percent today, not 1.7 percent as per the “official” government number that has convinced many people that deflation is but a heartbeat away. Read more here-http://bit.ly/LUGuCm
-Steve Todoruk: “Gold Price Going Up or Mines Will Close” Within 6 Months. Before closing down mines, the first step that big miners take is to delay new developments. Today, many projects are being put on hold, says Steve. These projects looked good at high metals prices, but the big miners have less money to spend and the economics are less attractive now. “For instance, New Gold Corp. just announced that two of their planned new gold mines in Canada are uneconomic at today’s gold price.
Therefore, it is highly likely that the company will cease plans of bringing them through to production for now,” says Steve. “If we get to the point where lots of mines are closing, then simple supply and demand fundamentals will start kicking in; buyers will have to pay enough for the metals that the mining companies can turn a profit producing them. So we will either see lots of mines shutting down or gold prices going up, allowing mining operations to run at a profit. “We are about six months into a low gold-price environment. That means something has got to give sometime in the next six months,” he concludes. Read more here-http://bit.ly/1jiHvlV
-Mexican Pension Funds Show Interest In Gold. Mexico’s pension funds have showed fresh interest in gold, after the lifting of years of strict investment regulations, according to the World Gold Council. The council has talked to about half of the country’s twenty or so influential pension fund managers, who together manage $160 billion in assets, said council investment research director Juan Carlos Artigas on Monday. Legislation from 2012 allowed Mexican pension funds to invest in gold and commodities in 2013, and invest more freely in foreign assets. Japan’s pension funds, who together hold the world’s second largest pool of retirement assets, have also gravitated towards gold. Read more here-http://bit.ly/1b37efw
-Koos Jansen: The need for China to buy gold. China needs to buy gold, gold researcher and GATA consultant Koos Jansen writes today, not because its gold reserves are small but because they are only a tiny fraction of China’s total foreign exchange reserves, which are hugely vulnerable to what China now expects to be the inevitable devaluation of the U.S. dollar. Read more here-http://bit.ly/1fvfbag
-Koos Jansen: January’s gold offtake in Shanghai likely to set record. Gold researcher and GATA consultant Koos Jansen reports today that offtake on the Shanghai Gold Exchange has exceeded weekly world mine production for the third straight week and that it seems likely that January’s gold demand in China will be the largest monthly offtake ever. Read more here-http://bit.ly/1c4gDy0
-TF Metals Report: Bear down. The TF Metal Report’s Turd Ferguson today denounces the disconnect between the market for real gold and the market for imaginary gold that continues to control the former market but then offers some technical analysis encouraging for the real stuff. Read more here-http://bit.ly/1g2vbkM
-Zero Hedge: Morgan corners gold with 60% of all U.S. gold derivatives. Zero Hedge reports today that JPMorganChase has cornered the gold market in part by owning more than 60 percent of the value of all gold derivatives in the United States, and questions why the U.S. Commodity Futures Trading Commission allows such a corner. Of course there’s an easy explanation: Morgan’s position is actually the U.S. government’s position, as the Gold Reserve Act establishing the Exchange Stabilization Fund authorizes the U.S. government to rig not just the gold market but every market in secret. Read more here-http://bit.ly/1gMTQ1w
SILVER CLOSE FEBRUARY 7, 2014: $20.01
-A disturbing aspect to the new silver COT report [on Friday] was that JPMorgan does not appear to be signaling a turn up in silver prices just yet, as the bank added a thousand contracts to its short position. In fact, JPMorgan appeared to be the only commercial short seller in silver for the reporting week, something that happens with disturbing regularity, but not usually as silver prices decline. When you think about it, nothing could be more manipulative. At 17,000 contracts net short, JPMorgan holds a short corner in Comex silver futures of 14.4% on a net basis.
With JPMorgan having cornered the Comex gold futures market to the long side—and simultaneously holding a short market corner in silver, there should be little surprise in how prices moved during the reporting week; strong in gold, weak in silver. I don’t deny that the raptors have a strong influence on price and in maneuvering the technical funds to buy and sell, but when you hold a controlling market share (as JPMorgan does), you basically control the market. Ted Butler February 1 2014 via Ed Steer Casey Research-Read more here-http://bit.ly/LAx3r1
-The basic problem is that the Comex, over time, has come to be dominated by banks and large financial speculators. I’m not against speculators (I am one myself) and know full-well that without speculators willing to assume risk from hedgers, there would be no market. But neither can a real market exist without legitimate hedgers and populated only with speculators and banks pretending to be market makers and hedgers. That’s what the Comex has evolved into a speculative playground in which prices are determined by banks and technical trading funds and then dictated to the world’s producers, consumers and investors.
It would be hard to intentionally design a pricing system more unfair to gold and silver miners than is the Comex in its current form. Effectively excluded from trading (why would a mining company engage in day-trading?) and then being held captive to the uneconomic pricing that has resulted from JPMorgan’s desire to buy gold and silver as cheaply as manipulatively possible. The Comex and JPMorgan have profited handsomely by causing gold and silver prices to crash in 2013, just as all miners and investors have suffered mightily. This is the result of distorting the playing field to favor financial speculators at the expense of real producers. Ted Butler February 5 2014 via Ed Steer Casey Research-Read more here-http://bit.ly/1gQuAaw
-After the first two days of deliveries in the big February contract in COMEX gold futures, only 59 contracts have been delivered against versus an estimated 5,900 remaining February contracts still open. The big gold futures long holder, JPMorgan, took 11 of those contracts on the first delivery day, but none on day two, perhaps suggesting that JPM has (or will) roll over its remaining Feb contracts and not press for delivery, as it did in August and December (when JPM took more than 9,000 deliveries combined). There is no way of handicapping what will transpire in the Feb gold delivery, but I’m still convinced that JPMorgan has no interest in squeezing the gold shorts in a forceful manner and causing price disruptions. But I am just as convinced that JPMorgan could squeeze the gold shorts should it desire. All that said, the resolution of the February delivery period will be of interest. Ted Butler February 1 2014 via Ed Steer Casey Research-Read more here-http://bit.ly/1e6Dwk7
-That the manipulation continues unabated is still evident in the current price action, particularly in silver. I wish I could end it, but all I can do is to explain it the best I can in the hopes of exposing it. More and more it seems to me like the exposure is working against JPMorgan, although that is not evident in price. It’s important to recognize that time is not an ally to manipulations since all must end at some point. I also have the sense that JPMorgan is going out of its way to make silver look as crummy as possible against gold for the purpose of discouraging silver investors in particular. But seeing how much the price of silver has declined already suggests additional deliberate price sell-offs are of limited distance and duration. Since silver is in the throes of an epic long-term price manipulation, the only effective reaction is to approach it on a long term basis and not to be overly concerned with the short term. Ted Butler January 28 2014 via Ed Steer Casey Research-Read more here-http://bit.ly/1e6Gmpf
-JP Morgan Holds Highest Amount Of Physical Silver In History. While everyone is focused on the massive outflows in COMEX registered gold inventories and the gold ETF, GLD, it seems that an important evolution in silver is passing unnoticed. In what follows, Ted Butler, precious metals analyst specialized in COT analysis, reveals a remarkable insight in the physical silver market.
Butler’s calculations show that JPMorgan (JPM) has piled up the largest holding of physical silver in modern world. Since the silver price peak in May 2011, the bank has accumulated between 100 and 200 million ounces of physical silver (if not more). The equivalent in metric tonnes is between 3,110 and 6,220 tonnes. To put that number in perspective, it surpasses the amounts held by the Hunt Brothers or Warren Buffett (in his investment company Berkshire Hathaway).
On a yearly basis, some 100 million ounces of silver reach the investment market, which translates into 250 million ounces between May 2011 and December 2013. That has a value of approximately $5 billion. Given the size of the too-big-to-fail bank, that amount of silver, how large it may seem, is easily affordable:
- JP Morgan’s quarterly profit is $5 billion (approximately 200 million ounces of silver).
- In 2013, the closing of the gold short position, as well as the 20,000 contract reduction in the silver short position, netted JPM more than $3 billion.
- In COMEX silver, JPM was the largest buyer in 2013.
These facts make it reasonable for JPM to be a big buyer in physical silver. Read more here-http://bit.ly/1cWPelY
-Stephen Leeb: Silver’s a Buy At $20. I have told you on numerous occasions that I believe gold is headed over $10,000 an ounce. But I want to talk about silver for a moment. The industrial uses for silver are continuing to increase, particularly in the use of photovoltaics. Furthermore, most of the silver that we have in this world comes from lead, zinc, copper and gold. If you look at silver’s performance relative to these other metals it has been much worse over the past several years. The price of silver hasn’t really done anything, but yet the demand for silver is much, much higher. So something strange is going on in the silver market. Someone is manipulating the price of silver, but who in the hell is doing it? But I think silver under $20 is a major buy.
The price just doesn’t make sense. I know there is a tremendous amount of demand, but where is the supply coming from? There is enormous demand from China for silver, and from all of the global mints for investment. Again, where is this silver coming from? Also, I have reason to believe that the Chinese are stockpiling silver for their future infrastructure needs. So I am not normally a conspiracy theorist, but something strange is going on in the silver market. But I think whoever is manipulating the price of silver is not going to be able to hold it down for much longer. If anything, all of the recent global turmoil is sending a signal to the Chinese to speed up their accumulation of these strategic resources.
Remember, next to oil, silver is the most vital and strategic resource in the world. So we have this massive demand for silver from the Chinese, and we also have the monetary aspects of silver which will help turbo-change the price in the future. The bottom line is the price of silver should be much, much higher than it is today. So I think you have a rare opportunity to buy silver at these extremely depressed prices. Silver is going to trade in the triple-digits before this is over. It will eventually be priced in the hundreds of dollars an ounce so under $20 is a steal. By the time the world figures out there is a genuine silver shortage there will be very little left.
When you put a monetary premium on top of a coming worldwide shortage, the silver market is an explosion to the upside waiting to happen. Ultimately this country needs discipline and the only way we are ever going to have it is if gold is part of our reserve currency. Silver will dramatically outperform, but the hope for global and financial discipline is going to come from gold. Read more here-http://bit.ly/1nessqz
-Endeavour Silver: 7 Reasons Why India Imports A Lot Of Silver. Read more here-http://bit.ly/1negxZT
-Warren Bevan: Silver’s Low Risk Entry. Read more here-http://bit.ly/1negHjW
-U.S. Mint Gold-Coin Sales Jump 63% in January; Silver Triples. Sales of gold coins by the U.S. Mint rose 63 percent in January to the highest since April as futures rebounded. The volume climbed to 91,500 ounces from 56,000 ounces in December, while sales of silver coins almost tripled to 4.78 million ounces, the highest in a year, mint data showed. Read more here-http://bloom.bg/1kib9aY
-AMCU to press on with platinum strike. Union leader, Joseph Mathunjwa, says members will continue with the wage strike at South Africa’s top platinum producers until their demands are met. Read more here-http://bit.ly/1fyQcD0
BRENT CRUDE OIL CLOSE FEBRUARY 7, 2014: $109.57
LIGHT SWEET CRUDE OIL CLOSE FEBRUARY 7, 2014: $100.17
OIL TOPS $100, GAINS 2.5% ON WEEK
’Risk-on rally’ for oil as U.S. equities jump; natural-gas prices fall for a third day
By Myra P. Saefong and Victor Reklaitis, MarketWatch
February 7, 2014
SAN FRANCISCO (MarketWatch) — Oil futures rallied on Friday, tacking on nearly 3% for the week after topping $100 a barrel shortly before the close of the trading session on the New York Mercantile Exchange.
Prices found support from a rally in U.S. equities and a climb in heating-oil and gasoline futures as analysts suggested there was plenty of strong data lingering beneath the surface of the U.S. jobs report, offering hope for a better outlook on oil demand.
Natural-gas futures, meanwhile, extended their losses to a third-consecutive trading session.
March crude oil (NMN:CLH4) climbed $2.04, or 2.1%, to settle at $99.88 a barrel on the New York Mercantile Exchange. Futures prices saw a gain of 2.5% from their $97.49 close last Friday.
According to FactSet data tracking the most-active contracts, futures prices marked their highest close since Dec. 27. Prices had briefly touched a high of $100.06 in the last few minutes before the Nymex close.
“Oil looks like a risk-on rally,” said Phil Flynn, senior market analyst at Price Futures Group, attributing oil’s hefty gains to the big rally in stocks traded on Wall Street.
Prices for petroleum products led the percentage gains on Nymex, “with current physical tightness as a support for heating oil, and improving seasonal prospects for gasoline in the months ahead as the fundamental backing for the gains,” said Tim Evans, energy analyst at Citi Futures.
March gasoline (NMN:RBH4) closed up nearly 7 cents, or 2.5%, at $2.75 a gallon, up 4.5% for the week. March heating oil (NMN:HOH4) picked almost 6 cents, or 1.8%, to end at $3.05 a gallon, tacking on about 1.8% for the week.
The spring refinery maintenance period typically begins in February, reducing production capacity for petroleum products.
The good and the bad
Oil traders also assessed the much-anticipated U.S. employment report. The U.S. economy added 113,000 jobs in January, below the 190,000-jobs threshold that economists polled by MarketWatch were expecting but the unemployment rate fell to 6.6% from 6.7%, matching forecasts.
“Outside of the disappointment on the headline payroll front, and especially the weak performance in service-sector employment, the underlying guts of this employment report were unusually strong,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities, in a note.
“The report showed broad-based improvement in a variety of ancillary labor market indicators — pointing to a reduction in labor market slack,” he added.
Crude dropped to around $97.11 a barrel after the jobs report before bouncing back as traders weighed the prospects for oil demand.
On ICE Futures, Brent crude oil, the European benchmark, saw its March contract (IET:UK:LCOH4) jump $2.38, or 2.2%, to $109.57 a barrel, with prices gaining around 3% for the week.
Economic data from China was downbeat, however. The HSBC China Purchasing Managers’ Index, which measures growth in the service sector of the country’s economy, fell in January.
Natural gas extends losses
Back on Nymex, natural-gas futures lost more ground in the wake of Thursday’s data showing that supplies last week fell less than expected.
March natural gas (NMN:NGH14) settled at $4.775 million British thermal units, down nearly 16 cents, or 3.2%. For the week, it was down 3.4%.
Thursday saw a loss of 10 cents, or 2%, after the EIA reported a drop in weekly U.S. supply of 262 billion cubic feet. Analysts surveyed by Platts had been looking for a decline between 273 billion cubic feet and 277 billion cubic feet.
In a report Thursday, Bentek Energy, the oil and natural-gas analytic unit of Platts, said domestic natural-gas production in the lower 48 states averaged 65 billion cubic feet a day in January, down 1.1% from December 2013, but up 3.2% from January 2013.
NATURAL GAS CLOSE FEBRUARY 7, 2014: $4.77
LATEST KEYSTONE PIPELINE STUDY GREETED WITH CHEERS, PROTESTS
Written by Bob Adelmann | The New American
February 3, 2014
In the release on Friday of the fifth environmental impact study of the Keystone XL pipeline, partisans on both sides of the issue were quick to point to the key paragraph in that study:
Approval or denial of any one crude oil transport project, including [the Keystone XL pipeline project], is unlikely to significantly impact the rate of extraction in the oil sands [in Alberta, Canada] or the continued demand for heavy crude oil at refineries in the United States.
Those favoring the pipeline saw this as supporting the country’s economy and lessening its dependence upon foreign, less friendly, sources of oil. Senate Minority Leader Mitch Mitchell (R-Ky.) declared:
The Keystone XL Pipeline is the single largest shovel-ready project in America, ready to go, but for years President Obama and his hard-left allies have stalled these jobs in a maze of red tape.
If the president meant what he said this week about a “year of action,” he’ll act now on this important project that won’t cost taxpayers a dime to build but will bring thousands of private-sector jobs to Americans who need them.
Mitchell’s comments were echoed by Senator Joe Manchin (D-W.Va.):
I have been incredibly frustrated for more than five years by the repeated and unnecessary delays in moving forward with the construction of the Keystone XL pipeline. I am pleased the State Department has confirmed there is no evidence of any negative environmental impact from building this pipeline.
The Keystone pipeline project was initiated by TransCanada in 2008, but was delayed with repeated requests for more analysis. Russ Girling, the president of TransCanada, expressed relief that his company’s project is supported by the facts:
The case for Keystone XL, in our view, pre- and post this report, [is] as strong as ever. No matter how much noise [environmentalists] make or how much misinformation they spread, the facts do support this project….
It will have minimal impact on the environment.
Those opposed saw little in the report to cheer about, believing it was confirmation that the continued extraction of the heavy oil from the Athabasca Oil Sands will threaten the environment. Senator Barbara Boxer (D-Ca.) thought the study inaccurate:
I will not be satisfied with any analysis that does not accurately document what is really happening in the ground when it comes to the extraction, transport, refining and waste disposal of dirty, filthy tar sands oil.
My biggest concerns continue to be the serious health impact on communities and the dangerous carbon pollution that comes from tar sands oil.
Rep. Raúl Grijalva (D-Ariz.) wrote off the report’s conclusion as well:
The State Department is asking us to believe this pipeline is in the national interest. How can a pipeline that ships Canadian tar sands to the Gulf of Mexico for export, that does nothing to increase our energy independence, and that will deal irreparable damage both to our landscapes and our air quality possibly meet that definition?
Environmentalists such as Susan Casey-Lefkowitz of the Natural Resources Defense Council (NRDF) even saw something in the report that wasn’t there:
Even though the State Department continues to downplay clear evidence that the Keystone XL pipeline would lead to tar sands expansion and significantly worsen carbon pollution, it has, for the first time, acknowledged that the proposed project could accelerate climate change.
President Obama now has all the information he needs to reject the pipeline.
What really puts the president on the hot seat, however, is the support for the pipeline from one of his staunchest allies: Richard Trumpka, president of the AFL-CIO, who stated, “We think that anything that’s going to create jobs, help the country and do it in an environmentally sound way ought to be done.”
This pits Obama supporters against each other while putting pressure on Democrats supporting the project if the president rejects it. Both Senators Mary Landrieu (D-La.) and Mark Begich (D-Alaska) are vulnerable in November and could suffer in their reelection campaigns if the president axes the project.
There will be no meeting in the middle on the issue, according to Professor Bernard Weinstein of the MacGuire Energy Institute. In speaking with The New American, Weinstein said he was hopeful that the horrific derailment of 76 tank cars carrying Bakken oil in the town of Lac-Mégantic in Quebec last July, which killed nearly 50 people and almost destroyed the town, would persuade environmentalists that the Keystone pipeline would make more sense in that it is a much safer way to transport crude oil. Instead, he said, “The accident just proved to them that any transport of oil is dangerous and oil extraction of any kind should be ended altogether.”
Now that the report has been published, there is a 60-day period for public comment and input before any decision is made. Some environmentalist groups, including 350.org, have threatened to engage in non-violent protests at the White House similar to those that got 1,200 arrested in the summer of 2011.
The State Department report, however, isn’t likely to speed up the decision-making process. President Obama has stalled before, putting off any final decision until after the 2012 election, and he could well do so again. He probably will let the problem descend onto the desk of Secretary of State John Kerry who, while believing in the theory of climate change in spite of evidence to the contrary, has been invisible on Keystone. The report is an amazing seven volumes long, which someone on his staff is going to have to read. And then, before deciding what to recommend to the president, Kerry is likely to seek counsel from at least eight other government agencies: the Departments of Defense, Justice, Interior, Commerce, Transportation, Energy, Homeland Security, and the EPA. As Kerry’s assistant, Kerri-Ann Jones, noted, this report “is not a decision document … [it] is only one factor that will be coming into the review process for this permit.”
Instead of expecting a decision at the end of 90 days, some say it could take as long as a year — well past the November elections — neatly solving the president’s political problems.
In the meantime, tar sands oil will continue to be harvested and shipped by rail if not by pipeline to meet worldwide demand.
NATIONAL AVERAGE GAS PRICE FEBRUARY 8, 2014: $3.27/GAL
|February 8, 2014||3.273||126.385|
|February 7, 2014||3.264||126.419|
|One Week ago||3.270||126.143|
|One Month ago||3.297||124.753|
|One Year ago||3.540||126.077|
FIAT DOLLAR IS THE REAL REASON FOR HIGH GAS PRICES
Published on July 19, 2012
U.S. DOLLAR INDEX CLOSE FEBRUARY 7, 2014: 80.74
TOP ADVISER TO THE CHINESE GOVERNMENT CALLS FOR A “GLOBAL CURRENCY” TO REPLACE THE U.S. DOLLAR
By Michael Snyder | Economic Collapse
February 6th, 2014
The former chief economist at the World Bank, Justin Yifu Lin, is advising the Chinese government that the time has come for a single global currency. Lin, who is also a professor at Peking University, says that the U.S. dollar “is the root cause of global financial and economic crises” and that moving to a “global super-currency” will bring much needed stability to the global financial system. And considering how recklessly the Federal Reserve has been pumping money into the global financial system and how recklessly the U.S. government has been going into debt, it is hard to argue with his logic. Why would anyone want to trust the United States to continue to run things after how badly we have abused our position? The United States has greatly benefited from having the de facto reserve currency of the planet for the past several decades, but now that era is coming to an end. In fact, the central bank of China has already announced that it will no longer be stockpiling more U.S. dollars. The rest of the world is getting tired of playing our game. Our debt is wildly out of control and we are creating money as if there was no tomorrow. As the rest of the world starts moving away from the U.S. dollar, global power is going to shift even more to the East, and that is going to have very serious consequences for ordinary Americans.
Sadly, most Americans don’t even realize what is happening. These comments by a top adviser to the Chinese government should have made front page news all over the nation. I had to go to China Daily to find the following excerpt…
The World Bank’s former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.
“The dominance of the greenback is the root cause of global financial and economic crises,” Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. “The solution to this is to replace the national currency with a global currency.”
Lin, now a professor at Peking University and a leading adviser to the Chinese government, said expanding the basket of major reserve currencies — the dollar, the euro, the Japanese yen and pound sterling — will not address the consequences of a financial crisis. Internationalizing the Chinese currency is not the answer, either, he said.
And this is not the first time that we have heard these kinds of comments coming out of China. For example, Xinhua News Agency called for a “de-Americanized world” back on October 14th…
“It is perhaps a good time for the befuddled world to start considering building a de-Americanized world.”
That particular news agency is controlled by the Chinese government, and if the Chinese government did not approve of that statement it never would have made it into the paper.
Then in November, the central bank of China announced that it is going to stop stockpiling U.S. dollars.
Most Americans don’t want to hear this, but what we are witnessing is a massive shift in global power. China is catching up to us in a multitude of ways, and they are getting tired of playing second fiddle to the United States. In fact, China is already surpassing the U.S. in a number of key areas…
-China accounts for more global trade than anyone else in the world.
-China imports more oil from Saudi Arabia than anyone else in the world.
-China imports more oil overall than anyone else in the world.
-It is now being projected that Chinese GDP will surpass U.S. GDP in 2017.
When the rest of the world quits using U.S. dollars to trade with one another and quits lending our dollars back to us at ultra-low interest rates, things are going to start changing very rapidly.
In a previous article, I discussed why having the reserve currency of the world is so important to the United States…
The largest exporting nations such as Saudi Arabia (oil) and China (cheap plastic trinkets at Wal-Mart) end up with massive piles of U.S. dollars.
Instead of just sitting on all of that cash, these exporting nations often reinvest much of that cash into low risk securities that can be rapidly turned back into dollars if necessary. For a very long time, U.S. Treasury bonds have been considered to be the perfect way to do this. This has created tremendous demand for U.S. government debt and has helped keep interest rates super low. So every year, massive amounts of money that gets sent out of the country ends up being loaned back to the U.S. Treasury at super low interest rates.
And it has been a very good thing for the U.S. economy that the federal government has been able to borrow money so cheaply, because the interest rate on 10 year U.S. Treasuries affects thousands upon thousands of other interest rates throughout our financial system. For example, as the rate on 10 year U.S. Treasuries has risen in recent months, so have the rates on U.S. home mortgages.
Our entire way of life in the United States depends upon this game continuing. We must have the rest of the world use our currency and loan it back to us at ultra low interest rates. At this point we have painted ourselves into a corner by accumulating so much debt. We simply cannot afford to have rates rise significantly.
As the rest of the globe moves away from the dollar, demand for the dollar is going to go down and that is going to cause a lot of inflation – especially for imported goods. So the days of piling lots of cheap plastic stuff made in China into your shopping carts is coming to an end.
And as the rest of the globe moves away from U.S. debt, interest rates are going to go much higher than they are today. Eventually, the U.S. government will be paying out more than a trillion dollars a year just in interest on the national debt and all loans throughout our entire financial system will have higher interest rates. This is going to cause economic activity to slow down dramatically.
On the global economic stage, China is playing checkers and we are playing chess, and we are getting dangerously close to checkmate.
Meanwhile, China is also rapidly catching up to us militarily.
At a time when U.S. military spending is actually decreasing, China is spending money on the military aggressively.
In 2014, Chinese military spending will rise to $148 billion, which represents an increase of 6 percent over 2013.
The balance of power is shifting right in front of our eyes.
For example, at one time the U.S. Navy reigned supreme and the Chinese Navy was a joke.
But now that is rapidly changing. The following is from an article posted on military.com…
The Chinese navy has 77 surface combatants, more than 60 submarines, 55 amphibious ships and about 85 missile-equipped small ships, according to the report first published by the U.S. Naval Institute. The report explains that more than 50 naval ships were “laid down, launched or commissioned” in 2013 and a similar number is planned for 2014.
Of particular concern is the growth of the Chinese submarine fleet. The Chinese now have submarine launched ballistic missiles with a maximum range of about 4,000 miles…
ONI raised concerns about China’s fast-growing submarine force, to include the Jin-class ballistic nuclear submarines, which will likely commence deterrent patrols in 2014, according to the report. The expected operational deployment of the Jin SSBN “would mark China’s first credible at-sea-second-strike nuclear capability,” the report states.
The submarine would fire the JL-2 submarine launched ballistic missile, which has a range of 4,000 nautical miles and would “enable the Jin to strike Hawaii, Alaska and possibly western portions of CONUS [continental United States] from East Asian waters,” ONI assessed.
In addition, China is also working on “hypersonic glide vehicles” that can travel “at speeds of up to Mach 10 or 7,680 miles an hour”. The following is an excerpt from a recent Washington Free Beacon article…
The Washington Free Beacon first disclosed China’s Jan. 9 flight test of a hypersonic glide vehicle that the Pentagon has called the WU-14.
The experimental weapon is a new strategic strike capability China’s military is developing that is designed to defeat U.S. missile defenses. China could use the vehicle for both nuclear and conventional precision strikes on targets, including aircraft carriers at sea.
U.S. officials said that, while the glide vehicle test was not an intelligence surprise, it showed China is moving much more rapidly than in the past in efforts to research, develop, and test advanced weaponry.
The world is changing, and the United States is not the only superpower anymore. China is thriving and Russia is also on the rise. Five years from now, the world is going to look far, far different than it does today.
In the end, most Americans will have no idea what is happening until it is far too late to do anything about it.
PETER SCHIFF: INFLATION PROPAGANDA EXPOSED
Published on Jan 10, 2013
The CPI is no longer a tool to accurately measure inflation, but an instrument of propaganda the government uses to hide accelerating inflation from the public and financial markets. Modest CPI increases over the past several years do not reflect an absence of inflation, but a design flaw in the index that fails to fully capture the magnitude of price increases. Central bankers drawing economic conclusions regarding inflation and monetary policy based on this highly flawed data point are making a major policy error.
Note: Prices for the twenty items in our basket rose 44.3% during a ten-year period despite an official rise in the CPI of just 27.5% during the same time frame. But that is using official government numbers to evidence those price increases. However, judging by the inaccuracy of government numbers on other items, such as newspapers and health insurance, the actual rate of increase of the prices of the goods in our basket was likely much higher than what the government claimed!
THE OBAMA ADMINISTRATION AGENDA TO “KILL THE U.S. DOLLAR”
by Douglas J. Hagmann
March 30, 2013
Some might be surprised to learn that the fate of America’s economy has already been determined, verified and announced by the Obama White House. Yet, it has received scant attention from the corporate media. In 2011, economist Kyle Bass interviewed a senior member of the Obama administration about its planned solutions for fixing the US economy and trade deficit [i].
Among the questions he asked was about U.S. exports and wages, but the question itself was not nearly as important as the response he received from this senior administration official. In fact, this single, seven word response clarifies everything, explains everything, and leaves little else to discuss: “We’re just going to kill the dollar.”
There it is, the entire agenda in one short sentence. It explains everything we’ve been seeing domestically and globally. That one statement makes every other question irrelevant, or otherwise answers all economic questions and explains everything. Nothing else matters. I urge you to ponder that statement and all that it implies. Doing so will provide you with the clarity to understand not only what is taking place today, but what is yet to come.
It is important to note the specificity of the word “kill.” Stated in the active voice, it means an unambiguously intentional and deliberate act. The murder of our national currency, the United States Dollar (USD), is the ultimate agenda to be implemented under Obama. To “kill” our national currency will subvert the United States and destroy it from within. This begs a number of questions, including what type of Americans would actually have, as their objective, the destruction of our national currency? To whom do they hold their allegiance, if not to the American people whose life’s work as well as the toil of our ancestors is represented in the form of wealth held in U.S. dollars? Does this make any sense to us, as Americans? The answer of course is “no.”
By its very definition, to kill our national currency is an act of high treason by those engaged in this activity. It undermines the very sovereignty and survival of our nation, and will have a life-changing impact on every citizen in the U.S. It will also impact every nation and the people of every nation on the planet, as the USD is presently the world’s reserve currency. It is an act that should result in the filing of criminal charges against the conspirators, a trial of their peers and if convicted, a death sentence. It’s that serious.
According to my source, we are past the point of no return. We will not be able to stop what is coming, but must be wise enough to prepare and “get out of the way.” The murder plot involving the death of the dollar did not begin with Obama, but he and other conspirators have accelerated the plans, plots and schemes for its demise.
The ultimate objective is to implement an international currency in tandem with a system of global governance. The problem is that most people are not thinking large enough, nor do they understand the magnitude of the lie.
They are not seeing the larger picture as their focus is diverted elsewhere. For example, they focus on various tentacles of the octopus such as the gun confiscation initiative, the DHS armament acquisitions and economic woes as independent and unrelated events. They are not.
Meanwhile, others continue to adhere to, or even perpetuate the dual party meme of governance, holding dearly to the notion that there is a practical difference between the Republican and Democrat parties. Have we not seen sufficient evidence that they are now of one party acting in concert with each other? They cannot see the collusion and backroom deals, and continue to hope that the next election will finally change the unchangeable continuity of agenda.
Most of the elected officials are on board with the subjugation of the United States to a global system of governance. Some are actively facilitating this agenda, while others are making nominal objections on the stage of political theater while hoping to earn a seat at the global table. It’s entertainment for the globalists, distraction of the masses, and diversionary fodder for the talking heads in the media.
America has become a captured operation – captured from within. Think of the Vichy French, internal collaboration with the enemy, or softening the ground for a full takeover from within. The takeover of America has already happened, the collaborators have already been installed, and we are now on a path to complete subjugation of a larger global system of governance. If you continue to doubt this, how else would you explain the numerous examples of our dual-party governmental acquiescence of self destruction?
Those who are pleased about the new record setting stock-market highs and various other manipulated statistics that indicate our economy is improving will be the most vocal critics of this report and who will attempt to discredit the validity of the information offered here. The more intellectually astute will look beyond the statistics offered for mass consumption not only to identify the deliberately manipulated data, but to understand what is actually driving these false hopes, figures and data. It is a magic show, and many are still captivated by the magicians’ many diversions, failing to realize that we are engaged in a global war while being simultaneously hobbled by enemy infiltrators from within.
One reason we are seeing new stock market highs is the rush to the dollar from other currencies, especially in the Eurozone. Another reason is the monetization of our debt by the Federal Reserve, despite the previous denials of Ben Bernanke and others.
Simply put, the plan by the globalists, or the central bankers and those behind them, is to create this rush to the USD like passengers from sinking ships to lifeboats. Once the lifeboats are filled to capacity, they will be sunk, and the United States Dollar will be completely worthless. As in such a scenario, many will not make it. Many will die from what is coming. The level of evil behind this plan is incomprehensible to the normal human mind.
We are at war with Russia. After removing Qaddafi from power in Libya, the Obama-Clinton black-ops plan was immediately put into action. Benghazi was the logistics hub for arming the anti-Assad terrorists by our own State Department covert operatives who were shipping millions of tons of weapons to Syria via Turkey and other staging areas. Russia was aware of our actions, and through the attack at the CIA operations center in Benghazi by proxy forces, exposed this operation to the world while putting a stop to this operation. It seems that everyone except the Western media reported what had taken place.
The “dirty little secret” that explains why we have not been told the truth about Benghazi is quite simple. The efforts to overthrow Assad from power are continuing, except the arms and munitions shipments are now originating primarily from Croatia. Overthrowing Assad would pose a direct threat to Russia, both militarily and economically. Are we to expect Russia’s Putin to simply accept this without response? No. So what is Russia doing to subvert our efforts? He is waging war against America, striking at the weak underbelly of our economy which is the “oil backed” dollar as identified in Michael Reagan’s article, Building on a Kernel of Truth.
Sadly, the Obama regime is doing nothing to protect us from this asymmetrical war. It’s as if they are allowing it to take place.
Although it was reported in The New York Times, few have paid attention to last week’s meeting between Chinese President Xi Jinping and Russian President Vladimir Putin in Moscow, but it was an extremely important event in terms of the planned murder of the U.S. dollar. An alliance is being forged between Russia and China to replace the USD as the reserve currency, already severely weakened by the policies of those in power, with a gold backed currency.
While reports do exist that cite the hoarding of gold by China and Russia, they are purposely under reporting their collective reserves. Meanwhile, Americans can’t even get honest answers to the amounts of our own gold reserves held in Fort Knox or the Federal Reserve. Don’t people find this reluctance for audit and inspection a bit curious if not outright suspicious?
The battle is being waged not only by military might but by a currency war. We are “being played” through our military involvement in the Middle East, including our covert operations against Syria at the behest of Saudi Arabia. Unlike Iraq, the war in Syria will explode, turn hot, and we will be engaged in an ominous battle that will quickly expand and turn deadly. Weakened militarily through the policies of the Obama regime, coupled with an already weakened economy, the U.S. will suffer consequences unlike anyone might imagine or is willing to address. It is a recipe for disaster planned and initiated by the global elite behind the central banking system, including those in our own government. We have been set up from within, lied to, and now, we are about to see exactly what this globalist system has in store for not only the United States, but every nation of the world.
It is critical to understand that the take-down of the U.S. will be the result of an asymmetrical war that includes the weakening of our military, our economy, and a direct assault on our ability to keep the dollar as the world reserve currency and protect the free flow of oil and energy to the United States.
Within the last week, China held a surprise naval exercise in the South China Sea. Meanwhile, Russia displayed their resurgent military might in the Black Sea. These exercises were conducted as U.S. military forces are spread thinly across many areas in the world. Is anyone paying attention here?
Just as certain a collapse of the dollar is coming, so will be chaos on the streets of America caused by this plan “to kill the dollar.” The central bankers and the leaders selected to govern each country have effectively used the Hegelian Dialectic [ii] to implement their agenda. Just as stated by George H.W. Bush on September 11, 1990, their predetermined solution of a “New World Order” is being formed before our very eyes. They’ve told us what they are doing, but we have chosen not to listen or failed to understand what was being said.
The U.S. has always been the firewall against the globalists. By their persistence, infiltration of global elitists into our government, and covert subversion from within, we are being led to slaughter. A view from space, looking at the larger picture of events for which many have questions, a clearer picture emerges. There will be some who dare to resist the pillaging of our bank accounts, the erosion of our rights, and the enslavement that comes with the dismantling of America.
The dust clouds visible on the far horizon that watchmen have been reporting for decades can now be seen as an attacking army of barbarians, whose fighters are now on the ladders and cannons are breaching our empire’s outer walls. Who knows how long the inner walls of our empire will survive the next wave of their coming attack.
Perhaps Ernest Hemmingway said it best in referencing John Donne from his novel of the same name… “And therefore never send to know for whom the bell tolls; It tolls for thee.”
YELLEN SWORN IN AS FED CHAIR, SUCCEEDING BERNANKE
Janet Yellen is sworn in as Federal Reserve Board Chair, in Washington, Monday, Feb. 3, 2014, the first woman to lead the Federal Reserve. (AP Photo/Charles Dharapak)
By MARTIN CRUTSINGER
WASHINGTON (AP) — Janet Yellen officially took over the leadership of the Federal Reserve on Monday — and along with it a delicate task: Unwinding the Fed’s extraordinary economic stimulus without spooking investors or slowing a still-subpar economy.
Yellen, the first woman to lead the Fed in its 100 years, was sworn in during a brief ceremony in the central bank’s board room. She succeeded Ben Bernanke, who stepped down last week after eight momentous years.
Bernanke is joining the Brookings Institution, a Washington think tank, where he will be a distinguished fellow in residence, Brookings announced Monday.
The economy Yellen inherits is far stronger than the one Bernanke faced in the fall of 2008, when the worst financial crisis since the 1930s erupted. Bernanke spent the rest of his tenure launching and managing an array of programs that are widely credited with helping restore lending and strengthen the financial system and economy after the Great Recession.
Yellen, 67, who served as vice chair under Bernanke, is taking over just as the Fed has begun its first modest moves to scale back its enormous support for the economy. At a meeting last week, the last under Bernanke’s leadership, the Fed approved a second $10 billion reduction in its monthly bond purchases to $65 billion.
The first cut was announced at the Fed’s December meeting, when it said it would trim its purchases from $85 billion a month, the level for more than a year. The Fed’s bond buying has been intended to keep long-term interest rates near record lows to stimulate the economy.
But as the economy has improved, Fed officials have decided it could withstand less help. The Fed is expected to keep reducing its bond purchases this year and end them altogether in December.
If the Fed moves too quickly to withdraw its stimulus, it could spook financial markets and send rates higher. Conversely, paring its bond buying too slowly could risk creating bubbles — that might burst — in real estate, stocks or other assets.
Already, concern about reduced Fed bond buying and the prospect of higher U.S. rates has shaken global markets. Central banks in several emerging nations have raised rates to try to prop up their falling currencies and control inflation. Stock prices have sunk.
Countries such as Turkey, India and Brazil had benefited from the Fed’s bond purchases. Investors poured money into these countries in search of higher yields than they could get in the United States and other developed nations. Now, with U.S. rates possibly headed up, investor money is flowing back out of these countries.
Sung Won Sohn, an economics professor at California State University Channel Islands, said he wouldn’t be surprised if the Fed slowed or even halted its bond reductions if the turbulence overseas worsens.
“If the global market turmoil continues, I think the Fed will have to take notice,” Sohn said. “We are living in an interconnected world, and I don’t think the Fed can ignore what is happening overseas.”
The Fed’s next meeting, the first with Yellen in charge, is March 18-19. She is scheduled to hold a news conference afterward. Before then, Yellen will appear before Congress next week to deliver the Fed’s twice-a-year report on its handling of rates and its economic outlook.
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, has been vocal in his criticism of the Fed’s policymaking. Hensarling has argued that the Fed’s use of trillions in bond purchases and ultra-low rates have left the country vulnerable to higher inflation and economic instability. He has announced hearings on the Fed’s bond buying and its “potential unintended consequences.”
Yellen has said that such fears are overblown and that the Fed has the means to monitor risks and address them.
A close ally of Bernanke, Yellen is expected to follow his approach of maintaining low short-term rates while gradually scaling back the bond purchases designed to keep long-term rates low.
Yellen made no comments during the ceremony Monday in which the oath of office was administered by Fed Governor Daniel Tarullo, the senior member of the Fed’s seven-member board.
She was sworn in before a fireplace in the Fed’s stately board room. Her husband, George Akerlof, a Nobel-winning economist, was present, as were Fed board members and staff.
Yellen’s four-year term as Fed chair will end on Feb. 3, 2018. But Fed chairs generally serve more than one term.
In the meantime, a blog posting from Brookings said Bernanke would work on a book about his years at the Fed. In the past, Bernanke has said he looked forward to writing and giving speeches once he stepped down.
BERNANKE’S LEGACY: A WEAK AND MEDIOCRE ECONOMY
by John P. Cochran | Mises Daily
February 4, 2014
As Chairman Bernanke’s reign at the Fed comes to an end, the Wall Street Journal provides its assessment of “The Bernanke Legacy.” Overall the Journal does a reasonable job on both Greenspan and Bernanke, especially compared to the “effusive praise from the usual suspects; supporters of monetary central planning. The Journal argues when accessing Bernanke’s performance it is appropriate to review Bernanke’s performance “before, during, and after the financial panic.”
While most assessments of Bernanke’s performance as a central banker focus on the “during” and “after” financial-crisis phases with much of the praise based on the “during” phase, the Journal joins the Austrians and John Taylor in unfavorable assessment of the more critical “before” period. It was this period when the Fed generated its second boom-bust cycle in the Greenspan-Bernanke era. In the Journal’s assessment, Bernanke, Greenspan, and the Fed deserve an “F.” While this pre-crisis period mostly fell under the leadership of Alan Greenspan, the Journal highlights that Bernanke was the “leading intellectual force” behind the pre-crisis policies. As a result of these too loose, too long policies, just as the leadership of the Fed passed from Greenspan to Bernanke, the credit boom the Fed “did so much to create turned to mania, which turned to panic, which became a deep recession.” The Journal’s description of Bernanke’s role should be highlighted in any serious analysis of the Bernanke era:
His [Bernanke’s] role goes back to 2002 when as a Fed Governor he gave a famous speech warning about deflation that didn’t exist [and if it did exist should not have been feared]. He and Mr. Greenspan nonetheless followed the advice of Paul Krugman to promote a housing bubble to offset the dot-com crash.
As Fed transcripts show, Mr. Bernanke was the board’s intellectual leader in its decision to cut the fed-funds rate to 1% in June 2003 and keep it there for a year. This was despite a rapidly accelerating economy (3.8% growth in 2004) and soaring commodity and real-estate prices. The Fed’s multiyear policy of negative real interest rates produced a credit mania that led to the housing bubble and bust.
For some of the best analysis of the Fed’s pre-crisis culpability one should turn to Roger Garrison’s excellent analysis. In a 2009 Cato Journal paper, Garrison (2009, p. 187) characterizes Fed policy during the “Great Moderation as a “learning by doing policy” which, based on events post-2003, would be better classified as “so far so good” or “whistling in the dark.” The actual result of this “learning by doing policy” is described by Garrison in “Natural Rates of Interest and Sustainable Growth”:
In the earlier episode [dot.com boom-bust], the Federal Reserve moved to counter the upward pressure of interest rates, causing actual interest rates not to deviate greatly from the historical norm. In the later episode [housingbubble/boom-bust], the Federal Reserve moved to reinforce the downward pressure on interest rates, causing the actual interest rates to be exceedingly low relative to the historical norm. Although the judgment, made retrospectively by economists of virtually all stripes, that the Fed funds target rate was “too low for too long” between mid-2003 and mid-2004, it was almost surely too low for too long relative to the natural rate in both episodes. (p. 433)
Given this and other strong evidence of the Fed’s role in creating the credit driven boom, the Journal faults “Mr. Bernanke’s refusal to acknowledge that the Fed made any mistake in the mania years.”
On the response to the crisis, the Journal refrains from the accolades of many who credit the Fed led by the leading scholar of the Great Depression from acting strongly to prevent another such calamity. According to the Fed worshipers, things might not be good, but without the unprecedented actions and bailouts things would have been catastrophic. The Journal’s more measured assessment:
Once the crisis hit, Mr. Bernanke and the Fed deserve the benefit of the doubt. From the safe distance of hindsight, it’s easy to forget how rapid and widespread the financial panic was. The Fed had to offset the collapse in the velocity of money with an increase in its supply, and it did so with force and dispatch. One can disagree with the Fed’s special guarantee programs, but we weren’t sitting in the financial polar vortex at the time. It’s hard to see how others would have done much better.
But discerning readers of Vern McKinley’s Financing Failure: A Century of Bailouts might disagree. Fed actions, even when not verging on the illegal, were counter-productive, unnecessary, and contributed to action freezing policy uncertainty which contributed to the collapse of the velocity of money. McKinley describes much of what was done as “seat-of-the-pants decision-making” (pp. 305-306):
“Seat of the pants” is not a flattering description of the methods of the regulators, but its use is justified to describe the panic-driven actions during the 2000s crisis. It is only natural that under the deadline of time pressure judgment will be flawed, mistakes will be made and taxpayer exposure will be magnified, and that has clearly been the case. With the possible exception of the Lehman Brothers decision … all of the major bailout decisions during the 2000s crisis were made under duress of panic over a very short period of time with very limited information at hand and with input of a limited number of objective parties involved in the decision making. Not surprisingly, these seat-of–the-pants responses did not instill confidence, and there was no clear evidence collected that the expected negative fallout would truly have occurred.
While a defense of some Fed action could be found in Hayek’s 1970s discussion of “best” policy under bad institutions (a central bank) where he argued that during a crisis a central bank should act to prevent a secondary deflation, the Fed actions went clearly beyond such a recommendation. Better would have been an immediate policy to end the credit expansion in its tracks. The Fed’s special guarantee programs and movement toward a mondustrial policy should be a great worry to anyone concerned about long-term prosperity and liberty. Whether any human running a central bank could have done better is an open question, but other monetary arrangements could clearly have led to better outcomes.
The Journal’s analysis of post-crisis policy, while not as harsh as it should be, is critical. Despite an unprecedented expansion of the Fed’s balance sheet, the “recovery is historically weak.” At some point “a Fed chairman has to take some responsibility for the mediocre growth — and lack of real income growth — on his watch.” Bernanke’s policy is also rightly criticized because “The other great cost of these post-crisis policies is the intrusion of the Fed into politics and fiscal policy.”
Because the ultimate outcome of this monetary cycle hinges on how, when, or if the Fed can unwind its unwieldy balance sheet, without further damage to the economy; most likely continuing stagnation or a return to stagflation, or less likely, but possible hyper-inflation or even a deflationary depression, the Bernanke legacy will ultimately depend on a Bernanke-Yellen legacy. Given, as the Journal points out, “Politicians — and even some conservative pundits — have adopted the Bernanke standard that the Fed’s duty is to reduce unemployment and manage the business cycle,” the prospect that this legacy will be viewed favorably is less and less likely. Perhaps if the editors joined Paul Krugman in reading and fully digesting Joe Salerno’s “A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis,” they would correctly fail Bernanke and Fed policy before, during, and after the crisis.
But what should be the main lesson of a Greenspan-Bernanke legacy? Clearly, if there was no pre-crisis credit boom, there would have been no large financial crisis and thus no need for Bernanke or other human to have done better during and after. While Austrian analysis has often been criticized, incorrectly, for not having policy recommendations on what to do during the crisis and recovery, it should be noted that if Austrian recommendations for eliminating central banks and allowing banking freedom had been followed, no such devastating crisis would have occurred and no heroic policy response would have been necessary in the resulting free and prosperous commonwealth.
ROB KIRBY: THE FEDERAL RESERVE LIES ABOUT EVERYTHING
By Greg Hunter’s USAWatchdog.com
Financial writer and former international derivatives broker Rob Kirby thinks the Fed’s recent cut back in money printing or “taper” is a con game. Kirby says, “The threat of taper made rates go up. The actual taper has made the 10-year Treasury drop 40 basis points in less than a month. The notion that the taper had anything to do with interest rates going higher seems to be a non-story.” The Fed has long claimed it was buying bonds to hold down interest rates, but if that is not true, what was the Fed doing buying all of those so-called toxic mortgage bonds from the big banks? Kirby says, “My thesis about taper is that the banks in the U.S. had mortgage bonds on their books probably close to the tune of a trillion dollars that they could not sell to anyone. It was dead money, and they had to write them off somehow. The problem with writing off close to a trillion dollars’ worth of mortgage bonds that were held in all the U.S. banks is that kind of money is probably more than the total market capitalization of the U.S. banking industry. So, they had to figure a way to get those mortgage bonds off the books of the banks and silo them somewhere without basically admitting that the U.S. banking system was insolvent.” Kirby goes on to say, “For the most part, with them now tapering, we can almost say mission accomplished. They’ve taken these mortgage bonds off the books of the banks, and they are held right now on the balance sheet of the Federal Reserve.”
According to Kirby, the Fed almost always deceives the public. Kirby claims, “Everything they tell us is a lie. These people preach they are about transparency, but everything they do is sleight of hand, misdirection and a shell game.” One thing the Fed cannot lie about is the size of its balance sheet–now $4 trillion. Did the Fed swallow a mortgage bond poison pill? Kirby says, “A lot of people would say, due to the size of the Fed’s balance sheet, there really are questions about their solvency going forward . . . usually, when you see a central bank expand the balance sheet the Federal Reserve has, what manifests out of that is a rapid increase in the money supply . . . typically, you might see something like a hyperinflation or the seeds of hyperinflation . . . that hasn’t happened—yet! Kirby worries about the toxic mortgage bonds the Fed is now holding. Kirby says, “That represents potential . . . call it stored up kinetic energy, it is potential for a rapid, rapid, rapid increase in money supply. . . . What it is in its purest form is monetary debasement, and when you have that much monetary debasement, you are going to see nominal prices increase, and it is just a matter of how long that works through the system, but it will occur.”
What is happening now in the economy is not recovery but “financial war.” Kirby explains, “What we’re witnessing and experiencing is a war between the keepers of the fiat system . . . and foreigners who have lost confidence in the U.S. dollar and confidence, for the most part, in fiat money. This is why all the emerging countries, China, Russia and the Asian countries are all buying gold. Isn’t it interesting, just as physical gold problems have started to manifest themselves with people having problems not being able to get the gold they want, Germany not being able to get their gold back. . . Isn’t it interesting, we have had an emerging market currency crisis rear its head in the last two weeks? The most adversely affected countries are either buying gold or facilitating trade in gold. If you want to put an umbrella over what we are talking about, it is economic warfare.”
Join Greg Hunter as he goes One-on-One with Rob Kirby of KirbyAnalytics.com.
THE FED’S FOCUS ON THE “WEALTH EFFECT” IS IDIOTIC
February 7, 2014
And we’ve repeatedly pointed out that one of the Fed’s main goals is to boost the stock market, yet the great majority of Americans – the bottom 90% – own less than 20% of all stocks and mutual funds. So the Fed’s effort overwhelmingly benefits the wealthiest Americans, and doesn’t help the general economy.
Barry Ritholtz has a great post at Bloomberg about the Fed’s idiocy of the Fed’s focus on the “wealth effect”:
When will these guys ever learn that maybe, just maybe, these Fed policies aimed at targeting asset prices at levels above their intrinsic values is probably not in the best interests of the nation?
-Dave Rosenberg, chief economist and strategist at Gluskin, Sheff
[What bugged me most about Fed policy] is the Federal Open Market Committee’s focus on the so-called wealth effect, and its corollary impact, the stock market’s reaction to Fed policy.
Let’s begin with a quick definition: The wealth effect is an economic theory that posits rising asset prices leads to beneficial effects in consumer sentiment, retail spending, along with corporate capital expenditure and hiring. It is based on a belief in a virtuous cycle that begins with equity prices. As they rise, investors and senior corporate managers begin to feel more secure and comfortable in their financial circumstances. This improvement in psychology releases the “animal spirits,” along with a commensurate increase in spending. Pretty soon thereafter, the entire economy is moving on the right direction.
But Fed policy makers seem to have gotten this precisely backward. Their premise is based upon a flawed statistical error, one that confuses correlation with causation. Building an entire thesis upon a flaw is likely to lead to poor results.
Why is the wealth effect a flawed theory?
Start with that correlation error: What actually occurs during periods where stock prices are rising? As Benjamin Graham observed, over the long term, markets act like a weighing machine — valuing equities based on their cash flow and earnings. During periods of economic expansions, it is the rising fundamental economic activity that reflects the positive things wrongly attributed to the wealth effect. Companies can hire more and increase their capital spending. Competition for labor leads to rising wages. Employed, well-paid workers spend those wages on capital goods such as cars and houses, and discretionary items like entertainment and travel.
Oh, and along with all of these economic positives, the stock market is buoyed as well, by increasing profits and more buoyant psychology.
In other words, all of the same forces that drive a healthy economy, leading to happy consumers spending their plump paychecks, also drive equity markets higher. The Fed, though, seems to think that the stock-market tail is wagging the fundamental economic dog.
The flaw in this thesis is even more obvious when we consider the distribution of equity ownership in the U.S. The vast majority of employees and consumers have only modest investments in equities.
With so few people actually invested in the results of the stock market, how can it have such a broad effect on consumer spending?
Which leads to a Fed policy that has become overly concerned with the markets reaction to well, everything. Fed policy, FOMC member speeches, even FOMC minutes are obsessively considered in light of how markets will react to them. This is a terrible and unique Fed error.
No wonder only higher income brackets like Fed policy.
FISCHER’S FOIBLES TROUBLE CRITICS OF FED NOMINATION
Written by Jack Kenny | The New American
February 3, 2014
If some of Stanley Fischer’s press clippings are accurate descriptions of his powers and abilities, the banking superstar should descend on the Federal Reserve with a capital “S” on his chest and his red cape flowing behind him. The former governor of the Bank of Israel has been receiving rave reviews since his pick by President Obama for the No. 2 position at the Fed was announced last December by Israeli television, a full month before Obama announced the choice on January 10. If confirmed by the Senate, Fischer (shown) will become the vice chairman of the Federal Reserve Board, succeeding Janet Yellen, who has been nominated to succeed Chairman Ben Bernanke. Bernanke, who announced his retirement last year, spent his last day at the Fed on Friday after eight years at the helm of the nation’s central bank.
Fischer’s nomination is “A Perfect Ten Strike,” wrote a bowled-over headline writer at Forbes magazine. “It’s almost like a central bank hall of fame,” declared Robert Hall, chairman of the National Bureau of Economic Research’s committee that decides when expansions begin and end. Bloomberg News quoted him as noting that Yellen and Fischer “have a huge track record as central bankers.”
“I don’t know why he wants to do this, but we should be so lucky,” wrote Bo Cutter on the “Next New Deal” blog of the Roosevelt Institute.
Fischer, 70, has cast a long shadow both as an international banker and a professor of economics at MIT, where his all-star roster of students included Bernanke, who counts Fischer among his most influential mentors; Mario Draghi, president of the European Central Bank; N. Gregory Mankiw, chairman of the Council of Economic Advisers under President George W. Bush; and Olivier Blanchard, chief economist at the International Monetary Fund.
“Stanley Fischer would be the perfect choice, given his unique combination of skills, qualities, and experience,” Harvard economics professor Jeffrey Frankel wrote in praise of his fellow member of the Council on Foreign Relations, the influential organization best known for its tireless advocacy of a world-government agenda. Fischer’s CFR credentials and his impressive resumé as a powerful figure in the world of international banking suggest he will fit well on a Federal Reserve Board, headed by CFR member Yellen. Obama has announced his choice of two other prominent CFR members, Leal Brainard and Jerome Powell, to serve on the Fed’s seven-member governing board.
Fischer was chief economist at the World Bank and deputy managing director of the International Monetary Fund, two institutions created at the Bretton Woods Conference in 1944 to promote international control over national fiscal and monetary policies. During his reign as Israel’s banking chief (2005-2013), Fischer, who has both U.S. and Israeli citizenship, was credited with having steered the Israeli economy through the global economic crisis of 2008-2009 without the severe recession suffered by many of the other industrialized nations. His tenure as vice chairman at Citigroup (2002-2005) on the other hand, has given rise to some skepticism about his ability to recognize an economic crisis in the making. In a column entitled “Which Stanley Fischer?,” Bloomberg’s Matthew C. Klein wrote:
Risk-taking at Citigroup increased significantly in 2004 and 2005 when [former Treasury Secretary Robert] Rubin was chairman of the executive committee of the bank’s board, with disastrous consequences in the years that followed. Bonuses that were paid in those early years weren’t subsequently clawed back, either as losses materialized or when the government had to step in with huge bailouts.
Fischer reported directly to Rubin, but there is no record that he sounded any kind of alarm, public or private. In that regard, he is no different from any other Citigroup executive of the period.
Klein also referred to Fischer’s role at the IMF in “the botched liberalization of the Russian economy” in the early 1990s, when market mechanisms were introduced before the needed legal and political reforms had been established.
“Unfortunately for Russia, this set of priorities helped make it possible for oligarchs to strip the state of assets as the economy collapsed,” Klein wrote.
When Fischer announced he was a candidate for the top job at the International Monetary Fund in 2011, Mark Weisbrot, co-director of the Washington-based Center for Economic and Policy Research, claimed his appointment would “institutionalize lack of accountability” at the IMF. Fischer, who was 67 at the time, was barred by the IMF age limit of 65 from being its managing director.
“Some of the IMF’s worst economic mistakes in its history occurred while Fischer was there,” Weisbrot said in a statement that claimed the IMF intervention in Russia during Fischer’s tenure “led to one of the worst losses in output in history, in the absence of a war or natural disaster.” It went on to say that in both Russia and Argentina, rapid economic growth occurred “after they had rid their countries of the IMF and its policy prescriptions.”
James Carden, a former adviser to the U.S.-Russia Bilateral Presidential Commission, cites Fischer’s “long track record of implementing neoliberal economic ‘reforms’ without paying due attention to their consequences for people of ordinary means.” President Obama “would do well to reconsider the wisdom of this particular appointment,” Carden wrote in The American Conservative.
Members of the Senate Banking, Housing and Urban Affairs Committee will have the opportunity to question Fischer about his role at Citibank, IMF, and other stops along his long and celebrated career. Given the inter-connected world of the global banking community, it seems likely, however, that the Stanley Fischer fan club will outnumber the doubters and dissenters. At the annual gathering of the world’s central bankers at the Grand Teton National Park a few years ago, Fed Chairman Bernanke noted one thing they had in common: “They all had Stan Fischer as their thesis adviser.”
BEN SWANN: QUANTITATIVE EASING AND WHAT IT MEANS FOR THE U.S. ECONOMY
Published on September 19, 2012
THE FEDERAL RESERVE GOES ALL IN ON QUANTITATIVE EASING…SHOULD HAVE BEEN CALLED OPERATION SCREW
Published on September 14, 2012
The geniuses at the Federal Reserve have concocted a bold new plan to revive the U.S. economy — print a bunch of money, loan it to Americans at super low interest rates so they can speculate on rising real estate prices, extract the appreciated equity and spend it on consumer goods. In other words, build an economy of real estate, by real estate, and for real estate. The only problem is we’ve been there and done that. The last time it almost destroyed the U.S.economy. I guess almost isn’t quite good enough for the Fed, so now it’s determined to finish the job.
AFTER 100 YEARS OF FAILURE, IT’S TIME TO END THE FED!
December 16, 2013
A week from now, the Federal Reserve System will celebrate the 100th anniversary of its founding. Resulting from secret negotiations between bankers and politicians at Jekyll Island, the Fed’s creation established a banking cartel and a board of government overseers that has grown ever stronger through the years. One would think this anniversary would elicit some sort of public recognition of the Fed’s growth from a quasi-agent of the Treasury Department intended to provide an elastic currency, to a de facto independent institution that has taken complete control of the economy through its central monetary planning. But just like the Fed’s creation, its 100th anniversary may come and go with only a few passing mentions.
Like many other horrible and unconstitutional pieces of legislation, the bill which created the Fed, the Federal Reserve Act, was passed under great pressure on December 23, 1913, in the waning moments before Congress recessed for Christmas with many Members already absent from those final votes. This underhanded method of pressuring Congress with such a deadline to pass the Federal Reserve Act would provide a foreshadowing of the Fed’s insidious effects on the US economy—with actions performed without transparency.
Ostensibly formed with the goal of preventing financial crises such as the Panic of 1907, the Fed has become increasingly powerful over the years. Rather than preventing financial crises, however, the Fed has constantly caused new ones. Barely a few years after its inception, the Fed’s inflationary monetary policy to help fund World War I led to the Depression of 1920. After the economy bounced back from that episode, a further injection of easy money and credit by the Fed led to the Roaring Twenties and to the Great Depression, the worst economic crisis in American history.
But even though the Fed continued to make the same mistakes over and over again, no one in Washington ever questioned the wisdom of having a central bank. Instead, after each episode the Fed was given more and more power over the economy. Even though the Fed had brought about the stagflation of the 1970s, Congress decided to formally task the Federal Reserve in 1978 with maintaining full employment and stable prices, combined with constantly adding horrendously harmful regulations. Talk about putting the inmates in charge of the asylum!
Now we are reaping the noxious effects of a century of loose monetary policy, as our economy remains mired in mediocrity and utterly dependent on a stream of easy money from the central bank. A century ago, politicians failed to understand that the financial panics of the 19th century were caused by collusion between government and the banking sector. The government’s growing monopoly on money creation, high barriers to entry into banking to protect politically favored incumbents, and favored treatment for government debt combined to create a rickety, panic-prone banking system. Had legislators known then what we know now, we could hope that they never would have established the Federal Reserve System.
Today, however, we do know better. We know that the Federal Reserve continues to strengthen the collusion between banks and politicians. We know that the Fed’s inflationary monetary policy continues to reap profits for Wall Street while impoverishing Main Street. And we know that the current monetary regime is teetering on a precipice. One hundred years is long enough. End the Fed!
BILL STILL: 100 YEARS OF TYRANNY BY THE FEDERAL RESERVE BANKING CARTEL
JEKYLL ISLAND – THE TRUTH ABOUT THE FEDERAL RESERVE (TRAILER)
G. EDWARD GRIFFIN ON THE 100 YEAR OLD CREATURE FROM JEKYLL ISLAND
Published on Nov 12, 2013
NEW YORK TIMES CALLS JP MORGAN CEO’s PAY RAISE “LAUDABLE”
By Andre Damon and Barry Grey
February 4, 2014
The New York Times published a commentary last Friday in which the author called a 74 percent pay increase announced last week for JPMorgan Chase CEO Jamie Dimon “laudable.”
Dimon’s pay increase, which brought his 2013 payout to $20 million, followed a year in which his bank agreed to pay over $20 billion in fines to settle charges related to an extraordinary array of crimes, ranging from securities fraud, to forging foreclosure documents, to lying to regulators.
The Times felt compelled to go into print in defense of Dimon after news of his pay increase raised eyebrows in the media and fueled popular outrage over the avarice and criminality of Wall Street.
The author of the Times article, James, B. Stewart, wrote, “[I]n the world of executive compensation, especially when viewed from the rarefied perspective of other chief executives, and more broadly on Wall Street, Mr. Dimon’s pay—and how it was determined—is not only defensible, but laudable.”
Over the past several years, America’s biggest bank has been fined in connection with illegal actions that have had catastrophic social consequences. Less than a month ago, on January 7, the bank agreed to pay $2.05 billion in fines and penalties to settle charges that it was an accomplice in the multi-billion-dollar Ponzi scheme operated by Bernie Madoff, who is currently serving a 150-year prison term. Madoff’s Ponzi scheme was the largest in world history. When it collapsed in 2008, it wiped out the life savings of thousands of retirees and threw a number of charitable organizations into bankruptcy.
The Obama Justice Department, in line with its policy of not prosecuting Wall Street banks or their top executives, offered Dimon a “deferred prosecution” deal in which the bank agreed to the facts presented by the government, but avoided a criminal indictment.
That settlement followed a year in which JPMorgan agreed to pay $13 billion to settle charges that it defrauded investors by selling toxic mortgage-backed securities on false pretences in the run-up to the 2007-2008 collapse of the housing bubble. The same year, the bank paid nearly $1 billion to settle charges arising from its concealment of nearly $6 billion of derivatives losses in the so-called “London Whale” scandal.
The bank was also part of a cash settlement with the top five US mortgage lenders, which had been caught forging and fraudulently processing home foreclosure documents. Untold thousands, or perhaps millions, of families were illegally forced out of their homes as a result.
Also in 2013, JPMorgan paid $4.5 billion to settle charges that it defrauded pension funds and other institutional investors to whom it sold mortgage bonds. The bank paid a separate fine to settle charges that it defrauded credit card customers.
JPMorgan is one of more than a dozen major international banks under investigation for illegally manipulating Libor (the London Interbank Offered Rate), the world’s benchmark interest rate, used to set the rates for $300 trillion worth of financial contracts, including rates on mortgage loans, credit cards, auto loans and derivatives. The rigging of Libor by itself has cost state and local governments, pension funds and retirees, home owners and hundreds of millions of other people untold billions in losses.
These criminal practices—which are epidemic throughout the financial industry—triggered the deepest global economic crisis since the Great Depression, causing millions of people to lose their jobs, their retirement savings, their homes and a large part of their incomes. The number of people who have suffered hunger, homelessness, poverty and disease as a result of the actions of Dimon and his fellow Wall Street crooks, if calculated, would run into the hundreds of millions.
Bailed out and shielded from prosecution by the Obama administration and governments all over the world, those responsible for the crisis, such as Dimon, have been allowed to further enrich themselves by continuing essentially the same practices that precipitated the disaster.
The Times article fails to mention any of the multiple charges against Dimon’s bank, or the long list of settlements into which Dimon has entered with regulators. For the so-called “newspaper of record,” illegal activity is perfectly acceptable so long as the culprits belong to the financial aristocracy.
There is a very different standard when it comes to ordinary people, especially those who expose the crimes of the American government. This is the same newspaper that viciously attacked Julian Assange, smeared Bradley Manning, and sanctimoniously demands that Edward Snowden acknowledge his “guilt” and return to the United States to face a show trial and decades in prison, if not worse.
According to the Times, JPMorgan’s compensation committee was entirely justified in giving Dimon a raise because he succeeded in driving up the company’s share price. As Stewart’s piece notes, “shares gained 37 percent in 2013, and with Mr. Dimon as chief executive, its shares have outpaced both the financials index and the Standard & Poor’s 500-stock index over one-, three- and five-year periods.”
Stewart quotes David Larcker, a business professor at Stanford University, who says, “It’s not like he’s taking home $20 million in cash… His incentives are aligned with shareholders. There’s risk imposed on him. That’s called pay for performance, and it’s a good thing.”
Larcker stressed, the articles notes, that “the board’s duty was to shareholders, not the public at large.”
In an attempt to give his defense of Dimon and his pay increase a fig leaf of objectivity, Stewart purports to present the views of those who are opposed to the raise. But he exudes contempt for what he obviously considers the naïve notion that a corporate swindler should not be rewarded with a multi-million-dollar pay increase. One academic quoted in his piece refers dismissively to a “populist backlash.”
Stewart writes: “Although much of the country may feel that Wall Street executives have largely escaped accountability for the financial crisis, on Wall Street itself, the opposite view prevails, which is that banking executives in general, and Mr. Dimon especially, have been made scapegoats by overzealous regulators.”
When it comes to both criminality and obscene compensation levels, JPMorgan and Dimon are not exceptions; they are the rule among top Wall Street firms and their executives. In his article, Times columnist Stewart points out—not at all critically—that just last week, Morgan Stanley announced that its chief executive, James P. Gorman, will receive an 86 percent increase in his bonus, to $4.9 million, on top of a doubling of his base salary to $1.5 million. In all, his pay for 2013 will significantly exceed the $9.75 million he received in 2012.
Similarly, the article notes that Goldman Sachs CEO Lloyd Blankfein is set to receive a big raise for 2013 from the $21 million he took in the previous year. However, Stewart argues, given the $40.3 million Exxon-Mobil CEO Rex Tillerson was paid in 2012, the $62.2 million CBS Chief Executive Leslie Moonves took in, and Oracle CEO Larry Ellison’s $96.12 million, Dimon’s $20 million “looked modest.”
Defending financial criminals is nothing new for the Times. In 2009, the newspaper vociferously defended Steven Rattner when the private equity firm he co-founded was under investigation for carrying out a kickback scheme involving the New York State retirement pension fund, forcing Rattner to resign as head of Obama’s Auto Task Force. The next year, Rattner settled the charges for $7 million. He is now a regular commentator for the Times.
HARVARD ECONOMIST EXPECTS BANK RUNS, WITHDRAWS $1 MILLION FROM BANK OF AMERICA
Published on Feb 4, 2014
HARVARD ECONOMIST FEARS STARTING “BANK RUN” ON BofA BY WITHDRAWING $1 MILLION
Another ominous warning of imminent economic turmoil
Paul Joseph Watson
February 4, 2014
Former Harvard Professor of Economics Terry Burnham fears starting a “run” on Bank of America after he made public his decision to withdraw $1 million dollars from his checking account as a protest against Janet Yellen beginning her term as Federal Reserve head this month.
In an article for PBS entitled Is your money safe at the bank? An economist says ‘no’ and withdraws his, Burnham, an ardent critic of the Fed, writes, “Why do I risk starting a run on Bank of America by withdrawing my money and presuming that many fellow depositors will read this and rush to withdraw too? Because they pay me zero interest. Thus, even an infinitesimal chance Bank of America will not repay me in full, whenever I ask, switches the cost-benefit conclusion from stay to flee.”
Burnham explains that Bank of America may be “unwilling or unable” to return his money should one of a number of different circumstances arise, such as depositors demanding their money back en masse, or if the investments on which 90% of depositors’ money Bank of America has loaned out to cover go bust.
In addition, Burnham points out that the FDIC, which guarantees to insure deposits up to $250,000, only has about $41 billion in reserve against $6 trillion in insured deposits.
The Harvard economist pins the blame of economic uncertainty on government intervention, and specifically Ben Bernanke and the Federal Reserve for pursuing absurd quantitative easing policies which will “unravel in the U.S. as it has every other time it has been tried from Weimar Germany to Robert Mugabe’s Zimbabwe.”
Burnham’s words are sure to send another ominous chill through markets already beset with paranoia following a drop of 1000 points on the Dow Jones since its height in December. Global markets are also getting crushed with the Nikkei falling over 4% yesterday and European markets also suffering drastic downturns.
A recent spate of banker suicides has stoked fears that a major financial crash could be just around the corner, one indication of which could be banks like HSBC imposing capital controls on customers attempting to withdraw larger sums of money. Last week, Russian lender ‘My Bank’ also temporarily banned all cash withdrawals.
As Mac Slavo highlights, Grady Means, economist and advisor to Vice President Nelson Rockefeller, predicted that the 4th of March 2014 would be the date on which the economic collapse accelerated, followed by, “A run on the bank (that) will start suddenly, build quickly and snowball.”
“The doomsday clock will ring then because the U.S. economy may fully crash around that date, which will, in turn, bring down all world economies and all hope of any recovery for the foreseeable future — certainly over the course of most of our lifetimes,” wrote Means in a 2012 Washington Times editorial.
WHY THIS HARVARD ECONOMIST IS PULLING ALL HIS MONEY FROM BANK OF AMERICA
by Tyler Durden
February 1, 2014
A classicial economist… and Harvard professor… preaching to the world that one’s money is not safe in the US banking system due to Ben Bernanke’s actions? And putting his withdrawal slip where his mouth is and pulling $1 million out of Bank America? Say it isn’t so…
From Terry Burnham, former Harvard economics professor, author of “Mean Genes” and “Mean Markets and Lizard Brains,” provocative poster on this page and long-time critic of the Federal Reserve, argues that the Fed’s efforts to strengthen America’s banks have perversely weakened them. First posted in PBS.
Is your money safe at the bank? An economist says ‘no’ and withdraws his
Last week I had over $1,000,000 in a checking account at Bank of America. Next week, I will have $10,000.
Why am I getting in line to take my money out of Bank of America? Because of Ben Bernanke and Janet Yellen, who officially begins her term as chairwoman on Feb. 1.
Before I explain, let me disclose that I have been a stopped clock of criticism of the Federal Reserve for half a decade. That’s because I believe that when the Fed intervenes in markets, it has two effects — both negative. First, it decreases overall wealth by distorting markets and causing bad investment decisions. Second, the members of the Fed become reverse Robin Hoods as they take from the poor (and unsophisticated) investors and give to the rich (and politically connected). These effects have been noticed; a Gallup poll taken in the last few days reports that only the richest Americans support the Fed. (See the table.)
Why do I risk starting a run on Bank of America by withdrawing my money and presuming that many fellow depositors will read this and rush to withdraw too? Because they pay me zero interest. Thus, even an infinitesimal chance Bank of America will not repay me in full, whenever I ask, switches the cost-benefit conclusion from stay to flee.
Let me explain: Currently, I receive zero dollars in interest on my $1,000,000. The reason I had the money in Bank of America was to keep it safe. However, the potential cost to keeping my money in Bank of America is that the bank may be unwilling or unable to return my money.
They will not be able to return my money if:
- Many other depositors like you get in line before me. Banks today promise everyone that they can have their money back instantaneously, but the bank does not actually have enough money to pay everyone at once because they have lent most of it out to other people — 90 percent or more. Thus, banks are always at risk for runs where the depositors at the front of the line get their money back, but the depositors at the back of the line do not. Consider this image from a fully insured U.S. bank, IndyMac in California, just five years ago.
- Some of the investments of Bank of America go bust. Because Bank of America has loaned out the vast majority of depositors’ money, if even a small percentage of its loans go bust, the firm is at risk for bankruptcy. Leverage, combined with some bad investments, caused the failure of Lehman Brothers in 2008 and would have caused the failure of Bank of America, AIG, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, and many more institutions in 2008 had the government not bailed them out.
In recent days, the chances for trouble at Bank of America have become more salient because of woes in the emerging markets, particularly Argentina, Turkey, Russia and China. The emerging market fears caused the Dow Jones Industrial Average to lose more than 500 points over the last week.
Returning to my money now entrusted to Bank of America, market turmoil reminded me that this particular trustee is simply not safe. Or not safe enough, given the fact that safety is the reason I put the money there at all. The market turmoil could threaten “BofA” with bankruptcy today as it did in 2008, and as banks have experienced again and again over time.
If the chance that Bank of America will not return my money is, say, a mere 1 percent, then the expected cost to me is 1 percent of my million, or $10,000. That far exceeds the interest I receive, which, I hardly need remind depositors out there, is a cool $0. Even a 0.1 percent chance of loss has an expected cost to me of $1,000. Bank of America pays me the zero interest rate because the Federal Reserve has set interest rates to zero. Thus my incentive to leave at the first whiff of instability.
Surely, you say, the federal government is going to keep its promises, at least on insured deposits. Yes, the Federal Government (via the FDIC) insures deposits in most institutions up to $250,000. But there is a problem with this insurance. The FDIC currently has far less money in its fund than it has insured deposits: as of Sept. 1, about $41 billion in reserve against $6 trillion in insured deposits. (There are over $9 trillion on deposit at U.S. banks, by the way, so more than $3 trillion in deposits is completely uninsured.)
It’s true, of course, that when the FDIC fund risks running dry, as it did in 2009, it can go back to other parts of the federal government for help. I expect those other parts will make the utmost efforts to oblige. But consider the possibility that they may be in crisis at the very same time, for the very same reasons, or that it might take some time to get approval. Remember that Congress voted against the TARP bailout in 2008 before it relented and finally voted for the bailout.
Thus, even insured depositors risk loss and/or delay in recovering their funds. In most time periods, these risks are balanced against the reward of getting interest. Not so long ago, Bank of America would have paid me $1,000 a week in interest on my million dollars. If I were getting $1,000 a week, I might bear the risks of delay and default. However, today I am receiving $0.
So my cash is leaving Bank of America.
But if Bank of America is not safe, you must be wondering, where can you and I put our money? No path is without risk, but here are a few options.
- Keep some cash at home, though admittedly this runs the risk of loss or setting yourself up as a target for criminals.
- Put some cash in a safety box. There is an urban myth that this is illegal; my understanding is that cash in a safety box is legal. However, I can imagine scenarios where capital controls are placed on safety deposit box withdrawals. And suppose the bank is shut down and you can’t get to the box?
- Pay your debts. You don’t need to be Suze Orman to know that you need liquidity, so do not use all your cash to pay debts. However, you can use some surplus, should you have any.
- Prepay your taxes and some other obligations. Subject to the same caveat about liquidity, pay ahead. Make sure you only pay safe entities. Your local government is not going away, even in a depression, so, for example, you can prepay property taxes. (I would check with a tax accountant on the implications, however.)
- Find a safer bank. Some local, smaller banks are much safer than the “too-big-to-fail banks.” After its mistake of letting Lehman fail, the government has learned that it must try to save giant institutions. However, the government may not be able to save all failing institutions immediately and simultaneously in a crisis. Thus, depositors in big banks face delays and defaults in the event of a true crisis. (It is important to find the right small bank; I believe all big banks are fragile, while some small banks are robust.)
Someone should start a bank (or maybe someone has) that charges (rather than pays) interest and does not make loans. Such a bank would be a good example of how Fed actions create unintended outcomes that defeat their goals. The Fed wants to stimulate lending, but an anti-lending bank could be quite successful. I would be a customer.
(Interestingly, there was a famous anti-lending bank and it was also a “BofA” — the Bank of Amsterdam, founded in 1609. The Dutch BofA charged customers for safe-keeping, did not make loans and did not allow depositors to get their money out immediately. Adam Smith discusses this BofA favorably in his “Wealth of Nations,” published in 1776. Unfortunately — and unbeknownst to Smith — the Bank of Amsterdam had starting secretly making risky loans to ventures in the East Indies and other areas, just like any other bank. When these risky ventures failed, so did the BofA.)
My point is that the Federal Reserve’s actions have myriad, unanticipated, negative consequences. Over the last week, we saw the impact on the emerging markets. The Fed had created $3 trillion of new money in the last five-plus years — three times more than in its entire prior history. A big chunk of that $3 trillion found its way, via private investors and institutions, into risky, emerging markets.
Now that the Fed is reducing (“tapering”) its new money creation (now down to $65 billion a month, or $780 billion a year, as of Wednesday’s announcement), investments are flowing out of risky areas. Some of these countries are facing absolute crises, with Argentina’s currency plummeting by more than 20 percent in under one month. That means investments in Argentina are worth 20 percent less in dollar terms than they were a month ago, even if they held their price in Pesos.
The Fed did not plan to impoverish investors by inducing them to buy overpriced Argentinian investments, of course, but that is one of the costly consequences of its actions. If you lost money in emerging markets over the last week, at one level, it is your responsibility. However, it is not crazy for you to blame the Fed for creating volatile prices that made investing more difficult.
Similarly, if you bought gold at the peak of almost $2,000 per ounce, you have lost one-third of your money; you share the blame for your golden losses with Alan Greenspan, Ben Bernanke and Janet Yellen. They removed the opportunities for safe investments and forced those with liquid assets to scramble for what safety they thought they could find. Furthermore, the uncertainty caused by the Fed has caused many assets to swing wildly in value, creating winners and losers.
The Fed played a role in the recent emerging markets turmoil. Next week, they will cause another crisis somewhere else. Eventually, the absurd effort to create wealth through monetary policy will unravel in the U.S. as it has every other time it has been tried from Weimar Germany to Robert Mugabe’s Zimbabwe.
Even after the Fed created the housing problems, we would have been better of with a small 2009 depression rather than the larger depression that lies ahead. See my Making Sen$e posts “The Stockholm Syndrome and Printing Money” and “Ben Bernanke as Easter Bunny: Why the Fed Can’t Prevent the Coming Crash” for the details of my argument.
Ever since Alan Greenspan intervened to save the stock market on Oct. 20, 1987, the Fed has sought to cushion every financial blow by adding liquidity. The trouble with trying to make the world safe for stupidity is that it creates fragility.
Bank of America and other big banks are fragile — and vulnerable to bank runs — because the Fed has set interest rates to zero. If a run gathers momentum, the government will take steps to stem it. But I am convinced they have limited ammunition and unlimited problems.
What is the solution? For you, save yourself and your family. For the system, revamp the Federal Reserve. The simplest first step would be to end the dual mandate of price stability and full employment. Price stability is enough. I favor rules over intervention. We don’t need a maestro conducting monetary policy; we need a system that promotes stability and allows people (not printing presses) to make us richer.
GOLDMAN SACHS SUED FOR SELLING LIBYA BILLIONS IN “WORTHLESS” OPTIONS
By Richard Smallteacher | Global Research
February 05, 2014
Goldman Sachs, the Wall Street investment bank, is being sued in London for selling Libya “worthless” derivatives trades in 2008 that the country’s financial managers did not understand. Libya says it lost approximately $1.2 billion on the deals, while Goldman made $350 million.
At the time, the Libyan Investment Authority (LIA), which invests profits from the country’s oil and gas exports, had assets worth $60 billion under former dictator Muammar Gaddafi.Goldman Sachs convinced LIA to buy long-term call options on six companies: Allianz, a German insurance and investment company; Banco Santander, a Spanish bank; Citbank, a U.S. bank; Électricité de France, a French state utility; ENI, an Italian oil company; and UniCredit, an Italian bank.
What the Libyans did not understand was that if the stocks in these six companies did not rise, their investments would become worthless. Instead the LIA executives weretaken in by a trip to Morocco as well as “small gifts, such as aftershaves and chocolates” and an offer of an internship for Mustafa Mohamed Zarti, the brother of the Libyan fund’s deputy executive director, in Dubai and London.
“The unique circumstances allowed Goldman Sachs to take advantage of the LIA’s extremely limited financial and legal experience to deliberately exploit its position of influence and to take advantage in a way that generated colossal losses for the LIA but substantial profits for Goldman Sachs,” said LIA Chairman AbdulMagid Breish in a statement.
For example, LIA paid $200 million to gamble on the value of 22.3 million Citigroupshares. At the time, these shares were worth $5.7 billion and so long as they rose in value by at least $200 million, LIA stood to get its money back and the full value of the shares. But since Citigroup’s shares did not rise by at least $200 million, LIA lost its wager.
The timing of the bets was particularly bad. Since the deals were struck in early 2008, just before the last financial crisis when most share prices tumbled, the Libyans lost their wagers.
“We think the claims are without merit, and will defend them,” Fiona Laffan, a Goldman Sachs spokeswoman in London, told Bloomberg news service.
However, the bank recently claimed that it had retrained its staff to ensure that customers are no longer blind sided by sales pitches for complex products. “For all of our employees, the experience of initiating, approving and executing a transaction for a client at Goldman Sachs is now fundamentally different,” Goldman claimed at its annual meeting last year.
Goldman Sachs is not the first Wall Street bank to be accused of taking advantage of naive foreign investors. Morgan Stanley was sued for selling bundled sub-prime mortgages to China Development Industrial Bank (CDIB) from Taiwan that they knew would fail. Even Standard & Poors (S&P), Wall Street’s top ratings agency, has been accused of helping banks to sell “collateralized debt obligations” that they knew were likely to go sour.
But this is not the first time that Goldman Sachs has been happy to help governments carry out dodgy deals. Back in 2001, Goldman reportedly charged Greece $300 million to engage on “‘blatant balance sheet cosmetics” to help the country join the European Monetary Union.
Photo (right) Andy Stern of SEIU International addresses protestors at a rally outside Goldman Sachs office. Credit: SEIU International. Used under Creative Commons license.
Members of the union were required to have government debt under 60 percent of gross domestic product and a budget deficit to gross domestic product ratio of under 3 percent. Unfortunately, Greece debt exceeded 100 percent and deficits were at 3.7 percent
Goldman Sachs took advantage of a loophole that allowed countries to enter the EMU if they could demonstrate that they were lowering their debt and their budget deficit. To do this, Goldman Sachs sold Greece a “cross-currency swap” that gave the government cash up front in return for a big payment at the end of the loan period. The beauty of the arrangement was that since such currency swaps were permitted by the European Statistical Agency (Eurostat), the debt and deficit appeared to shrink.
OBAMA STEP CLOSER TO SEIZING RETIREMENT ACCOUNTS
Proposes in SOTU address T-bills for IRA, 401(k)
by Jerome R. Corsi | World Net Daily
January 28, 2014
NEW YORK – When you hear, “Hello, I’m from the federal government and I want to help you manage your retirement savings,” the best advice is to run away, as fast as you can.
In November 2012, WND reported the Obama administration was exploring a creative way to finance continuing trillion-dollar annual federal budget deficits through forcing private citizens holding IRA and 401(k) accounts to purchase Treasury bonds by mandating the placement of government-structured annuities in their retirement accounts.
Two years ago, WND reported the U.S. Department of Labor and the Treasury Department held joint hearings on whether government lifetime annuity options funded by U.S. Treasury debt should be required for private retirement accounts, including IRAs and 401(k) plans.
It looks like that day is getting closer.
Packaged as a new retirement-savers plan designed for workers whose employers do not offer IRAs or 401(k), President Obama announced in his State of the Union address Tuesday an initiative that allows first-time savers to start building up their savings in Treasury bonds that could eventually be converted into traditional IRAs or 401(k) plans.
While it is not as onerous as an Obama administration directive demanding a certain percentage of individual retirement savings must be invested in U.S. Treasury bonds, it is a first step in that direction.
With the Obama administration having run federal budget deficits in the range of $1 trillion every year in office since 2009, and with the Federal Reserve announcing a new policy to “taper” Quantitative Easing by buying $10 billion a month less in U.S. government debt every month this year until QE hits zero, somebody has to buy all the Treasury debt the Obama administration plans to issue.
In January 2013, the U.S. Consumer Financial Protection Bureau suggested it should play a role in helping Americans manage the $19.4 trillion they have put into retirement savings.
“That’s one of the things we’ve been exploring and are interested in terms of whether and what authority we have,” bureau director Richard Cordray told Bloomberg in an interview.
Under the direction of the Obama White House, the Treasury and Labor departments have increasingly pushed the investment theory that because government bonds carry a sovereign guarantee against default, any IRA or 401(k) funds placed in a Treasury R-Bond would constitute, in effect, a government annuity that would pay the retiree a lifetime income, regardless how stock and bond markets might independently perform.
The government’s argument is that IRA and 401(k) investors lost principal from their retirement savings accounts when the housing bubble burst and the Dow Jones Industrial Average fell from a closing high of 14,164.53 on Oct. 9, 2007, to a closing low of 6,547.05 on March 9, 2009.
Fidelity Investments estimated the average 401(k) fund balances on the approximately 11 million accounts Fidelity manages dropped 31 percent to $47,500 at the end of March 2009, from $69,200 at the end of 2007.
Yet, with the stock-market rally that began in March 2009, Fidelity noted 401(k) account balances increased 28 percent, from a low at the end of the first quarter 2009 of $47,500 to an average of $60,700 by the end of the third quarter 2009.
With the Dow going over 16,000 in the extended rally since 2009, most IRA and 401(k) investors have registered substantial gains, but that could change.
WND has reported that should the stock-market rally turn into yet another financial bubble that bursts, retirement savers with IRA and 401(k) money invested in the stock market could again take serious losses that may take years of patience to regain.
U.S. to follow path of Argentina?
Unfortunately, retirement savers in other nations with high debt that have demanded retirement savings be placed into government debt have fared badly, taking huge losses as debt crises deepened and bond markets began selling the debt at serious discounts.
Writing in the Telegraph of London in October 2008, business and economics editor Ambrose Evans-Pritchard warned that G7 nations, including the United States, may begin following the path of Argentina in forcing privately managed pension funds to be invested in government-issued debt.
In 2008, Argentine sovereign debt was trading at 29 cents on the dollar, reflecting the devalued state of the Argentine peso, with the result that private pensioners holding government debt in their retirement accounts could not be assured those bonds would have any meaningful value at maturity.
“Here is a warning to us all,” Evans-Pritchard wrote. “The Argentine state is taking control of the country’s privately managed pension funds in a dramatic move to raise cash.”
He warned the same could happen in the U.S. and Europe, writing the G7 states “are already acquiring an unhealthy taste for the arbitrary seizure of private property, I notice.”
“It is a foretaste of what might happen across the world as governments discover that tax revenue,” he said.
With the Treasury needing in fiscal year 2010 another $1.4-$1.5 trillion in debt to finance the anticipated federal budget deficit, the Obama administration is obviously scrambling to find new ways to sell government debt cheaply, without having to raise interest rates.
As WND reported last September, Poland confiscated one-half of all its citizens’ private pensions in a move to cut the nation’s debt crisis.
Reuters reported Sept. 4, 2013, Polish Prime Minister Donald Tusk announced a government decision to transfer to ZUS, the government pension system, all bond investments in privately owned pension funds within the state-guaranteed system.
For the time being, the Polish government continued to allow private citizens to keep equity investments that in the Polish state-guaranteed pension system tend to be approximately half of all private pension investments.
Polish Finance Minister Jacek Rostowski said the change will reduce Polish national debt about 8 percent of Polish Gross Domestic Product, or GDP. The move allows the Polish government to resume another round of aggressive debt creation by borrowing in international markets, as reported by ZeroHedge.com.
By confiscating, or otherwise “nationalizing” the bonds held in Polish citizen private retirement accounts, the Polish government, with public debt currently standing at approximately 52.7 percent of GDP, circumvents two threshold restrictions that deter the government from allowing debt to rise to over 50 percent of GDP. A second deterrence kicks in when Polish national debt hits 55 percent of GDP.
Reuters pointed out that by shifting bonds held in private retirement accounts into ZUS, the government can book the assets on the state balance sheet to offset public debt, giving the government more scope to borrow and spend.
As is the case with other nations in the European Union, Poland faced with slowing economic growth, a grim job situation, and declining tax revenues, has been forced to borrow to maintain the nation’s large social welfare system without imposing austerity measures.
The international reaction among private investment advisers was one of shock and dismay.
Poland’s move follows a similar move taken by the Mediterranean island of Cyprus earlier this year. The Cyprus government confiscated 10 percent of the amount in all bank accounts in a move calculated to raise 6 billion euros to meet a condition set by international bankers, including the International Monetary Fond, as a condition of finalizing a proposed Eurozone bailout.
YOUR SAVINGS, 401(k), AND RETIREMENT ARE IN DANGER
Written by William F. Jasper | The New American
February 4, 2014
“I went to sleep Friday as a rich man. I woke up a poor man. I lost all my money.” That was the tearful lament of 65-year-old John Demetriou, who lives in the fishing village of Leopetri on Cyprus’ southern coast. In one fell swoop, he lost his life savings — the result of 35 years of hard work and thrift — in the “capital levy” imposed on Cyprus by the International Monetary Fund, the European Commission, and the European Central Bank (ECB), a trio commonly known as the Troika.
In March of last year, the Troika announced that as part of its deal for resolving the Cypriot banking/financial crisis, Cyprus would have to impose a “one-off capital levy,” a one-time tax on savings deposits in Cypriot banks. This was sold to the public globally and in the EU as a necessary and just solution because Cyprus had become a haven for money laundering and Russian “oligarchs.” However, it was small depositors, not the big speculators, institutional bondholders, or Russian billionaires, who took the hit. According to reports from Cypriot, Italian, and German media, as much as 20 billion euros fled Cypriot banks in the early months of 2013, with 4.5 billion euros taking flight in just the week before the banks were closed and accounts frozen. Some of the “smart money” folks who were in the early capital flight, undoubtedly, were merely savvy savers who could see the writing on the wall and wisely moved their assets before the politicians could grab them. But credible reports charge that Cypriot president Nikos Anastasiades and Troika officials warned insider banking friends about the coming “haircut,” thus allowing those most responsible for the financial debacle to escape the levy, and leaving Demetriou, and tens of thousands like him, to foot the bill.
“It’s not Russian money, it’s not black money. It’s my money,” Demetriou told the Sydney Morning Herald. Demetriou fled to Australia from Cyprus with his wife and children in the early 1970s, during the country’s war with Turkey. Starting with nothing, he worked long hours six and seven days a week selling jewelry in the Sydney area markets. He retired to his native Cyprus in 2007, having amassed a respectable nest egg of nearly $1 million. He intended to build a home and have sufficient money to live comfortably and take care of his medical expenses. But those hopes and dreams have been largely wiped out; he may end up losing up to 90 percent of his savings.
Demetriou is but one of the many victims devastated by the Cypriot “haircut.” For many of them, especially elderly pensioners unable to go out and work to recoup the losses, a more accurate description would be “amputation,” or even “decapitation.”
However, regardless which anatomical metaphor is adopted, the key point is that the IMF-imposed “levy” should be named for what it truly was: a very brazen form of state confiscation, theft, robbery, plunder. And it represents a dangerous new phase in the politico-economic development of the “new world order.” It is not mere chance that the “capital levy” for common depositors was first tried on tiny Cyprus. With a population of barely a million and accounting for merely 0.2 percent of the eurozone GDP, Cyprus is an easy mark, and — from the standpoint of the Troika globalists — a good experimental case.
But to those who are paying attention, the signals are unmistakable that the lords of finance in the central banking fraternity do not view this as a “one-off” event; they plan to use this “tool” very broadly in the coming months. Indeed, the IMF and top central banking maestros have already said so, as we will show. And we are already seeing permutations of this (as in Poland) with the nationalization of private pension funds, and replays (as in Canada and New Zealand), with proposals for Cyprus-style depositor “bail-ins.” But the big prize being eyed, of course, is the United States. If you think that what has happened to Cyprus and Poland can’t happen here, you may end up, tragically, like John Demetriou, destitute and pauperized. Not only that, but you may find that, like the Cypriots, you have lost your freedom, your independence, and national sovereignty; that the policies affecting you most directly are being dictated by international bankers and bureaucrats beyond accountability through elections and national laws.
What the Cyprus/Poland experiences have very dramatically shown is that when the IMF and its allied politicians, economists, and central bankers start talking about “capital levies” it’s time to hide every penny you can. What they really mean is they intend to confiscate anything they can find: savings accounts, checking accounts, investments, pensions, home equity. But that is not all. In addition to a globally coordinated wave of “capital levy” taxation, the IMF/central banks axis of evil is also pushing an agenda of global inflation (under the labels of “stimulus” and “quantitative easing”) and global regulation (under the label of “macroprudential policy”). Global taxation, inflation, and regulation — all of which are aimed at confiscating global economic wealth — are a path to concentrating, and then confiscating, global political power.
Taking the Cyprus Tax Global
In October 2013, a study in the IMF’s Fiscal Monitor entitled “Taxing Times” sent shivers and shocks through the financial world. Among the most jarring proposals in the 107-page report is the suggestion of a “one-off capital levy.” Following so closely on the heels of the IMF’s Cyprus levy, the implications are ominous, to say the least. According to the IMF’s “Taxing Times”:
The sharp deterioration of the public finances in many countries has revived interest in a “capital levy” — a one-off tax on private wealth — as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair). There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and — until he changed his mind — Keynes.
Get that? It has to be sold as a one-time event that will never be repeated, an “exceptional measure” for “sustainability.” And it has to be sprung suddenly, so that savers can’t run to the bank and pull out their funds. That involves imposing “bank holidays” and other “capital controls,” which we will discuss further on.
So, how much are they planning to take? The IMF authors state:
The tax rates needed to bring down public debt to pre-crisis levels are sizable: reducing debt ratios to end-2007 levels would require … a tax rate of about 10 percent on households with positive net worth.
Romain Hatchuel, the managing partner of asset-manager Square Advisors, warns that the IMF proposal signals a huge danger. In a Wall Street Journal article of December 3, 2013, entitled “The Coming Global Wealth Tax,” Hatchuel noted that the IMF levy would be much higher for the United States than 10 percent, and could surpass 70 percent! Hatchuel explained:
As the IMF calculates, the … revenue-maximizing [tax] rate … is around 60 percent, way above existing levels.
For the U.S., it is [between] 56% and 71% — far more than the current 45% paid … by those in the top tax bracket….
From New York to London … powerful economic players are deciding that with an ever-deteriorating global fiscal outlook, conventional levels and methods of taxation will no longer suffice. That makes weapons of mass wealth destruction — such as the IMF’s one-off capital levy … — likelier by the day.
Weapons of mass wealth destruction indeed — and wealth transfer to those who are politically connected. And if you believe that this would be a one-time (or “one-off”) event, you probably still believe the promises that the Greek bailout would be a one-off event, or that under ObamaCare if you want to keep your current insurance plan or your current physician, you can keep them. Period.
The IMF study reignited the fears and fury that had erupted months earlier, in March, owing to remarks by eurozone chief Jeroen Dijsselbloem that the Cyprus levy on bank accounts could be a template for dealing with similar banking crises across Europe. In a March 25 interview with the Financial Times and Reuters, Dijsselbloem said the Cyprus gambit would be repeated elsewhere “if necessary.” Those remarks triggered immediate declines in European markets, prompting the eurozone finance ministers to come up with a reversal on March 26 asserting, “The Cypriot program is not a template, but measures are tailor-made to the very exceptional Cypriot situation.”
However, three months later, on June 26, the eurozone finance ministers reversed their reversal and confirmed that more capital levies (which they sometimes euphemistically refer to as “stability fees” and “stability levies”) would indeed be the model for dealing with troubled banks. “For the first time, we agreed on a significant bail-in to shield taxpayers,” Dijsselbloem announced, after a seven-hour, late-night huddle with the other finance ministers.
Bailout or Bail-in?
“Bail-in.” That’s another of the crafty neologisms the weasels of finance have coined to throw off the bumpkins who are rebelling against further taxpayer-funded bank bailouts. In a bail-in, supposedly, the bondholders (mostly institutions) and bank shareholders, followed by savings depositors, would foot the bill for risky bank portfolios (toxic mortgage-backed securities, for instance) that go sour. But as we’ve seen over and over again, the big insider institutions most responsible for the speculative bubbles get off the hook and leave others holding the bag.
The usual enablers in the establishment media choir have been assisting in the subterfuge, pitching the new EU policy on capital levies as a boon relief to taxpayers and a long-overdue squeeze on “wealthy” investors and savers. “The European Union agreed … to force investors and wealthy savers to share the costs of future bank failures, moving closer to drawing a line under years of taxpayer-funded bailouts that have prompted public outrage,” reported Reuters on June 27, 2013.
“The European Union spent the equivalent of a third of its economic output on saving its banks between 2008 and 2011,” noted the Reuters story, “using taxpayer cash but struggling to contain the crisis and — in the case of Ireland — almost bankrupting the country.”
“But,” Reuters continued, “a bailout of Cyprus in March that forced losses on depositors marked a harsher approach that can now, following [the June 27] agreement, be replicated elsewhere.” Can now … be replicated elsewhere — as the IMF study proposes.
The voters/taxpayers are supposed to be so relieved by the announcement that their torturers will stop turning the thumbnail screws that they miss the follow-up message: The torture team will start pulling toenails instead. But Team Hannibal Lector at the IMF/ECB/EU Troika would, no doubt, put it more delicately: They will be switching from a stability manicure to a stability pedicure!
How credible are the assurances that the new EU capital levies will be aimed at the big institutional gamers and not at the small depositors, the middle class savers? About as reliable as all of the previous broken promises that the politicians and central bankers have made regarding one bailout after another. After all, only one month before the Cyprus bail-in, Dijsselbloem cobbled together a 3.7 billion euro taxpayer bailout/nationalization of SNS Reaal, the fourth-largest bank in the Netherlands, that was stuffed with zombie real estate loans. In that deal, Dijsselbloem protected SNS Reaal’s senior bondholders, using the “too big to fail” argument in his explanation to the Dutch Parliament. The banking maestros realized that public anger over this and previous bailouts had reached the point that required a new fleecing strategy. Voila!: the “bail-in” was born and packaged as the taxpayers’ friend.
However, many economists, investors, financial advisors, economic analysts, pundits, and “plain Joes” recognize the confiscatory capital levy/bail-in for the government-sponsored theft that it truly is. Among the naysayers is famed investor/author and commodities tycoon Jim Rogers. Following the annual meeting of central bankers in Jackson Hole, Wyoming, in August 2013, Rogers expressed his belief that the confab presaged a massive taxation and inflation plundering campaign on the global level. “They’re going to take money wherever they can,” he warned. “They’re going to take our bank accounts and retirement accounts.”
The “they” he refers to are the central bankers and their insider commercial banker colleagues — and national governments, which serve as the collection agencies for the bankers. “This is the first time in recorded history all the banks are printing money at the same time…. This is the first time we’ve had massive debasement [of currencies], and it’s going to end very badly no matter what they say,” Rogers said in a remote video interview with Greg Hunter of USAWatchdog.com.
“Whether they keep printing or stop printing money globally, it is going to end badly,” Rogers continued. Rogers concluded by saying, “We’ve had perilous times, and it’s going to get worse…. It’s coming, be worried, be careful.”
As we mentioned above, expropriating depositors’ bank savings is but one of the “capital levy” options available to insatiable governments and central banks; state pensions and private pensions are also increasingly irresistible targets. Argentina’s President Cristina Kirchner kicked off the practice in 2008 with the nationalization of $30 billion in private pension holdings to pay off government debts. (To this she has added capital controls, such as limiting cash withdrawals using credit cards, which has led to massive foreign and domestic capital flight from Argentina, South America’s second largest economy).
In 2009, the Irish government raided the National Reserve Pension fund of 4 billion euros to rescue troubled banks. Then in 2010 it came back to clean out the 2.5 billion euros that were left to cover government spending. Hungary followed the same course in 2010. Nationalizing private pensions was the beginning of a series of nationalizations of private companies to pay government debts. Prime Minister Viktor Orban has pushed government takeovers of energy, auto parts manufacturing, waterworks, and more. In September 2013, Poland’s Prime Minister, Donald Tusk, announced his government’s confiscation of bonds held in private pension funds. It is using these resources to feed the government’s ravenous appetite. With help and encouragement from the IMF and central banks — and with virtually all governments on non-stop spending binges — this trend is all but certain to escalate.
In his January 28, 2014 State of the Union address, President Obama provided a warning of things to come, announcing that he (without any authorization from Congress) was directing the U.S. Treasury to launch a new retirement savings bond program, the MyRA. He didn’t say “If you like your current IRA or pension plan, you can keep it — period,” but does he need to? After the ObamaCare experience, anyone above room temperature should be able to recognize another mandatory, statist program coming their way.
But direct confiscation of assets isn’t the only — or even the chief — plan of the ruling elites to purloin your wealth; the more traditional means by which governments accomplish this is by increasing the money supply (inflation), which robs everyone by stealing some of the value of each dollar in each wallet, purse, mattress, savings account, checking account, pension fund, mutual fund, IRA, etc. Since the start of the 2008 financial crisis, the world’s central banks have been pumping out trillions of dollars, euros, pounds, yen, and other currencies in an unprecedented coordinated orgy of global “stimulus.” Nevertheless, say the money maestros, even more of the same is urgently needed to spare us from the imminent threat of deflation! The new year was barely out of the starting gate when Christine Lagarde, managing director of the International Monetary Fund, announced at a speech in Washington, D.C., that she has set her sights on slaying the “ogre of deflation,” a term she mentioned more than once. Speaking at the National Press Club on January 15, 2014, the IMF chief warned: “With inflation running below many central banks’ targets, we see rising risks of deflation, which could prove disastrous for the recovery.” “If inflation is the genie,” she said, “then deflation is the ogre that must be fought decisively.”
“This crisis still lingers,” said Lagarde, but continued: “Yet, optimism is in the air: the deep freeze is behind, and the horizon is brighter.”
But attaining that bright horizon will mean empowering Lagarde and her fellow banking maestros with vast new authority — and mountains of cash. “Getting beyond the crisis still requires a sustained and substantial policy effort, coordination, and the right policy mix,” declared the IMF’s panjandrum. Key ingredients of that mix, she has said again and again, are expanded government spending (i.e., “stimulus”) and expanded money supply (i.e., “quantitative easing”). Lagarde and her central banker cohorts refer to these policies as “unconventional monetary policies” or UMP.
Quantitative easing, or QE, has become a fairly familiar term to many Americans since the Federal Reserve System introduced it in 2008. It began with the purchase of hundreds of billions of dollars of toxic mortgage-backed securities from troubled institutions. By June of 2010, the Fed purchases had ballooned to more than $2.1 trillion and included mortgage-backed securities, bank debt, and U.S. Treasury securities. By November 2010, the Fed was ready to launch QE2, the second round of “quantitative easing,” resulting in purchases of more hundreds of billions of dollars of bad loans and Treasury bonds. In September 2012 the Fed launched one of its most audacious UMP programs, which became known as QE3, to begin an open-ended, indefinite monthly purchase of mortgage-backed securities and Treasury debt instruments. Critics dubbed it “QE-Infinity.” After only three months, the Fed bumped up its purchases from the already astronomical sum of $40 billion per month to $85 billion per month. In December 2013 the Fed announced that it would be “tapering” its monthly purchases to $75 billion per month beginning in January 2014.
From the start of QE1, millions of Americans recognized that it was a gigantic fraud through which the Fed was transferring the loss of trillions of dollars in bad loans and government debt from the “too big to fail” banks on Wall Street to the middle class/working class folks on Main Street. Millions more Americans began to catch on when a partial audit of the Fed by the General Accountability Office (GAO) in 2011 — thanks to legislation sponsored by congressman and presidential candidate Ron Paul — pried open the Fed’s secret records and revealed that trillions of dollars had been funneled into the world’s biggest and wealthiest banks and corporations: JPMorgan Chase, Citigroup, Morgan Stanley, Merrill Lynch, Bank of America, Barclays, Bear Stearns, Goldman Sachs, HSBC, Royal Bank of Scotland, and others.
The Fed is not the only central bank that is plundering the savers and taxpayers for the benefit of the banking and corporate elites; the European Central Bank (ECB), the Bank of England (BOE), and most other central banks have joined in the extortion game, insisting that the UMP bailouts and “stimulus” programs are necessary to avoid “systemic risk,” “contagion,” and “global meltdown.” But every dollar that the Fed creates out of thin air subtracts a dollar’s worth of value from the supply of dollars already in existence and transfers that value to the government, or to the central banks and their commercial banking colleagues. And we’re talking about tens of trillions of those dollars created in the past six years. Everyday Americans eventually experience the pain of the eroding value of the dollar in the form of price increases on everything from food, gasoline, clothing, appliances, and cars to housing and utility bills.
The “Parked Reserves” Avalanche
What has mystified many market observers is that despite unprecedented levels of money creation by the central banks since the beginning of the 2008 crisis, the inflationary effects of all that activity have not materialized as expected. Gold prices and other commodity prices are down, defying conventional wisdom. Why? The answer is UMP — unconventional monetary policy. More specifically, it is the Fed’s UMP decision to pay interest on “excess reserves.” As we have explained previously in these pages (“Now, More Than Ever, Time to Audit the Fed,” February 20, 2012), in 2008 the Fed began an unprecedented policy of paying commercial banks billions of dollars in interest to keep trillions of dollars “parked” in what are known as “excess reserves,” rather than lending those dollars out to individuals and businesses.
Doug French, president of the Mises Institute, explained the excess reserves situation in a December 2013 article for Casey Research entitled “A Fed Policy Change That Will Increase the Gold Price.”
“Commercial banks are required a keep a certain amount of money on deposit at the Fed based upon how much they hold in customer deposits,” French noted. “Banking being a leveraged business, bankers don’t normally keep any more money than they have to at the Fed so they can use the money to make loans or buy securities and earn interest. Anything extra they keep at the Fed is called excess reserves.”
Up until when Lehman Brothers failed in September of 2008, excess reserves were essentially zero. A month later, the central bank began paying banks 25 basis points on these reserves and five years later banks — mostly the huge mega-banks — have $2.5 trillion parked in excess reserves.
“I heard a bank stock analyst tell an investment crowd this past summer the banks don’t really benefit from the 25 basis points,” said French, “but we’re talking $6.25 billion a year in income the banks have been receiving courtesy of a change made during the panicked heart of bailout season 2008. This has been a pure government subsidy to the banking industry, and one the public has been blissfully ignorant of.”
“But now everything looks rosy in Bankland again,” French noted. “The banks collectively made $36 billion in the third quarter [of 2013] after earning over $42 billion the previous quarter — showing big profits by reserving a fraction of what they had previously for loan losses.”
Yes, while Main Street businesses have been unable to get loans, the Wall Street cronies with ties to the Fed have had no trouble with liquidity. And the banks have no incentive to make loans, as long as the Fed keeps paying them not to.
However, the Fed could stop paying interest and cause those excess reserves to be released. And the Fed could spring that on us at any time, with calamitous results for everyone — except, of course, for Fed insiders, who would know ahead of time and could reap huge profits from everyone else’s losses. Steve Hanke, professor of applied economics at Johns Hopkins University, explains that the Fed creates roughly 15 percent of the money supply (what he calls “state money”), while the banks create “bank money,” which is the remaining 85 percent of the money supply. This is the fraudulent “magic” of fractional-reserve banking under the Fed, which allows banks to issue several dollars in loans for every dollar actually held in reserve. When the pent-up “parked excess reserves” are let loose, they could expand to several times $2.5 trillion, unleashing an inflationary avalanche.
The European Central Bank, the Bank of England, and other central banks have been pursuing parallel actions. “The continental European and US experiences with excess reserves since the onset of the present crisis have been similar,” writes Walker F. Todd in The Problem of Excess Reserves, Then and Now, published by the Levy Economics Institute of Bard College in May 2013. According to the Todd study, “The ECB experience has been roughly comparable to the Fed’s experience: Much monetary creation and much expansion of the balance sheet and monetary base producing comparatively little credit expansion.”
And, like the Fed, the ECB could reverse its excess reserve policy at any moment, swamping markets with pent-up euros. Considering the size of the excess reserve overhang, the unprecedented nature of the central banks’ payment of interest on them, and the devastating potential of their release, it is incredible (and unconscionable) that the mainstream media financial reporters and pundits have almost completely ignored this elephant hiding under the doily. Ditto for the politicians (both liberal and conservative) who prattle on about the financial crisis, denouncing corruption and special interests, while prostrating themselves in obeisance before the banking lobby.
Over the past century, virtually every nation has established a central bank, and all have adopted the fraudulent practice of fractional-reserve banking. And like the U.S. Federal Reserve System, they tend to operate under a veil of secrecy, exempt from the audits that all other government agencies and private corporations are subjected to. Many of them, like the Federal Reserve, have an enormous conflict of interest built into them in that they are hybrid monstrosities, neither fish nor fowl. The Federal Reserve banks are privately owned but enjoy special government-conferred privileges and status.
The activities of the world’s central banks have become increasingly coordinated and knit together on the global level through the Bank for International Settlements (BIS) in Basel, Switzerland, the European Central Bank (ECB) in Frankfurt, Germany, and the IMF, which is based in Washington, D.C. The BIS, ECB, and IMF have been working hand-in-glove with the Fed and the major Wall Street banksters to craft “macroprudential policies” that now threaten everyone on the planet. In order to promote stability and protect ourselves against “systemic risk” say the “macro” advocates, we must grant central banks — the people and institutions most responsible for the global financial crisis — more powers to regulate every aspect of economic life.
The Committee on the Global Financial System (CGFS), headquartered at the BIS in Basel, has taken the lead on macroprudential policies. William C. Dudley is chairman of the CGFS; he is also president and chief executive officer of the Federal Reserve Bank of New York (and former chief economist for Goldman Sachs). In May 2010, the CGFS issued “CGFS Papers No 38: Macroprudential instruments and frameworks.” The IMF, the Fed, the Bank of England, the ECB, and other central banks and their pet economists in academe have been jumping on board the macroprudential wagon. This is an expanded replay of the deception that resulted in the creation of the Federal Reserve System 100 years ago. As today, people were furious at the Wall Street banks, following the financial Panic of 1910-11. The Federal Reserve Act, which was packaged and marketed as a means to put a leash on the Wall Street “Money Trust,” was actually secretly written by and supported by the leading players of the Money Trust. In reality, the act put a choke collar on the American economy and handed the leash to the Wall Street banks that own and control the Fed. It was one of the biggest reverse plays in history. Now the successors of the same Money Trust are trying to invest the IMF with the same powers on a global scale, as amply detailed, for instance, in G. Edward Griffin’s The Creature From Jekyll Island (1994). They know if they can centralize and concentrate global financial power, global political power will follow, as night follows day.
In 2010, the U.S. House of Representatives overwhelmingly passed Rep. Ron Paul’s “Audit the Fed” bill. The Wall Street manipulators and their bankster cronies at the Fed, the U.S. Treasury, and the world’s central banks were in a panic. They pulled out all stops and sabotaged the bill in the Senate, watering it down to a one-time, partial audit. Nevertheless, that “audit” revealed such breathtakingly gigantic plundering of the economy and such rampant corruption and criminality that it could not be quickly swept under the rug. For the first time since the creation of the Fed a century earlier, Congressman Paul and liberty-minded forces were able to focus public attention on the globalist financial mafia that is stealing our wealth, our national sovereignty, and our liberty. The stakes are even higher now, and the American public may be more ripe than ever before to force a full audit of the Fed — as a first step to, ultimately, abolishing it, as well as terminating our membership in and contributions to the IMF.
That means relentlessly pressing your U.S. senators and congressman to support, cosponsor, and vote for the Federal Reserve Transparency Act of 2013 (S. 209 in the Senate and H.R. 24 in the House).
YES, FEDS CAN TAKE YOUR DEPOSITS
Global trend sparked by Cyprus’ confiscation of accounts balances
by Jerome R. Corsi | World Net Daily
NEW YORK – Can the federal government confiscate all the deposits in an American citizen’s FDIC-insured bank account?
The answer is “Yes.”
As WND reported, the Dodd-Frank bill allows the federal government to confiscate bank deposits in an unlimited “bail-in” for banks “too big to fail,” provided the account holder gets equity in exchange for the deposits.
In March, Cyprus agreed to confiscate 10 percent of all deposits in Cypriot banks, calculated to result in a 10 billion euro “bail-in” as a condition of obtaining an emergency Eurozone bail-out of 10 billion euros.
The question increasingly getting asked in international banking circles is this: Was the “Cyprus Experiment” in which the government confiscated bank deposits a first step toward what may well become a global trend over the next few years?
EU proposes deposit grab
Anyone who thinks the scenario is merely academic must realize that the European Parliament already is in the process of passing new regulations adopting the recommendation of its Economic and Monetary Affairs Committee. The panel recommends that a deposit guarantee funds should not protect a deposit of funds in a “guaranteed account” can be siezed when financial difficulties call for rescuing a troubled financial institution.
The text of the EU’s Economic and Monetary Affairs Committee recommendation calls for ruling out using deposits below 100,000 euros and specifies that confiscating deposits above 100,000 euros should be a last resort.
A European Parliament press release dated May 21 specified the “bail-in” scheme proposed by the EU’s Economic and Monetary Affairs Committee should be up and running by January 2016.
With the EU moving to codify procedures for confiscating depositor funds in a bank “bail-in,” the confiscation of deposits last March in the Mediterranean island nation of Cyprus may have only been a dry run for future bank crises anticipated by EU financial experts.
Are private retirement assets safe?
WND reported Sept. 9 that Polish Prime Minister Donald Tusk announced a government decision in September to transfer to ZUS, the government pension system, all bond investments in privately held pension funds within the state-guaranteed system.
With the U.S. and the EU struggling with a debt crisis caused by slow economic growth and massive growth in social welfare programs, WND has previously reported that all private assets, including IRA and 401(k) retirement assets, may not be immune from one form or another of government takeover, even if new federal regulations that require a percentage of all private retirement assets in the U.S. be invested in federal government IOUs, including U.S. Treasury debt.
WND has reported government officials continue to eye the multi-trillion dollar private retirement savings market, including IRAs and 401(k) plans, seeing the opportunity to redistribute private retirement savings to less affluent Americans and to force the retirement savings out of the private market and into government-controlled programs investing in government-issued debt.
The ‘bail-in’ strategy
The possibility bank deposits could get confiscated by the federal government caused a firestorm of controversy following a WND story indicating Greece is considering confiscating corporate deposits to pay social security contribution shortfalls in the country.
“How is this possible?” many posting on Twitter and Facebook asked after the WND article was published.
The answer is provided in a little-noticed Dec. 10, 2012, memorandum published by the FDIC in the United States and the Bank of England in the United Kingdom titled “Resolving Globally Active, Systemically Important Financial Institutions.”
This paper redefines “too big to fail” companies as “Globally Active, Systemically Important, Financial Institutions,” or G-SIFIs, in the terminology of international banking.
The goal of the paper is to find a way to save big banks that are facing a financial crisis without having to utilize taxpayer funds to “bail out” the bank with what amounts to either a federal government loan or a federal government equity injection resulting in the government owning some percentage of the bailed-out bank.
The “bail-in” strategy under which some or all private bank deposits are confiscated to resolve a financial crisis was made possible because of powers granted the federal government in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
In banking terms, the strategy creates a single receivership at a top-tier holding company and assigns losses to shareholders and unsecured creditors of the holding company. The aim is to transfer the sound operating bank subsidiaries that emerge from the restructuring to a new solvent entity or entities.
Put simply, bank deposits are considered under Dodd-Frank to be “owned” not by the despositor but by the bank, such that the bank has a contingent liability to owner regarding the deposits.
But that contingent liability can either be honored by the bank giving the account holder back his deposits when requested or giving bank stock should the bank need to confiscate the deposits to make up for a deficiency in the legal reserves required to operate or in any other financial crisis the bank faces.
The stock the account holder receives might not be in the bank where the money was deposited. It could be in the new bank entity or subsidiary that emerges after the “bail-in” has been accomplished.
Under Dodd-Frank, depositors are an unsecured creditor to the bank. The federal government under “Orderly Liquidation Authority” outlined in the legislation can seize any financial firm, not simply the largest ones, if the Federal Reserve, the secretary of the Treasury and the FDIC determine a particular bank failure may cause instability in the U.S. financial system.
A creative alternative to giving account holders bank equity after confiscating their deposits to “bail-in” a troubled financial institution may be to offer a special-issue U.S. Treasury instrument that may only be sold over a five-year period.
NOW BANK DECIDES IF YOU CAN HAVE YOUR MONEY
Uproar as account confiscations loom over decision
by Jerome R. Corsi | World Net Daily
January 27, 2014
NEW YORK – Think your bank deposits are safe, just because the FDIC now insures accounts up to $250,000?
Better think again.
Until customer complaints forced a reversal of policy, the British multinational bank HSBC unilaterally imposed a restriction blocking customers from withdrawing large amounts of money from their own accounts, unless they could provide the bank with a “good reason” for it.
After the uproar in London when the BBC reported the new policy, HSBC issued a statement claiming the concern was money laundering. The bank notified customers that it would “not necessarily” deny depositors the ability to withdraw large amounts of cash from their accounts.
The HSBC explained in its statement that it has “an obligation to protect our customers, and to minimize the opportunity for financial crime.”
“However, following feedback, we are immediately updating guidance to our customer-facing staff to reiterate that it is not mandatory for customers to provide documentary evidence for large cash withdrawals, and on its own, failure to show evidence is not a reason to refuse a withdrawal,” HSBC said. “We are writing to apologize to any customer who has been given incorrect information and inconvenienced.”
The bank’s motivation may have stemmed from reports leaking out of Washington that U.S. regulators continue to find HSBC has failed to implement required measures to prevent money laundering amid fears that its weakened financial position might cause a run on the bank. The Comptroller of the Currency made the demand after HSBC was forced in December 2012 to pay a record fine of $1.9 billion in lieu of criminal charges. WND broke the blockbuster story that HSBC was widely engaged in laundering billions of dollars in conjunction with known criminal cartel drug lords and suspected terrorists.
The shocking series of WND stories beginning in February 2012 drew the attention of the Department of Homeland Security in New York and the Senate Permanent Subcommittee. WND reported on the 1,000 pages of bank records a former account relationship manager with the HSBC southern New York region brought exclusively to WND. The evidence showed the global banking giant was money-laundering billions of dollars using the Social Security numbers of current and former bank customers to create bogus proxy bank accounts to deposit and transfer internationally the illegal funds, unbeknownst to the account holders.
Federal Reserve investigations in 2012 found HSBC’s drug-related and terrorist-connected money-laundering violations included managing $19.4 billion in transactions for the Iranian government while Iran was under U.N.-imposed economic sanctions. The bank also was accused of making $7 billion in banknote transfers, most of which were drug-cartel related, from an HSBC branch in Mexico to an HSBC branch in the United States.
Remarkably, in a statement published by the Guardian of London in December 2012, Assistant Attorney General Lanny Breuer admitted the Obama administration Justice Department had concluded HSBC was too big to prosecute.
At a New York press conference, Breuer said that despite HSBC’s “blatant failure” to implement anti-money laundering controls and its willful disregard of U.S. sanctions, the $1.9 billion civil fine was preferable to the “dire consequences” of taking the bank to court.
The Guardian noted that had Justice Department prosecutors decided to press charges, HSBC would almost certainly have lost its banking license, “and the future of the institution would have been under threat and the entire banking system would have been destabilized.”
HSBC said it was “profoundly sorry” for what it called “past mistakes” that allowed terrorists, drug cartels and rogue nations like Iran to move billions around the international financial system while circumventing U.S. banking laws.
The Guardian noted HSBC processed for Mexico’s Sinaloa cartel, regarded then as the most powerful and deadly drug gang in the world, some $881 billion in drug trafficking money laundered through its accounts in the United States and worldwide.
In July 2012, WND published an analysis of Federal Election Commission records proving HSBC since 1997, the first year FEC electronic records were available, had generously donated millions of dollars to both Democrat and Republican members of the House of Representatives and the Senate who held committee assignments in which they oversaw banking and financial services regulation.
HSBC’s troubles as a rogue bank did not end there.
Last August, Reuters reported the London-based HSBC had earnings seriously depressed after announcing it had to reserve $1.6 billion for an anticipated settlement with the Federal Housing Finance Authority in Washington. The U.S. demanded reparations for HSBC for violating banking laws, this time by misrepresenting the quality of the collateral mortgage-backed securities bonds the bank aggressively but fraudulently marketed between 2005 and 2008.
Then, in October, Reuters reported HSBC had been ordered to pay some $2.46 billion to settle a class action lawsuit that charged Household International Inc., now HSBC Finance Corp., with fraudulently misleading investors about its predatory lending practices, the quality of its loans and the accuracy of its financial accounting from March 23, 2001, through Oct. 11, 2002.
When HSBC acquired Household International in 2003, the acquisition made HSBC the largest subprime lender in the U.S. at the time. HSBC played a major role in the housing industry bubble that finally burst with disastrous economic consequences in 2008 at the end of George W. Bush’s second term as president.
On Jan. 14, the Wall Street Journal’s Market Watch reported shares of HSBC Holdings fell 1.42 percent following a report HSBC may have overstated bank assets by as much as $92 billion.
Market Watch further reported analysts calculated HSBC may need to raise between $58 billion to $111 billion to continue operations. The analysts warned HSBC could be forced to cut or suspend dividends to meet the capital-raising goals.
In October 2013, WND reported a decision by banks in Cyprus not to allow customers to withdraw deposits preceded a government-imposed “bail-in” in which the Cypriot banking system agreed to confiscate up to 10 percent of customer deposits. The move was designed to recapitalize the nation’s ailing banking system, as required by the IMF as a precondition to obtaining an emergency Eurozone loan of 10 billion euros.
MONEY IS NOT SAFE IN THE BIG BANKS
BITCOIN: REVOLUTIONARY GAME-CHANGER OR TROJAN HORSE?
February 5, 2014
Reddit, Virgin Galactic, and Overstock.com now accept Bitcoin.
Two big Las Vegas hotels accept Bitcoin.
Already, 21,000 merchants are using Coinbase to accept Bitcoin from customers.
Indeed, there are websites listing scores of businesses which now accept bitcoin.
(And you can use Bitcoin at Amazon, Barnes and Noble, Crate & Barrel, Target, Sears, CVS, Hyatt Hotels, Kohl’s, Burger King, Applebees, Victoria’s Secret, Land’s End, Facebook, Groupon, Banana Republic, the Gap, AMC and Fandango movie theaters, Whole Foods, Wine.com, Wine Enthusiast, Papa John’s, Nike, Adidas, Sephora, Sports Authority, Staples, Zales jewelry, Game Stop, FTD flowers, Zappos and hundreds of other stores if you use Bitcoin to buy gift cards at Gyft.)
But is Bitcoin going mainstream a good thing or a bad thing?
People Power … Challenging the Status Quo?
Andy Haldane – Executive Director for Financial Stability at the Bank of England – believes that peer-to-peer internet technology will lead to the break up of the big banks.
Bank of America said “We believe Bitcoin could become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers”
Visa has attacked Bitcoin as being less trustworthy than its well-established payment system.
So it sounds like Bitcoin is shaking up the status quo …
Backed by … the Big Banks?
On the other hand, a lot of major mainstream players are backing Bitcoin and other digital payment systems.
Wells Fargo wants to get into Bitcoin in a big way.
While crypto-currencies remain insulated from central bank manipulation, governments have thus far been tolerant, perhaps because their capability to track transactions is more advanced than Bitcoin believers admit.
Indeed, Bitcoin is not really that anonymous, as the NSA can track Bitcoin trades.
The NSA can apparently also hack Bitcoin. And see this. Given that the NSA may be changing the amount in people’s accounts, it would be child’s play for them to change the amount in your Bitcoin wallet.
And Yves Smith argues that Bitcoin actually plays into the hands of the central bankers:
Many [Bitcoin enthusiasts] clearly relish the idea of launching a currency outside the control of central banks (plus this beats Cryptonomicon in geekery).
If you believe the hype, you’ve been had. As Izabella Kaminska of the Financial Times tells us, you all are really just doing free/underpaid R&D for central banks, since you are debugging and building legitimacy for one of their fond projects, making currencies digital and getting rid of cash altogether.
I had wondered about the complacency of Fed and SEC officials in Senate Banking Committee hearings on Bitcoin last year.
As Kaminska explains (boldface mine):
Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began…
Bitcoin has helped to de-stigmatise the concept of a cashless society by generating the perception that digital cash can be as private and anonymous as good old fashioned banknotes. It’s also provided a useful test-run of a digital system that can now be adopted universally by almost any pre-existing value system.
This is important because, in the current economic climate, the introduction of a cashless society empowers central banks greatly. A cashless society, after all, not only makes things like negative interest rates possible [background here, here, here and here], ittransfers absolute control of the money supply to the central bank, mostly by turning it into a universal banker that competes directly with private banks for public deposits. All digital deposits become base money.
Consequently, anyone who believes Bitcoin is a threat to fiat currency misunderstands the economic context. Above all, they fail to understand that had central banks had the means to deploy e-money earlier on, the crisis could have been much more successfully dealt with.
Among the key factors that prevented them from doing so were very probable public hostility to any attempt to ban outright cash, the difficulty of implementing and explaining such a transition to the public, the inability to test-run the system before it was deployed.
Last and not least, they would have been concerned about displacing conventional banks from their traditional deposit-taking role, and in so doing inadvertently worsening the liquidity crisis and financial panic before improving it…
Almost of all of these prohibitive factors have, however, by now been overcome:
1) Digital currency now follows in the footsteps of a “disruptive” anti-establishment digital movement perceived to be highly accommodating to the black market and all those who would ordinarily have feared an outright cash ban. This makes it exponentially easier to roll out. Bitcoin has done the bulk of the educating.
2) What was once viewed as a potentially oppressive government conspiracy to rid the public of its privacy can be communicated as being progressive and innovative as a result.
3) Banks have been given more than five years to prove their economic worth and have failed to do so. If they haven’t done so by now, they probably never will, meaning there’s unlikely to be a huge economic penalty associated with undermining them on the deposit front or in transforming them slowly into fully-funded fund managers.
4) The open-ledger system which solves the digital double-spending problem has been robustly tested. Flaws, weaknesses and bugs have been understood, accounted for, and resolved.
The balance of the article describes how the central bank digital currency would be launched, and Kazmina finds a plan developed by Miles Kimball of the University of Michigan to be thorough and viable.
Oh, and why would Bitcoin, um, central bank digital currency make it viable to implement negative interest rates? Kaminska tells us:
…the greater the negative interest rate, the greater the incentive to hold alternative coins. The greater the incentive to hold alternative coins ,the greater the incentive to produce them. The greater the incentive to produce them, the greater the chances of oversupply and collapse. The more sizeable the collapse, the more desirable the managed official e-money system ultimately becomes in comparison.
Either way, the key point with official e-money is that the hoarding incentives which would be generated by a negative interest rate policy can in this way be directed to private asset markets (which are not state guaranteed, and thus not safe for investors) rather than to state-guaranteed banknotes, which are guaranteed and preferable to anything negative yielding or risky (in a way that undermines the stimulative effects of negative interest rate policy).
So all these tales … of how liberating and democratic Bitcoin will be are almost certain to prove to be precisely the reverse. Hang onto your real world wallet.
Bottom Line: Too Early To Tell
It’s not yet clear whether Bitcoin will be a force for good or a backdoor way for big banks – and centralbanks – to get people to accept a cashless society.
TEXAS GUN SHOP ACCEPTS BITCOINS FOR ONLINE GUN SALES
February 6, 2014
Jakari Jackson speaks with Michael Cargill of CentralTexasGunWorks.com.
BAY AREA REALTORS NOW USING DRONES TO MARKET HIGH-END PROPERTIES
ALAMO (CBS SF) – The idea of using drone technology to showcase high-end real estate is taking off with some Bay Area realtors.
On Monday, a house in the East Bay town of Alamo was being prepped to go on the market for nearly $1.5 million. To really showcase the home and its view of Mt Diablo, the realtors brought in a drone.
“You get the scale, you get the feeling of the actual home. You can see, ‘hey, this thing’s on an acre. This is what it looks like,’” said Randy Churchill of Dudum Real Estate.
“Between social media, Twitter, you name it…they will see the video before they even contact their own realtor,” said Churchill.
“It’s something that’s going to continue to grow,” said the unidentified operator. “There’s more and more companies that are using it…it’s limitless because it really bridges the gap between something on the ground and a full-size helicopter.”
“This will be something that we do now on every home that we’re marketing in this price-point,” said Churchill.
-IMF, TD both conclude Canada’s housing market overvalued by 10%. Canadian home prices are overvalued by 10% according to two new reports issued by Toronto-Dominion Bank and the International Monetary Fund on Monday. The IMF’s report said that when compared to other advanced economies and income and rents in Canada, home prices remain high, even as home sales have stalled. It does note that not all Canadian markets are overvalued, however, and that outsized prices tend to dominate in the country’s largest cities, such as Toronto. Read more here-http://bit.ly/1cZFmaY
-Toronto Home-Sales Decline Highlights Canadian Slowdown. The Toronto real estate market is showing signs of cooling to start the year as January sales dropped 2.2 percent to the lowest for that month since 2009. Home sales in the nation’s largest housing market fell to 4,135 units from 4,229 units a year earlier, the Toronto Real Estate Board said today in a statement, citing a 17 percent drop in new listings. Average sales prices in the city rose 9.2 percent to C$526,528 ($475,000), the board said. Read more here-http://bloom.bg/1b635HP
-China Savers’ Penchant for Property Magnifies Bust Danger. Chinese households’ concentration of wealth in real estate is magnifying the danger to the world’s second-largest economy of any property bust, as the nation grapples with the consequences of its record credit surge. Some 66.1 percent of family assets were in housing in 2013, a national survey of about 28,000 households shows. Mortgage debt as a share of disposable income rose to 30 percent from 18 percent in 2008, according to estimates by Nicholas Lardy at the Peterson Institute for International Economics in Washington. Read more here-http://bloom.bg/1jiRrvB
-London Housing Market Shows Rising Bubble Risk as Asians Buy. London’s housing market is beginning to show “bubble-like conditions” as overseas investors bid up prices and buyers take on more debt to purchase properties, according to a report today by the EY Item Club. Read more here-http://bloom.bg/1buk2pS