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Author Topic: Money, the Fed, Banking, Monetary Policy, Dollar & other currencies, Gold/Silver  (Read 142682 times)
objectivist1
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« Reply #850 on: August 17, 2015, 07:24:59 PM »

Doug,

Thanks for the blast from the past - just put on my recording of "Nights in White Satin" by The Moody Blues - amazing...
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"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.
Crafty_Dog
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« Reply #851 on: August 19, 2015, 02:44:05 PM »

http://scottgrannis.blogspot.com/2015/08/tips-see-more-growth-less-inflation.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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G M
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« Reply #852 on: August 21, 2015, 07:52:47 PM »

http://finance.yahoo.com/news/stock-market-endures-worst-day-202043583.html?soc_src=mail&soc_trk=ma

Naptime.
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DougMacG
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« Reply #853 on: August 21, 2015, 10:35:03 PM »


Do you know if anyone saw this coming?    wink
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G M
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« Reply #854 on: August 21, 2015, 10:40:45 PM »


 grin  cry
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Crafty_Dog
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« Reply #855 on: September 01, 2015, 10:36:42 AM »

http://pamelageller.com/2015/08/the-islamic-state-returns-to-the-gold-standard-to-break-us-federal-reserve.html/
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G M
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« Reply #856 on: September 01, 2015, 07:14:06 PM »


Not the last.
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objectivist1
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« Reply #857 on: September 04, 2015, 12:45:55 PM »

http://www.alt-market.com/articles/2684-russia-is-going-to-pass-a-law-formally-dumping-the-us-dollar

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"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.
Crafty_Dog
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« Reply #858 on: September 16, 2015, 11:33:39 AM »

The Consumer Price Index Declined 0.1% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/16/2015

The Consumer Price Index (CPI) declined 0.1% in August, matching consensus expectations. The CPI is up 0.2% from a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) fell 0.2% in August, and is down 0.6% in the past year.

Energy prices declined 2.0% in August, while food prices increased 0.2%. The “core” CPI, which excludes food and energy, increased 0.1% in August, matching consensus expectations. Core prices are up 1.8% versus a year ago.

Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.5% in August, and are up 2.0% in the past year. Real weekly earnings are up 2.3% in the past year.


Implications: The final inflation report heading into today’s Fed meeting went off with a wimper, not a bang. Headline prices declined 0.1%, but all of the decline (and then some) was due to energy prices, which declined 2% in August and are down 15.0% in the past year. Excluding energy, consumer prices rose 0.1% in August and are up 1.8% in the past year. And while overall inflation is up a mere 0.2% in the past year, prices have risen 2.3% at an annual rate over the past six months. Core prices, which remove the volatile food and energy components, continue to hover around 2% inflation from a year ago, very close to the Fed’s inflation target. So regardless of the outcome of tomorrow's decision, inflation should eventually put pressure on the Fed to raise rates faster than the market expects. Core consumer prices in August were led higher by housing. Owners’ equivalent rent, which makes up about ¼ of the CPI, rose 0.2% in August, is up 3% in the past year, up at a 3.5% annual rate in the past three months, and will be a key source of higher inflation in the year ahead. While some scaremongers warn about deflation, others stoke fears of hyperinflation. But the truth is that neither is a threat at present. What we have is low inflation that is likely to gradually work it’s way upward over the next few years. On the earnings front, “real” (inflation-adjusted) average hourly earnings rose 0.5% in August, and are up a modest 2.0% in the past year. In other words, increases in consumer spending have been driven by higher earnings, not consumers loading up on debt. Taken as a whole, recent trends in both consumer and producer prices, paired with solid employment growth and a 5.1% unemployment rate, suggest the Fed has solid grounds to announce the start to rate hikes in tomorrow’s statement.
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DougMacG
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« Reply #859 on: September 16, 2015, 02:00:06 PM »

Wesbury is speculating on Fed hikes, but in effect he is saying that in spite of trillion of dollars of accumulated QE rounds, we still see no price increases.  How can that be?

I wonder if Wesbury buys into Milton Friedman's monetary equation, MV = PQ.

Price and Quantity/output is flat, Money is up, then velocity - the speed in which money is spent - is still down.

If Economic Velocity is stuck in neutral, it means this economy is a Fallen Horse, not a Plow Horse.

Everyone but Wesbury and Obama seems to know this.
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Crafty_Dog
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« Reply #860 on: September 16, 2015, 06:38:24 PM »

How can that be?  Because it was bank reserves that were increased, not m-1 or m-2 etc much beyond the usual.
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DougMacG
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« Reply #861 on: September 20, 2015, 11:42:07 AM »

How can that be?  Because it was bank reserves that were increased, not m-1 or m-2 etc much beyond the usual.

I owe Crafty a reply on this. 

Yes, this is the Wesbury and Grannis position.  After trillions of dollars of quantitative expansion of the monetary supply and a decade and a half of near zero interest rates, the monetary supply measured by M1 and M2, which by definition do not include bank reserves, did not go up.

Poverty measures don't measure poverty and our unemployment measures don't measure unemployment.  PP has pointed out how our housing measures don't measure housing.  It is not surprising that M1 and M2 don't measure the money supply. 

M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.
MB: is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply.
M1: Bank reserves are not included in M1.
M2: Represents M1 and "close substitutes" for M1  M2 is a broader classification of money than M1. M2 is a key economic indicator used to forecast inflation.[14]
M3: M2 plus large and long-term deposits. Since 2006, M3 is no longer published by the US central bank.  However, there are still estimates produced by various private institutions.
MZM: Money with zero maturity. It measures the supply of financial assets redeemable at par on demand. Velocity of MZM is historically a relatively accurate predictor of inflation.
(https://en.wikipedia.org/wiki/Velocity_of_money)

If we concede the Grannis point, we should still consider the basics of fractional reserve banking in the context of escalating bank reserves.  Gasoline in the tank or even the carburetor doesn't affect  combustion when the engine is turned off.  Even though that money is sitting still, uncounted, isn't it already toothpaste out of the tube that will not easily go back in?  (My own Wesbury cliches and mixed metaphors.)

If my take on the current state of MV = PQ is wrong, then the right answer is that all 4 variables are flat and stuck.  Only if you like the status quo is that good news. 

Think of physics to understand economics.  When a huge, massive, giant object like the US economy is stuck in place with zero acceleration and near zero velocity, that isn't going to change sped or direction by taking a wait and see, leave-the-policies-the-same approach.  Like stagflation followed by Reaganomics, it will require a very large force.  But if and when we do turn a giant ship around, and demand, velocity and dynamism are all restored, the already escalated bank reserves will enter the monetary supply through fractional reserve system by way of a large multiplier effect.  That is when the effects of the policies of the last 15 years will show up in the monetary measures.  Not now.

No one knows how that will turn out.  What we do know is that these measures they point to now don't measure it.
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Crafty_Dog
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« Reply #862 on: September 21, 2015, 01:55:16 PM »

The Uber-Dove vs Black Swans To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/21/2015

You couldn’t have missed it. Only stages full of GOP presidential candidates or the Super Bowl have ever had more media attention. Yes, we are talking about the Federal Reserve’s thundering announcement on Thursday – of nothing. The Fed decided to keep interest rates at zero, for at least the next few months, after holding them near zero for over six years.

In one sense, this is a non-event. We have been in this same spot for quite some time. In spite of three rounds (and $3.6 trillion) of Quantitative Easing and very low interest rates, the US economy remains in a Plow Horse, low-inflation recovery. Japan has been doing QE for decades and its economy isn’t growing, while the European economy is weak and its stock markets are down since QE II started back in March.

In other words, all the gnashing of teeth about the Fed seems like a huge waste of time. This is especially true when we consider the fact that raising interest rates wouldn’t be actually changing monetary policy at all.

Over time, investors have been confused (as happens during a street-side shell game) about what monetary policy really is and how it works. Many people have come to believe the transmission mechanism of Fed policy is interest rates, but this isn’t true and never has been.

Monetary policy works as the Fed adds or subtracts reserves from the banking system, and by adding or subtracting reserves they are able to increase or decrease “aggregate demand” or what we can think of as “total spending.”

When a counterfeiter puts more money into a neighborhood, the economy gets a temporary pop. When the FBI takes the money away, it slumps. The reason QE never worked as advertised is that when the Fed “printed money” in exchange for bonds, the banks that sold the Fed the bonds held the money in “excess reserves.” The neighborhood never spent the counterfeiter’s money. The Fed’s balance sheet has grown 26% annualized over the past seven years, but the M2 measure of money (total deposits in all banks) has grown only 6.6% per year.

All those excess reserves are still out there, un-multiplied. That’s why all the crazy forecasts of hyper-inflation, $5,000 gold and a collapsing dollar never came true.

And here’s the rub. The Fed does not intend to reduce those reserves anytime soon, and would not have reduced them by one dime last week even if they had raised interest rates.

Throughout history, when the Fed wanted the federal funds rate to rise, it withdrew reserves from the banking system by selling bonds to banks. Yes, interest rates would rise because liquidity was withdrawn, but the impact on the economy was from the slowdown in money growth, not the rise in rates.

If the Fed would have raised rates last week, reserves would have stayed exactly the same. All the Fed would have done is announce that it was paying more to banks on excess reserves, as an enticement not to lend them. Every dollar of excess reserves would have remained in the system. A rate hike would not rip away the punch bowl, in fact the punch bowl would still be overflowing with excess reserves waiting for someone to slurp them up.

In the past, when the Fed has raised rates, banks did not hold any significant amount of excess reserves. So higher short-term rates meant it was tougher for banks to acquire the funds they wanted to lend. Now, many banks are filled to the brim with excess reserves and are barely trading federal funds among each other.

Sometimes they say, “follow the money,” but we suggest “follow the profits” to understand Fed actions that confuse you. So let’s do it. Right now the Fed owns $4.2 trillion in bonds which pay whatever they pay, while it gives banks ¼% on reserves. The “spread” generated a profit last year of roughly $100 billion, which the Fed then turned over to the Treasury. If the Fed would have increased what it paid banks on reserves to ½%, this would have reduced the Treasury cash inflow by about $7 billion over the next year and this money would have gone to banks. In other words, the Fed and Treasury have an incentive to keep rates very low so that their profits stay high.

The biggest problem the US has now with its economic management team (including the Fed) is that it has spread the narrative that only QE and other government programs saved the economy during the crisis. We do not believe this one iota. In fact, we believe government rules forced Fannie Mae and Freddie Mac to buy sub-prime mortgage bonds. That created the crisis. Yet, it serves government interests to blame it on banks and the private sector.

This has helped create a cottage industry of Black-Swan birdwatchers. Instead of looking for an answer, they just claim 2008 was like a severe earthquake that was
undetectable. The pessimists create fear as they find a new Black Swan every week, which, for investors who believe this stuff, is terrifying. But they have also enhanced the narrative to include the idea that if the Fed raises rates, the only support for growth will be ripped away.

This is also a misconception. Does anyone with common sense really believe that QE and zero percent rates invented the Apple Watch, or increased the efficiency of fracking, or created Uber, vertical farming, 3-D printing, the cure for Hep-C, or any of the other massively wonderful new technologies and inventions we have seen put in place in the past six years?

The Fed does not cause real, long-term wealth creation. It never has and it never will. It either accommodates growth by printing the right amount of money, therefore avoiding deflation, or it prints too much money, which won’t stop growth but will cause inflation. It can cause harm by allowing the money supply to collapse, but once mark-to-market accounting was fixed in March 2009, that possibility evaporated.

There is an argument running around that says if the Fed wouldn’t, or couldn’t, raise interest rates, then there must really be something wrong with the economy. This argument is sophomoric. It gives the Fed some kind of supreme, omnipotent power of knowledge that no one else has. But, other than private bank information and probably some foreign government secrets, the Fed has access to the same data that we do and none of it suggests the US economy needs zero percent interest rates. Initial claims have been below 300,000 for 29 straight weeks. And anyone who claims 173,000 new jobs is a clear sign of economic problems, especially in August (which is so often revised higher), is spinning the data.

Yes, China’s growth has slowed to 7%, from 10.6%. So what? Japan collapsed in 1990 when it was the #2 economy in the world, and the next ten years were fabulous for US investors.

All in all, what is really going on is that so many people think there are Black Swans flying around everywhere, and that the only way to protect the US economy from them is with an Uber-Dove. It looks like Janet Yellen has decided she is that Uber-Dove, despite a real lack of evidence that Fed policy has protected the US at all in the past six years.
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objectivist1
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« Reply #863 on: September 23, 2015, 01:51:24 PM »

The Worst Part Is Central Bankers Know Exactly What They Are Doing

Wednesday, 23 September 2015    Brandon Smith


The best position for a tyrant or tyrants to be in, at least while consolidating power, is tyranny by proxy. That is to say, the most dangerous tyrants are those the people do not recognize: the tyrants who hide behind scarecrows and puppets and faceless organizations. The worst position for the common citizen to be in is a false sense of security and understanding, operating on the assumption that tyrants do not exist or that potential tyrants are really just greedy fools acting independently from one another.

Sadly, there are a great many people today who hold naïve notions that our sociopolitical dynamic is driven by random chaos, greed and fear. I’m sorry to say that this is simply not so, and anyone who believes such nonsense is doomed to be victimized by the tides of history over and over again.

There is nothing random or coincidental about our political systems or economic structures. There are no isolated tyrants and high-level criminals functioning solely on greed and ignorance. And while there is certainly chaos, this chaos is invariably engineered, not accidental. These crisis events are created by people who often refer to themselves as “globalists” or “internationalists,” and their goals are rather obvious and sometimes openly admitted: at the top of their list is the complete centralization of government and economic power that is then ACCEPTED by the people as preferable. They hope to attain this goal primarily through the exploitation of puppet politicians around the world as well as the use of pervasive banking institutions as weapons of mass fiscal destruction.

Their strategic history is awash in wars and financial disasters, and not because they are incompetent. They are evil, not stupid.

By extension, perhaps the most dangerous lie circulating today is that central banks are chaotic operations run by intellectual idiots who have no clue what they are doing. This is nonsense. While the ideological cultism of elitism and globalism is ignorant and monstrous at its core, these people function rather successfully through highly organized collusion. Their principles are subhuman, but their strategies are invasive and intelligent.

That’s right; there is a conspiracy afoot, and this conspiracy requires created destruction as cover and concealment. Central banks and the private bankers who run them work together regardless of national affiliations to achieve certain objectives, and they all serve a greater agenda. If you would like to learn more about the details behind what motivates globalists, at least in the financial sense, read my article 'The Economic Endgame Explained.'

Many people, including insiders, have written extensively about central banks and their true intentions to centralize and rule the masses through manipulation, if not direct political domination. I think Carroll Quigley, Council on Foreign Relations insider and mentor to Bill Clinton, presents the reality of our situation quite clearly in his book “Tragedy And Hope”:

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank … sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

This "world system of financial control" that Quigley speaks of has not yet been achieved, but the globalists have been working tirelessly towards such a goal.  The plan for a single global currency system and a single global economic authority is outlined rather blatantly in an article published in the Rothschild owned 'The Economist' entitled 'Get Ready For A Global Currency By 2018'.  This article was written in 1988, and much of the process of globalization it describes is already well underway.  It is a plan that is at least decades in the making.  Again, it is foolhardy to assume central banks and international bankers are a bunch of clumsy Mr. Magoos unwittingly driving our economy off a cliff; they know EXACTLY what they are doing.

Being the clever tyrants that they are, the members of the central banking cult hope you are too stupid or too biased to grasp the concept of conspiracy. They prefer that you see them as bumbling idiots, as children who found their father’s shotgun or who like to play with matches because in your assumptions and underestimations they find safety. If you cannot identify the agenda, you can do nothing to interfere with the agenda.

I have found that the false notion of central bank impotence is growing in popularity lately, certainly in light of the recent Fed decision to delay an interest rate hike in September. With that particular event in mind, let’s explore what is really going on and why the central banks are far more dangerous and deliberate than people are giving them credit for.

The argument that the Federal Reserve is now “between a rock and a hard place” keeps popping up in alternative media circles lately, but I find this depiction to be inaccurate. It presumes that the Federal Reserve "wants"  to save the U.S. economy or at least wants to maintain our status quo as the “golden goose.” This is not the case.  America is not the golden goose.  In truth, the Fed is exactly where it wants to be; and it is the American people who are trapped economically rather than the bankers.

Take, for instance, the original Fed push for the taper of quantitative easing; why did the Fed pursue this in the first place? QE and zero interest rate policy (ZIRP) are the two pillars holding up U.S. equities markets and U.S. bonds. No one in the mainstream was demanding that the Fed enact taper measures. And when the Fed more publicly introduced the potential for such measures in the fall of 2013, no one believed it would actually follow through. Why? Because removing a primary support pillar from under the “golden goose” seemed incomprehensible to them.

In September of that year, I argued that the Fed would indeed taper QE. And, in my article “Is The Fed Ready To cut America’s Fiat Life Support?” I gave my reasons why. In short, I felt the Fed was preparing for the final collapse of our economic system and the taper acted as a kind of control valve, making a path for the next leg down without immediate destabilization. I also argued that all stimulus measures have a shelf life, and the shelf life for all QE and ZIRP is quickly coming to an end. They no longer serve a purpose except to marginally slow the collapse of certain sectors, so the Fed is systematically dismantling them.

I received numerous emails, some civil and some hostile, as to why I was crazy to think the Fed would ever end QE. I knew the taper would be instituted because I was willing to accept the real motivation of central banks, which is to undermine and destroy economies within a particular time frame, not secure economies or kick the can indefinitely. In light of this, the taper made sense. One great pillar is gone, and now only ZIRP remains.

After a couple of meetings and preplanned delays, the Fed did indeed follow through with the taper in December of that year. In response, energy markets essentially imploded and stocks became steadily more volatile over the course of 2014, leading to a near 10% drop in early fall followed by foreign QE efforts and false hints of QE4 by Fed officials as central banks slowed the crisis to an easier to manage pace while easing the investment world into the idea of reduced stimulus policies and reduced living standards; what some call the "new normal".

I have held that the Fed is likely following the same exact model with ZIRP, delaying through the fall only to remove the final pillar in December.

For now, the Fed is being portrayed as incompetent with markets behaving erratically as investors lose faith in their high priests. This is exactly what the bankers that control the Fed prefer. Better to be seen as incompetent than to be seen as deliberately insidious. And who knows, maybe a convenient disaster event in the meantime such as a terrorist attack or war (Syria) could be used to draw attention away from the bankers completely.

Strangely, Bloomberg seems to agree (at least in part) with my view that the taper model is being copied for use in the rate hike theater and that a hike is coming in December.

Meanwhile, some Federal Reserve officials once again insinuate that a hike will be implemented by the end of the year while others hint at the opposite.

Other mainstream sources are stating the contrary, with Pimco arguing that there will be no Fed rate hike until 2016.  Of course, Pimco made a similar claim back in 2013 against any chance of a QE taper.  They were wrong, or, they were deliberately misleading investors.

Goldman Sachs is also redrafting their predictions and indicating that a Fed rate hike will not come until mid-2016. With evidence indicating that Goldman Sachs holds considerable influence over Fed policy (such as exposed private meetings on policy between Fed officials and banking CEO's), one might argue that whatever they “predict” for the rate hike will ultimately happen. However, I would point out that if Goldman Sachs is indeed on the inside of Fed policy making, then they are often prone to lying about it or hiding it.

During the taper fiasco in 2013, Goldman Sachs first claimed that the Fed would taper in September. They lost billions of dollars on bad currency bets as the Fed delayed.

Then, Goldman Sachs argued that there would be no taper in December of that year; and they were proven to be wrong (or disingenuous) once again.

Today, with the interest rate fiasco, Goldman Sachs claimed a Fed rate hike would likely take place in September. They were wrong. Now, once again, they are claiming no rate hike until next year.

Are we beginning to see a pattern here?

How could an elitist-run bank with proven inside connections to the Federal Reserve be so wrong so often about Fed policy changes? Well, losing a billion dollars here and there is not a very big deal to Goldman Sachs. I believe they are far more interested in misleading investors and keeping the public off guard, and are willing to sacrifice some nominal profits in the process. Remember, these are the same guys who conned nations like Greece into buying toxic derivatives that Goldman was simultaneously betting against!

The relationship between international banks like Goldman Sachs and central banks like the Federal Reserve is best summed up in yet another Carroll Quigley quote from “Tragedy And Hope”:

"It must not be felt that these heads of the world’s chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called “international” or “merchant” bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks."

Goldman Sachs and other major banks act in concert with the Fed (or even dictate Fed actions) in conditioning public psychology as much as they manipulate finance. First and foremost, globalists require confusion. Confusion is power.  What better way to confuse and mislead the investment world than to place bad bets on Fed policy changes?

Heading into the end of 2015, we are only going to be faced with ever mounting mixed messages and confusion from the mainstream media, international banks and central banks. It is important to always remember, though, that this is by design. A common motto of the elite is “order out of chaos,” or “never let a good crisis go to waste.” Think critically about why the Fed has chosen to push forward with earth-shaking policy changes this year that no one asked for. What does it have to gain? And realize that if the real goal of the Fed is instability, then it has much to gain through its recent and seemingly insane actions.
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"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.
DougMacG
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« Reply #864 on: October 14, 2015, 10:05:00 PM »

I find Samuelson to be more insightful and honest than Bernanke:

Samuelson writes in closing:  "Up to a point, all this rings true. Still, as a theory of the crisis, it's incomplete. Financial crises are not entirely random events. The system has to be vulnerable to a shock. Bernanke identifies one vulnerability, wholesale funding. But there was a larger source of vulnerability: the very prosperity that Americans had enjoyed for a quarter of a century. During this period, there were only two mild recessions. Inflation and interest rates declined. Stock and home prices increased. Feeling richer, Americans borrowed more and spent more. From 1982 to 2007, consumer spending went from 62 percent of the economy (gross domestic product) to 67 percent.

The good fortune had consequences. It nurtured overconfidence. The economy appeared to be less risky, in part because the Fed seemed capable of quickly defusing any serious threat to prosperity. The behaviors that ultimately led to the crisis -- lax lending standards, more borrowing -- were encouraged, because the economic landscape seemed less threatening. Too much pleasing prosperity led to crippling instability. That's a central lesson of the crisis. Bernanke doesn't acknowledge the troubling implications; in fairness, hardly anyone else does either"


http://www.twincities.com/columnists/ci_28964469/robert-samuelson-bernanke-file

Robert Samuelson: The Bernanke file
By Robert Samuelson

Reading former Federal Reserve Chairman Ben Bernanke's new memoir of the financial crisis -- "The Courage to Act" -- you are reminded how lucky we are. Despite a disappointingly slow economic recovery, it could have been much, much worse. The conventional wisdom is that we have dodged a second Great Depression, when the unemployment rate reached 25 percent. Nothing in Bernanke's account contradicts that conclusion.

If ever Main Street depended on Wall Street -- an unpopular reality that Bernanke kept repeating during the crisis' darkest days -- this was it. Businesses need credit to finance new investment, to smooth seasonal fluctuations and to cover daily expenses. As firms lost access to credit, or feared doing so, they saw their survival at stake. They conserved cash by any means available. They stopped hiring, started firing and delayed investment projects. From September 2008 to February 2010, payroll employment fell by 7.1 million.

The Fed helped check this downward spiral before what we now call the Great Recession became another Great Depression. With private lenders on strike, the Fed temporarily provided funds as "lender of last resort." Its complex lending programs supported banks, securities dealers, money market funds, foreign lenders and the commercial paper market. The amounts were stupendous. At one point, lending through the traditional "discount" window approached $900 billion.
 
How does Bernanke's memoir add to our knowledge?

For starters, it gives new credibility to his claim that the Fed couldn't have prevented Lehman Brothers' bankruptcy in September 2008. Recall that Lehman's collapse triggered the financial panic. Recall also that Bernanke had argued that the Fed couldn't lend to Lehman because the Fed needed collateral and Lehman didn't have any (it was insolvent; its debts exceeded its assets). What makes this claim more believable now are the results of Lehman's bankruptcy, which Bernanke cites. Losses were estimated near $200 billion and many creditors got only 25 cents on the dollar. (The subsequent $85 billion Fed loan to AIG, the giant insurer, did not suffer this defect; there was collateral.)

Next, Bernanke provides instructive numbers to explain why the financial system was so vulnerable. Years ago, banks dominated the system and got their funds mainly from household and business deposits. These were largely immune to panic because most were government insured. But in recent decades, a "wholesale" market for funds had developed consisting of the spare cash of corporations, pension funds, wealthy individuals and others. These uninsured funds were lent to banks and other financial institutions for short periods, often overnight. By late 2006, wholesale funds totaled $5.6 trillion, exceeding insured deposits of $4.1 trillion. It was the abrupt withdrawal of these funds that drove panic and threatened the financial system with collapse.

Finally, Bernanke convincingly argues that this financial panic -- and not defaults on subprime home mortgages -- was the crux of the crisis. Subprime loans represented about 13 percent of outstanding home mortgages, he says. Though they triggered the crisis, their losses alone could have been absorbed by the financial system. The real economic damage, he contends, stemmed from the chaotic side effects of the mortgage write-downs: fears of more losses in other types of loans (credit card debt, auto loans); falling bond prices as financial institutions dumped "toxic" securities; and the flight of wholesale funds from banks, investment banks and others (much of their cash went into U.S. Treasury securities).

Thus battered, the financial system became comatose. It no longer provided credit where it was needed. The calamitous chain reaction for spending, production, jobs and confidence followed. The "financial turmoil," writes Bernanke, "had direct consequences for Main Street."

Up to a point, all this rings true. Still, as a theory of the crisis, it's incomplete. Financial crises are not entirely random events. The system has to be vulnerable to a shock. Bernanke identifies one vulnerability, wholesale funding. But there was a larger source of vulnerability: the very prosperity that Americans had enjoyed for a quarter of a century. During this period, there were only two mild recessions. Inflation and interest rates declined. Stock and home prices increased. Feeling richer, Americans borrowed more and spent more. From 1982 to 2007, consumer spending went from 62 percent of the economy (gross domestic product) to 67 percent.

The good fortune had consequences. It nurtured overconfidence. The economy appeared to be less risky, in part because the Fed seemed capable of quickly defusing any serious threat to prosperity. The behaviors that ultimately led to the crisis -- lax lending standards, more borrowing -- were encouraged, because the economic landscape seemed less threatening. Too much pleasing prosperity led to crippling instability. That's a central lesson of the crisis. Bernanke doesn't acknowledge the troubling implications; in fairness, hardly anyone else does either.

Robert Samuelson writes a column for the Washington Post.
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DougMacG
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« Reply #865 on: October 16, 2015, 12:18:26 PM »

Hugh Hewitt interviewed Ben Bernanke yesterday for 2 hours of his show.  I'm amazed by how little I learned from it - for whatever that means.

Fastest way through it is probably to read the transcript:  http://www.hughhewitt.com/dr-ben-bernanke-on-the-courage-to-act/

Most striking phrase that came out of it for me was "not knowable".  It was 'not knowable' what the consequences would have been if they had failed to act as they did in the crisis, TARP, etc.

He was very careful to say that everything they did was legal, bailing out insurance companies and uninsured assets, etc.  Separately he talked about "moral hazard', defined it and put it in the context of the crisis.   Hmmm...

I thought he was quite vague about the failed policies and events leading up to the crisis, saying there was plenty of blame to go around, including with the Fed without saying what they did wrong.

Regarding foreign policy and potential crises from overseas, etc. he was asked how the Fed plans for these emergencies.  He said something like let's hope that doesn't happen.  Reassuring.

Along with "Too Big to Fail" now comes the expression "Too Interconnected to Fail".   The whole Keynesian liberalism vision of intentional deficits, stimulative spending and monetary flooding somehow comes back to rest on my economic view of the interconnected economy.  The policy makers seem to grasp the interconnectedness of it all only in failure, not in their vision of how to grow the economy for the benefit of everyone..

« Last Edit: October 16, 2015, 01:05:16 PM by DougMacG » Logged
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« Reply #866 on: October 16, 2015, 01:07:31 PM »

"The courage to kick the can down the road"
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objectivist1
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« Reply #867 on: October 16, 2015, 01:18:23 PM »

The U.S. dollar is going to lose its status as the world's reserve currency within 12 months.  A wise person is transferring his cash-based assets into physical gold and silver NOW.
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« Reply #868 on: October 16, 2015, 01:19:32 PM »

The U.S. dollar is going to lose its status as the world's reserve currency within the year.  A wise person is transferring his cash-based assets into physical gold and silver NOW.

And beans, bullets and bandages. And put some of your money to work outside the US.
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« Reply #869 on: October 16, 2015, 03:30:37 PM »

"The courage to kick the can down the road"

Funny that they can't say exactly what they did that honestly - and sell books.
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« Reply #870 on: October 16, 2015, 03:42:11 PM »

"The courage to kick the can down the road"

Funny that they can't say exactly what they did that honestly - and sell books.

The public isn't interested in unpleasant reality.
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« Reply #871 on: October 20, 2015, 08:35:17 PM »

http://www.washingtontimes.com/news/2015/aug/18/l-todd-wood-day-china-says-its-currency-backed-gol/

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objectivist1
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« Reply #872 on: October 22, 2015, 10:24:04 AM »

I might point out that Brian Wesbury tries to use the objections this author refutes to argue the U.S. government is not bankrupt. 
He is well-aware of these facts, and in my view is a liar working to deceive the public and serve his own interests.

Yes, The U.S. government Really Is Bankrupt - Here’s Proof...

Monday, 19 October 2015 05:54    Simon Black


I’ve long-stated that the government of the United States is completely insolvent.

And that is 100% true statement.

The government’s own numbers show that official liabilities, including debt held by the public and federal retirement benefits, total $20.7 trillion.

Yet the government’s assets, including the value of the entire federal highway system, the national parks, cash balances, etc. totals just over $3 trillion.

In total, their ‘net worth’ is NEGATIVE $17.7 TRILLION… a level that completely dwarfs the housing crisis.

If you include the government’s own estimates of the Social Security shortfall, this number declines to NEGATIVE $60 TRILLION.

And it gets worse every year.

Now, is this balance sheet an accurate reflection of reality? Do we really trust the bean counters to tell us what the United States of America is really worth?

Surely there must be significant intrinsic value to the United States military, for example.

Or the US government’s ability to collect taxes.

Or what about the value of all the natural resources underground?

These must all be HUGELY positive and would swing the government’s net worth back in the right direction.

Guess again.

The US military is certainly one of the best-trained and most effective forces in history.

But it’s difficult to place a substantial value on it when the government can no longer afford to use it.

And even when they do use it, the overall cost of doing so is negative.

The wars in Iraq and Afghanistan have cost the taxpayers $4 trillion. But where’s the financial benefit?

Aside from a few defense contractors profiting handsomely, the Chinese got most of the oil.

ISIS ended up with much of Iraq. And Iran made out like a bandit, with the US government taking out its most threatening neighbors free of charge.

Mission accomplished.

Bottom line, even the best asset in the world can end up being a big liability if it’s used improperly.

So what about the tax authority of the US government? If Uncle Sam can collect $3 trillion in tax revenue each year, surely that must count as a huge asset.

And it absolutely is. If you conduct a Present Value calculation of the future tax revenue of the US government discounted by the official 2% rate of inflation, the US government’s ability to tax its citizens is ‘worth’ $150 TRILLION.

But… if you’re going to count the government’s tax authority as an asset, you have to be intellectually honest and consider the expenses as liabilities.

Think about it: yes, the government brings in tax revenue every single year. But for nearly every year over the last seventy years, they’ve spent far more money to deliver on the promises they’ve made to their citizens.

Those promises are liabilities. And given the government’s spending history since the end of World War II, the liabilities far exceed the tax authority asset.

More importantly, though, isn’t it a little bit scary to consider that the government’s #1 asset is its ability to steal money from you?

Or that the only way the government can make its liabilities go away is by defaulting on the promises it has made to its citizens?

That’s their only way out: steal from you, and default on you.
« Last Edit: October 22, 2015, 10:27:25 AM by objectivist1 » Logged

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« Reply #873 on: October 22, 2015, 10:29:14 AM »

The clock is ticking....

The hour is late.
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« Reply #874 on: October 22, 2015, 11:49:00 AM »

"If you conduct a Present Value calculation of the future tax revenue of the US government discounted by the official 2% rate of inflation, the US government’s ability to tax its citizens is ‘worth’ $150 TRILLION."


That is a lot of money in today's dollars.  The point is simply we cannot continue on a path where fewer and fewer work at all, fewer and fewer pay in, and more and more sign up in one way or another for a government funded life.

Social security was supposed to be an insurance plan for outliving your expected longevity and savings, not a universal retirement plan.  Likewise for having a US government safety net at all.  It is there for when all better ways to do that fail, someone with a real need but without a family, church, community, city, county or state  that can step up, for example.

The war example weakens the point the author is trying to make, IMO.  National defense and dealing with foreign threats is proper function of the federal government.  Most of the rest is not.  Both wars were about dealing with foreign threats whether we got it right or not.


"isn’t it a little bit scary to consider that the government’s #1 asset is its ability to steal money from you?
Or that the only way the government can make its liabilities go away is by defaulting on the promises it has made to its citizens?
That’s their only way out: steal from you, and default on you."

No it isn't.  The stealing is partly consensual, and secondly, we could have reformed entitlements at any step along the way including during the Clinton years while we were balancing the budget and experiencing prosperity, during the Bush years when it was proposed but not pursued, during the Obama years including now, or after the next election.  We need to get the issues right and we need to win elections.  More likely that happens with a positive message.  People who only see economic collapse are probably going to vote for more government support rather than less.
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« Reply #875 on: October 22, 2015, 12:07:09 PM »

Doug,

We are driving this country into the ground like a lawn dart and there is no longer a political fix.
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« Reply #876 on: October 22, 2015, 12:48:16 PM »

Doug,
We are driving this country into the ground like a lawn dart and there is no longer a political fix.

If I gave you 150 Trillion Dollars and the power to re-write the rules of taxation, spending, program eligibility and entitlements, you couldn't make a go of it?

I could.   )

In rough proportions, we could double the size of the economy over a relatively short period by running it better and we could cut the number of people not productively participating in it in half, dramatically reducing the number of people needing a check and free phone etc. from the government.

Decline is a choice.  Maybe the political fix won't happen, but I don't believe it wouldn't work if tried.
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« Reply #877 on: October 22, 2015, 12:50:21 PM »

Sure, I could. But the majority in the country have joined the Free Sh*t Army and will vote for a living.
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DougMacG
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« Reply #878 on: October 22, 2015, 01:15:52 PM »

Sure, I could. But the majority in the country have joined the Free Sh*t Army and will vote for a living.

It comes down to an argument I've offered previously.  We need to chip away a small amount of support from each of the opposing demographic groups on the basis of a better life for their children and grandchildren, not based on how wonderful their current, below subsistence, government paycheck is.  If after 8 years of Obama failure, instead of winning 5% of the black vote, we could get just a few percent more of black, inner city matriarchs to change their allegiance, then there is a momentum shift.  More than 10% of blacks want a better life for their families; they just aren't seeing our vision as that solution.  Same for gays, Jews, yoga moms, young people in parent's basements, Hispanics, Asian Americans, and whoever I am forgetting. 

You don't just promise to cut spending or squeeze eligibility.  You have to sell the whole package, the American dream.  And we don't need all of them, we need about 2-3% who are already near the middle, the persuadables, to switch sides to see a 4-6% shift.  If no one on the free shit side of it will buy the American Dream anymore, then it is gone.

Mostly we have lost the argument by default, choosing candidates who don't, won't or can't make the case.
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« Reply #879 on: October 22, 2015, 01:35:57 PM »

Doug,

What you are missing is that the U.S. dollar only enjoys its present value because other nations are using it as the world's reserve currency.  With our massive debt, and no political solution happening (this is reality) it's only a matter of time - and I believe a short time - before the dollar loses this reserve status.  If we are lucky, at that point it may be worth 50 cents.  It will quickly decline from there.  Financial collapse, civil unrest and starvation will then ensue - and there is NOTHING that any politician is going to be able to do to stop this from happening.  We've backed ourselves into a corner with massive devaluation through money printing to the point that there is no way out other than collapse and rebuilding.  This is why I and many others have been advising that you prepare for the worst, with stocks of food, ammo, and PHYSICAL gold and silver, as well as barterable commodities.  The BEST we can hope for, assuming a Trump or a Cruz gets elected, is that the damage can be somewhat reduced.  The collapse, however - will NOT be avoidable.
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« Reply #880 on: October 22, 2015, 01:37:39 PM »

At least Trump has experience with bankruptcy.  grin
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DougMacG
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« Reply #881 on: October 22, 2015, 01:50:32 PM »

Doug,

What you are missing is that the U.S. dollar only enjoys its present value because other nations are using it as the world's reserve currency.  With our massive debt, and no political solution happening (this is reality) it's only a matter of time - and I believe a short time - before the dollar loses this reserve status.  If we are lucky, at that point it may be worth 50 cents.  It will quickly decline from there.  Financial collapse, civil unrest and starvation will then ensue - and there is NOTHING that any politician is going to be able to do to stop this from happening.  We've backed ourselves into a corner with massive devaluation through money printing to the point that there is no way out other than collapse and rebuilding.  This is why I and many others have been advising that you prepare for the worst, with stocks of food, ammo, and PHYSICAL gold and silver, as well as barterable commodities.  The BEST we can hope for, assuming a Trump or a Cruz gets elected, is that the damage can be somewhat reduced.  The collapse, however - will NOT be avoidable.


Thanks, good points.  For all we've been through under Obama, the other currencies are mostly doing worse so I think the upside is quite tremendous IF we are to turn this around now in a positive way.  That said, I am 100% in hard goods, low income rental property.  If there is any rule of law left in the collapse, people will still have to live.  If there is no currency, they can pay me in baked bread and ammunition.   And if things turn upward, I will turn it into high income property.   )
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« Reply #882 on: November 03, 2015, 09:09:37 PM »

Experts Fear A Stealth Crash Has Already Begun: “Risk Is Flashing Red”

Monday, 02 November 2015   Mac Slavo


It is more clear than ever that the Federal Reserve’s quantitative easing program will eventually bring destruction to the planet.

The world doubled down on risk after the 2008 crisis with nearly unlimited liquidity, and now debt is threatening to drown the global financial market. Cheap credit is about to saddle down those who got themselves overextended. Many private borrowers and states alike face default, bankruptcy and/or a failure to pay their obligations. Mathematically, the problem is just waiting to explode.

It is just a matter of when the music stops. But has it already?

Some are suggesting that things are already so bad that a crash has already set in, but without the headlines and fanfare.

This stealth crash is evidenced by conditions so bad they precipitate a chain reaction of further financial destruction. According to the London Guardian things are simply too far gone: “the debt levels are too high, productivity growth too weak and financial risks too threatening.”

Via the London Guardian:

A predicted global meltdown passed without event. But there are enough warning signs to suggest we are sleepwalking into another disaster
The 1st of October came and went without financial armageddon. Veteran forecaster Martin Armstrong, who accurately predicted the 1987 crash, used the same model to suggest that 1 October would be a major turning point for global markets. Some investors even put bets on it. But the passing of the predicted global crash is only good news to a point. Many indicators in global finance are pointing downwards – and some even think the crash has begun. Let’s assemble the evidence.
First, the unsustainable debt. Since 2007, the pile of debt in the world has grown by $57tn (£37tn). That’s a compound annual growth rate of 5.3%, significantly beating GDP. Debts have doubled in the so-called emerging markets, while rising by just over a third in the developed world.[…] What we’ve done with credit since the global crisis of 2008 is expand it faster than the economy – which can only be done rationally if we think the future is going to be much richer than the present.This summer, the Bank for International Settlements (BIS) pointed out that certain major economies were seeing a sharp rise in debt-to-GDP ratios, which were well outside historic norms. In China, the rest of Asia and Brazil, private-sector borrowing has risen so quickly that BIS’s dashboard of risk is flashing red. In two thirds of all cases, red warnings such as this are followed by a major banking crisis within three years.The underlying cause of this debt glut is the $12tn of free or cheap money created by central banks since 2009, combined with near-zero interest rates. When the real price of money is close to zero, people borrow and worry about the consequences later.Oil collapsed first, in mid 2014, falling from $110 a barrel to $49 now, despite a slight rebound in the interim.

[…]

In short, as the BIS economists put it, this is “a world in which debt levels are too high, productivity growth too weak and financial risks too threatening”. It’s impossible to extrapolate from all this the date the crash will happen, or the form it will take.

No one knows when an official “crash” is going to take place, or if they would recognize it if it were already here, but wealth is being transferred at an incredible rate that is driving people into poverty, dependence and desperation.

What is clear is that the financial system that has been put in place is apparently not even capable of holding things together for a decade before they fall apart again.

The same Federal Reserve that was supposedly put in place to end volatile booms and busts is today directly creating them. Monetary policy is perhaps the driving force of today’s misfortune. The situation is reaching a dangerous quickening point, if it has not already arrived. As the article noted,

“When the real price of money is close to zero, people borrow and worry about the consequences later.”

But the consequences are piling up. The entire economy rests on the actions of the Fed, which is engaged in massive market manipulation – albeit legal under the powers assumed by this private agency. Admittedly, the Fed is inflating the stock market, all while destroying the jobs, business, savings, investments and opportunities of regular people.

If Yellen raises rates, the debt crunch begins, and there may be nothing that can hold back the bloods-in-the-streets level of crisis that will occur when people across the world can no longer pay, and can’t borrow any more. There may be higher rates within a year.

Meanwhile, the Fed continues to float enormous volumes of money to feed the looming disaster. It is worsening, and many are already over the edge. As financial experts put it months ago, the market today is “uniquely crash prone.”

Things have been set-up to fail, and giving the Federal Reserve more power than ever to control the markets has only assured the next phase of the collapse will be even worse.
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« Reply #883 on: November 13, 2015, 03:22:04 PM »

The Producer Price Index Dropped 0.4% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/13/2015

The Producer Price Index (PPI) dropped 0.4% in October, coming in well below the consensus expected gain of 0.2%. Producer prices are down 1.7% versus a year ago.

The drop in producer prices in October was led by final demand services, down 0.3%. Food prices declined 0.8% in October while energy prices were unchanged. Producer prices excluding food and energy were down 0.3%.

In the past year, prices for goods are down 5.0%, while prices for services are up 0.1%. Private capital equipment prices rose 0.2% in October and are unchanged in the past year.

Prices for intermediate processed goods declined 0.4% in October and are down 7.6% versus a year ago. Prices for intermediate unprocessed goods were unchanged in October, and are down 23.6% versus a year ago.

Implications: Producer prices continued to plummet in October, as margins for wholesalers and falling food costs led the drop. The 0.4% decline in October comes on the back of September’s 0.5% decline, but unlike last month, energy wasn’t the culprit. Final demand service prices accounted for more than two-thirds of the drop in October, as margins for wholesalers and retailers fell 0.7%. Despite the fall in service prices over the past two months, prices for services are essentially unchanged in the past year, up a modest 0.1%. Goods prices also fell in October led by a 0.8% decline in food prices. Prices for goods are down 5% from a year ago. While energy prices were unchanged in October (after three consecutive months of declines), they still account for nearly the entire decline in producer prices over the past year. Excluding just energy, producer prices are down 0.1% in the past year, compared to a 1.7% decline when energy is included. The Fed has reiterated that falling energy prices are a transitory factor. So we think these declines will not play a significant role when they decide whether to raise rates in December. Core producer prices, which take out both the volatile food and energy components, declined 0.3% in October but are up 0.1% in the past year. In other words, we are not in a persistent deflationary environment. We’d like to see the Fed raise rates and think a rate hike in December remains likely. Holding short-term rates near zero distorts the nature and timing of economic and financial activity and our economy will eventually pay a price for that. In other recent economic news, still no sign of inflation in the trade sector. Import prices declined 0.5% in October and are down 10.5% from a year ago. The drop is mostly from petroleum, but not all of it; import prices are down 3.4% from a year ago even excluding petroleum. Export prices declined 0.2% in October and are down 6.7% from a year ago.
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« Reply #884 on: December 03, 2015, 05:56:05 AM »



By Mark Fleming-Williams

It may not be the top subject of discussion around the average family dinner table, but China's Nov. 30 entry into the International Monetary Fund's Special Drawing Rights (SDR) currency basket marks the start of a new era in the global economic structure. The accession will not immediately bring about seismic changes in the yuan's usage, rocketing it up to international reserve currency status in one glorious surge. That kind of usage growth, if indeed it ever does happen, will take years to come about. The more immediate change is actually subtler and has more to do with what China is — or more specifically, what it is not. The yuan has become the first SDR basket currency to belong to a country that is not a clear U.S. ally — the other slots are filled by Japan, the United Kingdom and the eurozone. This is important because it is part of a wider trend, reflecting increased economic power in new parts of the world. The IMF (along with the World Bank) is the key institution of the world order that was designed by the United States and its allies at Bretton Woods in 1944. The IMF's including the yuan in the SDR coincides with an attempt to reform this system in favor of these new powers — an attempt that the United States has stalled with a veto for five years. The important question, then, is how the United States, as the architect and leader of the existing system, will cope with these new challenges.

Origins of the SDR

But before we get into the Nov. 30 developments, it is important to first understand the basis of the current system. When the United States crafted today's economic order at Bretton Woods in 1944, it was acting, as is so often the case, with an eye toward avoiding the mistakes of the past. The United States is blessed with the most favorable real estate and geographical positioning of any country in the world, with extensive fertile lands and river systems, access to both major oceans and sizable barriers against any major threats. But these gifts have been both a blessing and a curse, for while they enable immense productivity, and hence power, they also create a temptation toward isolationism; Americans tend to retreat behind their ocean buffers and enjoy their continental paradise. This temptation was so strong that for the first 150 years of its history, the United States did exactly that — fighting engagements to protect trade routes and secure its own strategic position, but rarely interfering in the politics of other continents. It was forced out of this comfortable position by World War I and again by World War II. By 1944, the lesson the United States had learned was that it needed to be present to prevent these situations from arising in the first place, and the most sensible strategy was to exert its own power to block the rise of any single large challenging bloc or competitor. With some estimates putting U.S. gross domestic product at 50 percent of the world share in 1945, the United States was in a position to do so.

The resulting global order was quite a departure from the one it replaced largely because of the differences between the United States and the United Kingdom, its predecessor as global hegemon. By surface area, the British Isles are a 30th the size of the United States. The British Empire's strength came from its accrual and skillful management of overseas possessions, in keeping with the colonialist climate of the times; the empire ultimately covered a quarter of the world's surface. Colonies were used mainly for their resources to the benefit of the colonizer, somewhat constraining their potential development. Even China, which notionally escaped colonization, was invaded and carved up first by Western powers and then by Japan.

The United States, by contrast, had escaped from colony status only 170 years before and, though Washington flirted with colonialism with its possessions in the Philippines, it was a U.S. president, Woodrow Wilson, who lit the flash paper that ultimately ended imperialism. Thus, the U.S. style of world leadership was much closer to leading by normative pressure than forceful imposition of will (though admittedly it was not averse to the use of manipulation and coups to promote its interests). It promoted self-determination and democracy wherever possible, encouraged free trade by guaranteeing the sea-lanes with its dominant navy and challenged the Soviet Union in its attempts to dominate Eurasia. The price the United States charged for this service was control. It poured money into Western Europe and Japan and developed these powers as useful lieutenants to its global policeman role; together these industrial nations have shaped today's world, partly through the institutions that were created at Bretton Woods, such as the IMF.

As these institutions were being developed, the United States was also cornering the international currency market. Another part of the new order was the re-creation of a gold standard based on the dollar, which made it the global reserve currency by definition. This role gives its holder great power, since external demand for its currency allows it to print itself out of trouble in ways that others cannot. Though the United States ultimately followed that course it initially did not want to devalue its currency by printing more dollars, and as a result there was a global shortage of available dollars for foreign central banks to hold. The SDR was created in 1969 as a new kind of global reserve currency, a sort of "paper gold" that could be used to settle accounts between central banks in place of the dollar. (SDR notes could be held by official institutions and exchanged upon request for a set amount of gold; the currency was meant to facilitate lending between debtor and creditor countries at the state level).

But the SDR never really took off, partly because a new floating currencies system emerged after 1971, when the now devalued dollar made the gold standard untenable. This new system undermined the SDR's dollar-replacement role because with no gold standard to keep to, the United States was free to print more dollars, alleviating the previous shortage. The SDR itself became exchangeable not for gold but for a set quantity of a selected group of recognized currencies. This is the elite group the yuan just joined. As the floating currencies system emerged, and the dollar was freed from its golden shackles, the international central banks stuck with it, leaving the SDR somewhat in the shadows. In its history, the SDR, which is issued by the IMF itself, has never made up more than 6 percent of overall international reserves.
Dealing With New Realities

But the domination of the global economic system by the United States and its wealthy friends always had an expiration date, because of the rule of thumb that, when given the opportunity, lower-income countries can grow much faster than wealthy ones. Lower-income countries have the wealthy ones as guides. A wealthy country must develop new technologies and techniques to help it grow — an often lengthy process. Lower-income countries, however, can devote their energies to applying the tried and tested methods and technologies that made the rich countries rich. Of course, one must also be aware of the law of small numbers, in which the growth effect is exaggerated by the fact that a percentage increase in a small number is in reality a smaller rise than the equivalent growth in a larger economy. This means that sometimes high growth figures are not as impressive as they first appear. Nevertheless, the first rule has outweighed the second rule in this case, and many lower-income countries have made strong gains on the wealthier ones. In previous centuries, lower income countries were liable to be taken over by wealthier colonizers, but even if they escaped that fate, there was still no guarantee that they would be able to acquire the expertise and capital needed to develop themselves (Japan is a notable exception).

The new U.S.-led system put an end to all that; globalization, security and free trade gave the world's lower income countries the opportunity to make something of themselves, provided they could first get themselves facing in the right direction. The last 70 years have been broadly a story of development, particularly in the 25 years since the end of the Cold War, when the U.S.-led system was truly let loose. Thus, as a natural result of growth around the world — first from the United States' allies, but then in Latin America, Asia and most recently Africa — the United States saw its share of global GDP fall to 22 percent in 2015.

The United States is therefore having to come to terms with the fact that while it remains incredibly successful, it is no longer as economically dominant as it was when it first took up its role, largely as a result of developments elsewhere. In itself, this is not a unique situation. The United States and Germany overtook the United Kingdom economically long before London lost its role as global leader. The United States has yet to experience this feeling, and given its geographical advantages, perhaps that will not be its fate in this century. But like the United Kingdom before it, the United States has incumbent advantages: dispersed naval bases and an overwhelmingly powerful military, and the "exorbitant privilege" of commanding the international reserve currency. These strengths are unlikely to disappear any time soon. But there are other arenas in which the status quo is being challenged and where some of these new voices are demanding their say. The important question is how the United States will cope with these challenges, and the evidence thus far is mixed.

During the latest phase of global growth, specifically from 2000 to 2008, the economic heft of some of the world's poorer countries — led by the "BRICS" (Brazil, Russia, India, China and South Africa) — has risen dramatically. The crisis of 2008, which struck the United States and its industrial allies particularly hard, reinforced the importance of the IMF's bailout and aid attributes in the global economy. It also exacerbated the imbalance that had been emerging in the IMF's voting systems, particularly Europe's powerful position, which no longer reflects its financial strength. (Indeed, in the last five years, Europe has received unprecedented quantities of IMF funds.)

In 2010, a reform was crafted that would both double the IMF's funding from all of its members and rebalance some of the voting shares, boosting China and Russia and bringing India and Brazil into the top 10. But for five years, the United States — the only country with a veto — has failed to ratify the reform. The reasons given are most revealing: The United States is unwilling to commit more funds to finance this international venture or to vote for a reform that will reduce its power on the global scene. Washington appears to be reverting to its isolationist instincts and its desire to remain in control of the global system. Accordingly, the BRICS has created alternative institutions as a direct challenge to the Bretton Woods institutions and the U.S. dominance over them. Various development banks and IMF-style reserve arrangements have emerged. Even more worrying for the United States, most of its former lieutenants have joined one of these institutions — the Asian Infrastructure Investment Bank — expressly against Washington's wishes. And finally, the G-20 meeting in April 2015 saw various discussions over ways to sidestep the United States on the issue, allowing the reform to go ahead without its assent.

All of which gives extra importance to China's accession into the SDR basket of currencies. The fact that China lobbied so hard to be included demonstrates that its preference is to continue to develop within the existing global system — a recognition that the BRICS is not currently strong enough to truly go it alone. (There is a marked difference in the funds available to the fledgling institutions against the existing ones: The IMF currently has access to around $850 billion of funding while the BRICS equivalent has access to about $100 billion.) That the United States, which remains the strongest voice in the institution, also gave it the green light demonstrates a willingness to allow the new challengers an opportunity to develop in the current system, possibly also using the opportunity to try to further shape the development of the Chinese economy to follow and fit within the U.S. system, thus co-opting China rather than directly competing with it.

This willingness is notable when compared to the reform holdup, but that is because it comes from a different part of the U.S. government. This SDR green light and the original shaping of the 2010 reform were both the work of the overall administration, which appears to be taking a more accommodative stance to these issues, whereas the 2010 reform holdup is the responsibility of the U.S. Congress. These two voices, administration and Congress, thus represent options for how the United States can choose to deal with the new realities: It can either fall back to isolationism, refusing to engage or accommodate, whereupon the rest of the world will likely start to make its own plans, as we have seen, or it can help to reform the institutions it created.

Either way, if the U.S. share of world GDP continues to shrink, China's accession to the SDR basket could prove to become even more important with time. China's economy has many of its own issues, and may be about to hit its own buffers, but it is also the leading edge of a broader wave of developing economies. Under such circumstances, the U.S. dollar's position as global reserve currency could gradually become more anachronistic. In a world without a clear hegemon, perhaps it would no longer make sense for a single country to have as much power over its peers as the reserve currency affords. In such a scenario, the SDR, or perhaps some derivation of it (possibly involving some of Bitcoin's attributes), may step up to the role for which it was first designed: as the international reserve. If that were to happen, the day China entered its currency basket would surely be remembered as a key moment.
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objectivist1
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« Reply #885 on: December 03, 2015, 07:02:56 AM »

Re-posting this here from the Economic thread:


What Will Happen When the Dollar Collapses?
Dave Hodges
June 2nd, 2014

 
This article has been generously contributed by Dave Hodges and was originally published at The Common Sense Show.

currency-collapse1 (1)Will It Be a False Flag Attack Or a Currency Collapse?

Hitler initiated a false flag event and burned down the Reichstag to gain control over the German government. Could the same happen here in the United States? My initial response to that question is, does it really matter? The pattern of societal collapse and subsequent governmental enslavement of the American people will be largely the same whether the precipitating incident is a false flag attack or a currency collapse. For the purpose of simplicity, let us call the precursor event to all-out martial law, a currency collapse.

The Federal Reserve Is the Enemy of Humanity

The Federal Reserve has been bleeding this country to death for a century. What the dollar bought 100 years ago, can only buy three cents of product today. This means that 97% of the value of our currency has gone into the pockets of the Federal Reserve investors for the past 100 years.

I am amazed at the abject ignorance of the American people and that they think the Federal Reserve is actually part of the federal government. As we like to stay in the alternative media, the Federal Reserve is no more federal than Federal Express. For the record, the Federal Reserve is a privately held corporation which sells stock to preferred insiders. In 1913, a small majority of Congress commissioned the Federal Reserve to control banking in the United States. Without a doubt, this was the worst decision ever made by an act of Congress.

The Dollar Is Diving

The world is running from the dollar, or should I more accurately state the Petrodollar. Until recently, our dollar was used as the currency of international trading. Further, the dollar was also the reserve currency for oil. All foreign countries wishing to purchase oil from the Middle East, first had to purchase dollars from the Federal Reserve. After FDR took us off the gold standard during the Great Depression and Richard Nixon finished the task of providing America with a totally Fiat currency, the only backing that our dollar enjoys is that of being the reserve currency for both trading and for oil (i.e. the Petrodollar scam).

The major cause of the present  economic calamity is fractional reserve banking. When the government goes to the private Federal Reserve and asks for one trillion dollars, the federal reserve gets to print one trillion for the government, at interest, and $10 trillion dollars for themselves and to lend out at high interest rates. This inflationary practice erodes the value of your dollar while enriching our Federal Reserve investors. Ultimately, the currency upon which we depend on will be destroyed and life as we know it will be changed forever.

The practice of fractional reserve banking should be wholly illegal because it creates a state of permanent inflation for the benefit of a few and sets up economic demise for the many.

A Changing of the Financial Guard

The nations presently running from our petrodollar are India, China, Iran, Japan, South Africa and Australia have signed their own trade agreements and their currency of choice is no longer the dollar!

When the collapse of the dollar occurs, it will literally and figuratively come like a thief in the night, and I do mean overnight!

We are all familiar with the concept of inflation, which is the intentional byproduct of the Federal Reserve.  But I am not just talking inflation, I’m speaking about hyperinflation which is caused by the collapse of the value of the currency resulting in runaway prices. Here are three examples of how quickly a currency collapse can occur when a nation’s money when its money no longer holds it value:

1. In Weimar Germany, from 1922 – 1923, prices  doubled  every three days.

2. In the modern era, in Yugoslavia from 1992-94, witnessed prices doubling every 34 hours.

3. In Zimbabwe, in the two year period from 2007 – 2008, prices doubled  every 25 hours.

History is replete with examples of currency collapses and they typically follow very predictable patterns in which a nation unravels and social chaos, and many times, widespread violence and even genocide becomes part of the national landscape.

What Does a Currency Collapse Look Like?

It can accurately be stated that a lot has been written and rehearsed by the federal government on the topic of the effects of a currency collapse and its subsequent impact on society. NORTHCOM, DHS and FEMA as well as other federal entities have practiced for this eventuality. In each and every scenario, the facts remain the same, human beings and society follows a very predictable pattern of decline when the currency of the day collapses. And normally, the currency collapse comes without any warning to the general public.

When George Soros recently pulled his money from the S&P 500 and from Bank of America, Citibank and JP Morgan, all Americans should have sat up and taken notice. Generally, when the currency collapses, a stock market crash is right on its heels. Because of the repeal of Glass-Steagall, a banking meltdown will immediately occur following the collapse of the stock market because since Clinton’s presidency, banks are now allowed to loan money for investment in the stock market and for down payments for homes. It was irresponsible of Congress to repeal Glass-Steagall, because it made surviving an economic Armageddon a near impossibility just as it did during the 1929 crash.

In a currency collapse, your life savings will be wiped out. From this point on, the effect cascades like a roaring tsunami racing across the open ocean.

Hurricanes Katrina and Sandy demonstrated that gas stations will be bone dry within two days following a complete collapse. Subsequently, commerce will not move. If you are on vacation, you may not make it home. On the second day following a currency collapse, being on the road will be a risky endeavor because of other desperate motorists who will lie in wait to rob other motorists of essential supplies and resources.

With no available fuel, the grocery and drug stores will be empty within one to three days. There will be no food to be had except for that which is decaying in your refrigerator and that in which you can beg, borrow and steal from your neighbors who will also be begging, borrowing and stealing. from your other neighbors. If you have an adequate food and water supply, you better have an adequate gun and ammo supply in order to defend your assets. And when will you sleep? The protection of your critical assets is a 24/7 proposition. Therefore, having a cooperative survival plan is critical.

Without gas, people will stop going to work. Corporations will disappear overnight. Hurricane Katrina showed America that the police cannot be expected to stay on the job more than 48-72 hours as they will be home protecting their families and foraging for food and water like everyone else. The emergence of former police, now operating as gangs, will become common in an effort to secure the products which will ensure survival. Therefore, when your home is under attack, there will nobody to call. Everyone will be on their own.

The elderly and the chronically ill will be the first to die. Too old to defend their assets, the elderly will find themselves overpowered as they will make easy preys of opportunity for the roving gangs. The chronically ill will have no way to procure their medication and even if they survive the looting rampage which will follow a currency collapse, these poor souls will perish without access to their life-sustaining prescriptions.

The money in your wallet will be useless. Cell phones will not work. Heating and air conditioning will not work either and depending on the time of year, the environment could prove deadly to untold numbers of people.

Water treatment plants will stop operating for the same reasons that you will not be able to find a cop during this crisis nobody will be manning the water treatment plants. Toilets will back up and diseases will spread like wildfire. Cholera will become the leading cause of death even surpassing homicide. Something as simple as toilet paper will become a prized commodity. There will be no trash pickup and more disease will result due to the increased rodent population.

Clean drinking water and hunger will become the dominant motivator in society. Roving bands of looters, turned murderers, will sweep through neighborhoods seeking to obtain these critical elements of survival. Young women will sell themselves for a can of food for their children. Society will see the widespread loss of human dignity and self-respect.

Infanticide and euthanasia of the weak will become common events because there will be decided efforts to reduce the amount of mouths to feed. There will be the stark realization that the lights are not coming back on and the ensuing sense of hopelessness will lead to murder-suicides within families and simple incidences of suicide will be used as a means to escape the horrendous circumstances.

Humanity’s Darkest Hour

There will come a time when all the available animals will be devoured and then there will be only one place to turn to for food. History shows thatcannibalism will set in by the beginning of the third week. Extreme hunger will lead to humans hunting humans as an available food supply. There is a real possibility that this could begin to occur within 15-20 days following the currency collapse.

The Government’s Version of the Final Solution

If the establishment military has properly planned, they will move into take control but they will not move quickly. The more death there is, the fewer people there will be to control. Government will typically move in with their solutions towards the end of the second week as has been the case in past economic collapses. The earliest the military could be deployed on the streets would be about four days from the event. Even then, the military cannot be everywhere. Christians should pay particular attention for when the Roman currency was debased in the third century, there was a revolving door for Roman emperors and Christians became the scapegoats for the economic issues.

To fully understand the relationship that will exist between yourself and the government, Google “Executive Order 13603″. The reasons behind the creation of Executive Order 13603 will soon become readily apparent. You will retain ownership over nothing including food, water, guns, ammunition, your house, your car and even yourself. If you survive, you will be conscripted to work in some capacity in a specialty and location not of your choosing. The provisions for dealing with potential dissidents will go into motion under the NDAA which allows for mass arrest and secret incarcerations without due process. There is one ironclad thing that you can count on, food and water will be used to control the people following the collapse of the dollar

Who Will Help Us?

When past currency collapses occur, organizations such as the World Bank, the IMF, the UN and the US have appeared to render their predatory version of help in exchange for control of critical infrastructure and other capital considerations. Because of this aid, more people survived in the impacted areas. However, what happens when the top dog collapses? Who would be able to come and render aid in America? Even in a world disgusted by our imperialistic ways would  offer help, could they? Not under the coming circumstances could anyone offer help because they will be in a worse situation.

In short, there will be nobody riding in to rescue the United States. Despite some rebelling against the dollar, the world is still dependent upon our currency. When the currency collapses it will pull the rest of world down with us. The subsequent collapse of global currencies will indeed constitute a major depopulation event and all the elite have to do is wait it out in places like the tunnels under Denver International Airport.

During this time, Americans will truly discover if there really are FEMA camps and what they will be used for. If people want to eat, they will be enticed to go where food is promised. Although you can count on the above mentioned events transpiring in the event of a currency collapse, what lies ahead is unknown to a large extent because the top dog will not have been economically obliterated in modern history.

Conclusion

In addition to what has previously been written, in an economic collapse, we can expect the government to impose travel restrictions and martial law. Life, as we know it will not be recognizable.

Obama is willing to talk about the $17 trillion dollar deficit. However, you never hear the government nor the media discuss the real debt? Our real financial obligations total $240 trillion dollars through programs like social security, Medicare, public pensions and welfare. Subsequently, I want to make one thing abundantly clear; It is not a matter if we are going to have a currency collapse, it is when.  And the when is much sooner than later.  It could happen tomorrow, next month and even next year. We do not have two years left in the American economic engine. A currency collapse is nothing to look forward to, and people who intend on surviving the event should be in the midst of their preparations.


Dave Hodges is an award winning psychology, statistics and research professor, a college basketball coach, a mental health counselor, a political activist and writer who has published dozens of editorials and articles in several publications such as Freedom Phoenix, News With Views, and The Arizona Republic.

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"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.
ccp
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« Reply #886 on: December 13, 2015, 07:46:19 AM »

http://www.businessinsider.com/goldman-fomc-meeting-preview-2015-12

Cramer:  "sell, sell, sell"   rolleyes
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Crafty_Dog
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« Reply #887 on: December 17, 2015, 01:25:15 AM »

As Fed Finally Raises Rates, Pent-Up Risks Emerge
Fed bets that low rates’ job benefits outweigh any financial disruption
A sharp decline in commodities prices amid a slowing Chinese economy and a glut of oil has upended markets. How it plays out as the Fed starts raising rates is anyone’s guess, but it bears watching. ENLARGE
A sharp decline in commodities prices amid a slowing Chinese economy and a glut of oil has upended markets. How it plays out as the Fed starts raising rates is anyone’s guess, but it bears watching. Photo: Richard Drew/Associated Press
By Greg Ip
Updated Dec. 16, 2015 12:33 p.m. ET
19 COMMENTS

The Federal Reserve always knew its unprecedented campaign to boost employment could have unsavory side effects. As that campaign comes to an end, those side effects are making themselves felt.

Seven years of near-zero interest rates caused investors to pour money into corporate debt, emerging-market bonds and commercial real estate, all in search of higher returns. Now that money has started to leave, borrowing costs are climbing, and markets have turned treacherous.

The big question is whether this is a transitory disruption, of consequence mostly to Wall Street, or the tip of a more dangerous iceberg.

Right now, the odds are it’s transitory. But history counsels caution: The scale and nature of the distortions brought on by easy monetary policy can take time to show up.

Historically, inflation was the risk the Fed worried about when it held interest rates low. This time, the Fed would actually welcome a rise in inflation, which has consistently undershot its 2% target. Its greater concern in recent years has been that low interest rates would fuel unsustainable asset bubbles. It has concluded that the boost to employment it achieved with easy policy now would outweigh the potential harm of a bursting bubble later.

It’s a calculated bet. The harm from financial disruptions is much less predictable than from inflation, because it involves linkages that are apparent only under stress.

Janet Yellen, the Fed’s chairwoman, is sanguine. Despite the recent bond market turmoil, financial conditions are “supportive” of growth she told reporters Wednesday.

Two precedents offer lessons. In early 1994, the Fed began to raise interest rates after holding them at 3% for more than a year. That soon triggered a big selloff in the bond market that bloodied Wall Street and, by year-end, bankrupted Orange County in California. Yet the broader economy barely noticed.

In 2004, the Fed began to raise interest rates after holding them at 1% for a year. Three years later, the subprime mortgage crisis began, and the economy tumbled into its worst recession since the 1930s.

Both times, the Fed was only one of many factors at work. The 1994 selloff was compounded by a surge in Japanese bond yields and U.S. mortgage hedging that amplified the Fed’s effect on Treasury bonds. In the 2000s, foreign savings, in particular from China, flooded into the U.S., holding down interest rates. The force of lower rates touched off a home-price bubble. Wall Street engineers then went to work making subprime mortgages to ever-riskier borrowers seem safe. The economic consequences didn’t show up until 2007, when the Fed had already finished tightening.
An oil glut has contributed to a tumultuous period in global markets. Here, an oilfield in California earlier this year. ENLARGE
An oil glut has contributed to a tumultuous period in global markets. Here, an oilfield in California earlier this year. Photo: Mark Ralston/AFP/Getty Images

This time, not only is the Fed tightening, but a slowing Chinese economy and unrestrained oil production from the Organization of Petroleum Exporting Countries have also sent commodity prices plunging, hammering emerging economies and U.S. companies that borrowed heavily to pump oil from shale rock in the U.S. No one knows how these factors may interact with whatever imbalances have accumulated over seven years of near-zero rates.

“You can never say a bubble or a mania has a single cause,” says Jim Bianco of Bianco Research, a 30-year veteran of Wall Street’s booms and busts. “But one common theme is a green light for risk taking, and one way you get that green light is the central bank giving you ultra cheap money and encouraging you to do something with it.”

The Fed lowers rates to encourage borrowing and, in turn, to boost employment and prices. But it has little say in who borrows. The flow of credit to less-creditworthy home buyers and small businesses has been hampered by weak demand, increased caution by banks, and new regulations.

By contrast, a gusher of credit has flowed to companies in the U.S. and in emerging markets. Banks’ loans to leveraged companies have been pooled into “collateralized loan obligations.” A large chunk of the leveraged loans held in CLOs are rated just above CCC, at which companies are considered vulnerable to default. If even a fraction is downgraded, the CLOs’ demand for new loans will contract sharply, a report by Ellington Management Group, a hedge-fund manager, recently warned. “Access to credit for weaker companies would be significantly diminished,” says Rob Kinderman of Ellington.

Between 2009 and 2014 investors poured $973 billion into corporate bond mutual funds and $219 billion into exchange-traded funds that hold corporate debt, according to Thomson Reuters Lipper. Some of those flows are now reversing.
ENLARGE

Companies have for the most part used the money not to expand their business operations, but to buy one another and their own stock. This year alone, U.S. companies have borrowed $327 billion to finance mergers and acquisitions, according to Thomson Reuters, more than double the previous full-year high in 2012. Business debt now equals 70% of annual gross domestic product, surpassing its pre-recession peak.

This alarms regulators. The Treasury, in its annual financial-stability report released Dec. 15, warned higher rates and widening spreads between corporate and Treasury rates “may create refinancing risks, expose weaknesses in heavily leveraged entities, and potentially precipitate a broader default cycle.” The extent of borrowing since the crisis means “even a modest default rate could lead to larger absolute losses than in previous default cycles.”

Leverage is often fueled by savers’ confidence that their money is safe. A decade ago, they thought triple-A rated securities and secured, overnight “repo” loans would never default, and shares in money market mutual funds would always be worth one dollar. In fact, many of the securities defaulted, there was a run on the repo loans, and a money fund “broke the buck.”

This time, the illusion has been fed by promises from mutual funds and exchange-traded funds that investors can redeem their shares daily or during the day at close to the funds’ underlying value. But those funds hold bonds that are increasingly difficult to trade as dealers become less willing to take such bonds onto their books.

Low rates have had an even bigger impact in emerging markets than the U.S.; their companies have racked up $3.4 trillion of U.S. dollar-denominated debt, more than double the pre-crisis level, according to the Bank for International Settlements. As those countries’ currencies fall, those debts become harder to repay.

These warning signs need to be taken in context. Most violent market gyrations don’t lead to crises. The global financial crisis reflected a rare confluence of factors: not just low rates and financial engineering but also weak regulation and highly leveraged financial institutions. Banks today have much more capital, fickle short-term borrowing is less prevalent and regulators are more vigilant—arguably too vigilant in some cases.

“We have a far more resilient financial system now than we had prior to the financial crisis,” Ms. Yellen said Wednesday. Many companies, she added, have reduced their debt payments and reduced their reliance on short-term debt.

Even if the flow of credit to companies were to abruptly dry up, that may not have much economic fallout. A decade ago mortgage credit financed home buying and a lot of spending elsewhere. By contrast, corporate debt has fueled mergers and share buybacks. A shutoff of credit might thus endanger share prices, which are already relatively richly valued, but not necessarily investment, or the economy.

Moreover, the more stressed the markets become, the more reluctant the Fed will be to raise rates further. Whether it will ultimately regret waiting so long to tighten—or tightening at all—won’t be known until it’s too late.
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DougMacG
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« Reply #888 on: December 17, 2015, 10:34:16 AM »

Excellent analysis here I think by the WSJ.  The coming crash if there is one isn't caused by the 'tightening', but by the distortions in the market prior to it.  Those distortions continue as interest rates at 0.25% are hardly a return to normal.  We want the 'correction' to be gradual, but that also means the tortured process of guessing and guessing and guessing what the Fed will do next, with all the mood swings, indecision and investment lockup that causes.


From the article:  "Two precedents offer lessons. In early 1994, the Fed began to raise interest rates after holding them at 3% for more than a year. That soon triggered a big selloff in the bond market that bloodied Wall Street and, by year-end, bankrupted Orange County in California. Yet the broader economy barely noticed.

In 2004, the Fed began to raise interest rates after holding them at 1% for a year. Three years later, the subprime mortgage crisis began, and the economy tumbled into its worst recession since the 1930s.

Both times, the Fed was only one of many factors at work. ..."


Right.  And as they point out, there are more factors at work now.  We are still masking huge problems, tax and regulatory to name a couple, by infusing money.  In 2004 we should have fixed the GSEs and CRAp.  Today we should fix what is fundamentally wrong too if it isn't too late.  Unfortunately the only way to fix what is wrong is to get our political-economic head on straight right now (nearly impossible) and still wait a year (likely fatal) to make the immense structural changes that are needed (difficult to do even if we sweep the elections).

So yes, interest rates should be right sized, and and yes it will trigger a crash if we are so stubborn that we refuse to see the freight train in front of our face coming at us.

Not unrelated, I just received a health care increase of 65%, more than a house payment for lousy coverage for just one person, up 20-fold since I went self employed and bought the policy.  Our free economy is wrapped up in rope, tied to a stake and people are throwing spears at us - while the party in power is saying double down on the status quo - and leading in general election polling.

I don't trust any economist or analyst who doesn't admit our economic fate is all political.
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Crafty_Dog
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« Reply #889 on: January 11, 2016, 07:05:33 PM »



By Mark Fleming-Williams

Christmas did not offer much good cheer to the world's bankers, who have received a sustained kicking since the financial crisis erupted in 2008. In the latest blow, Switzerland announced that it would hold a referendum on a radical proposal that would strip commercial banks of the ability to create money, depriving them of a great deal of their profit-making capabilities. If the Swiss proposal catches on around the world, it could shred core business assumptions that have underpinned the banking model over the past three centuries.
From Babylon to Central Bank

The earliest banks we know of, in ancient Babylon, were temples that doubled as repositories where one could store wealth. At some point, the guardians of the stored treasure realized they could put this accumulated wealth to work, and banks accordingly began to lend capital. Borrowers would pay interest on what they borrowed, and this interest would ultimately find its way back to the lenders after the banks had taken a cut. The banks became trusted intermediaries that brought lender and borrower together and ensured neither would be cheated. Paper money emerged after people found it was easier to buy things using deposit slips from their bank than carrying gold around.

The next evolution happened when bankers realized that since depositors almost never simultaneously withdrew all their funds, banks could lend more capital than had been deposited. This allowed banks to "create" money in the sense that bankers could issue loans not necessarily backed up by hard deposits. Creating revenue in this way proved lucrative, but it brought banks into conflict with rulers, who were notionally in charge of the state's money supply and any gains to be made from it. In England, whose financial system is in many ways the progenitor of today's global system, this battle was played out between banker and ruler in the 16th and 17th centuries.

Ultimately, in 1666 King Charles II — well aware of the limits of his own power thanks to the beheading of his father 17 years earlier — put control of the money supply into private hands. The privatization of the money creation process gave birth to the system we use today, in which private or commercial bank loans are responsible for 97 percent of the money circulating in the modern global economic system. In another change, 28 years after Charles II's reform, an enterprising group of businessmen offered the government cheaper loans in exchange for certain privileges, such as a monopoly over the printing of physical currency, and so the Bank of England was born.

The benefits of the new system proved immediately apparent. Interest rates on government borrowing dropped from 10-14 percent in the 1690s to 5-6 percent in the early 1700s. This allowed Britain a great deal of leeway when it came to military spending, which it soon put to use. But the privatization of money creation also came with drawbacks, namely the economic cycle of boom and bust. Leaving the money-lending and -creating decisions up to banks resulted in a system of extremes where bankers created speculative bubbles via vast quantities of loans and money when times were good, only to refuse to lend — in a sense destroying money — once an ensuing speculative bubble burst.

This led to liquidity crises, with the South Sea Bubble of 1720 providing early evidence of this mechanism kicking into action. The fact that banks were lending more money than they could back up with capital also left them exposed to bank runs whenever the public lost confidence in them. The reserve ratio, which requires banks to keep a fraction of their loans backed by safer assets such as government debt or central bank money, is an attempt to keep this threat at bay. But it is an inherent characteristic of so-called fractional reserve banking that the risk of bank runs is ultimately inescapable.

Britain, and indeed all the other countries that came to adopt the system, grew accustomed to a regular waxing and waning of the money supply and to the consequent up-and-down economy. There were ways to palliate this cycle, with the Bank of England slowly developing into the stabilizing force it is today. In times of crisis, the Bank of England would lower interest rates and flood the market with liquidity, bailing out any solvent but illiquid banks to keep the system functioning, thus smoothing the money supply's wilder fluctuations.

As British and then American influence spread, so did banks' power, and capital flowed ever more freely around the world as domestic deposits were used to finance international projects. The system was heading for a fall, however, when World War I created great economic imbalances between Europe and the United States. In the 1920s, the Federal Reserve attempted to restore prewar parity by keeping interest rates artificially low, but this led to abundant speculative U.S. capital flooding across the Atlantic, particularly into Germany. The ensuing giant bubble finally popped in 1929, leading to the dramatic liquidity shortages of the Great Depression and creating the circumstances that culminated in World War II. The experience led to the partial reining in of banks, with the Glass-Steagall legislation in the United States in the early 1930s limiting their ability to take part in speculative investments.

Time has a way of chipping away at such precautions, however, and the banks gradually escaped their shackles and capital came to flow freely around the world once again. More countries became accustomed to the ebb and flow of bubble and crisis, though these crises tended to be more regional in scope (e.g., Latin America, Asia, Scandinavia). When global crisis finally struck again in 2008 it was different from 1929 in that there was no world war to blame for the global economic imbalances; this crisis followed an extended period of the banks having had things pretty much their own way. Instead, it was a giant version of the regular crises inherent in the system. This led to the thinking that it is the banks, and indeed the system they created around themselves, that need changing. In the eight years since 2008, layer upon layer of 1933-style regulation and restriction have thus been heaped on the banking sector.
A Radical Reform

It is into this atmosphere that the idea of stripping banks of their money-creating abilities has gained currency (regained, in fact, since calls for it date back at least to the 1930s). According to its proponents, the way to root out the instability inherent to the system is to require banks to back their loans 100 percent with reserves. This essentially would be a step back to the point where banks would again function as conduits rather than creators of capital. Under the reformed system the creation of new money would instead be the prerogative of the central bank and the government. These national institutions would in theory be motivated by the needs of the state rather than by short-term profit and would keep the money supply growing at a fixed rate, doing away with the wild fluctuations of the credit cycle. (One challenge to overcome would be politicians attempting to hijack the money supply for short-term political gain.) Proponents of such a system point to many expected benefits: bank runs would be eliminated, the proceeds of money creation would go to the government and thus the taxpayer rather than to the banking elite, government debt would be a thing of the past, and private debt would be greatly reduced. (Indeed, the predominance of debt in today's world is partly a product of it being required in the money creation process.)

But there also would be great risks involved, the main one being the fear of the evil unknown. Though the economic instabilities of the past 300 years appear to have resulted largely from the fractional reserve system, was it also responsible for the relatively breakneck growth over the same period? Moreover, the changeover from one system to the other would be extremely tricky, requiring vast quantities of central bank money-printing and debt buybacks. That would be a recipe for an extremely fraught period carrying immense risks of mismanagement. In truth, another full-blown financial crisis may have to take place before such a changeover could be made at the global level.

But the theoretical upsides are great, as are frustrations with the current system, and the idea has begun to gather momentum. In 2012, the International Monetary Fund published an influential research paper laying out the case for the proposed system, and in 2015 the Icelandic government commissioned a report on the prospect of undertaking the changes. In Switzerland, a law requiring a referendum to take place should 100,000 signatures be gathered has set the country on a course to possibly being first to undertake the great experiment. Strikingly, the revolution is being considered at both ends of the spectrum: Iceland has lately proved among the most financially adventurous players on the global economic scene, while Switzerland has long been one of the most conservative. Considering the risks involved, adoption in a smaller economy such as Iceland or Switzerland would be a useful test case from a global perspective. It would limit the cost of failure to the global economy while helping establish the best way of adopting the changes should the reforms actually work.

For banks, the prospect is of course nothing less than a nightmare scenario, especially coming on top of all of their existing woes. These have included not only increased regulation but also the threat from a disruptive new technology undercutting their basic model in the form of Bitcoin, the new electronic currency that emerged almost exactly as the financial crisis struck. While Bitcoin has suffered its own wild fluctuations in the eight years since its birth, the technology that underpins it, Blockchain, has truly historic potential. The architects appear to have created an electronic system in which both parties in a transaction can act with confidence without the need for an intermediary, though there is some added risk for the payer, since reversing transactions is more difficult than in traditional banking. The world's banks therefore face both the prospect of losing their money-creation privileges, as well as a potential usurper threatening their long-established role as the middleman through which all capital must flow. As 2015 fades into 2016, it is hard to think of a time in the past 300 years when the banker's position in society has been more at risk.

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ccp
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« Reply #890 on: January 12, 2016, 11:30:08 AM »

Don't worry.  The bankers will find a way to control the bitcoin.   Someone has to monitor and control that no?
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DDF
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« Reply #891 on: January 12, 2016, 11:32:49 AM »

Don't worry.  The bankers will find a way to control the bitcoin.   Someone has to monitor and control that no?

No...not really...but you know how fat cats are.... they like their scraps....they'll find a way to get their fat, little fingers into it.

Maybe we don't need fat cats.
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It's all a matter of perspective.
objectivist1
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« Reply #892 on: January 15, 2016, 01:46:08 PM »

A recession worse than 2008 is coming

Michael Pento   

The S&P 500 has begun 2016 with its worst performance ever. This has prompted Wall Street apologists to come out in full force and try to explain why the chaos in global currencies and equities will not be a repeat of 2008. Nor do they want investors to believe this environment is commensurate with the dot-com bubble bursting. They claim the current turmoil in China is not even comparable to the 1997 Asian debt crisis.

Indeed, the unscrupulous individuals that dominate financial institutions and governments seldom predict a down-tick on Wall Street, so don't expect them to warn of the impending global recession and market mayhem.

But a recession has occurred in the U.S. about every five years, on average, since the end of WWII; and it has been seven years since the last one — we are overdue.

Most importantly, the average market drop during the peak to trough of the last 6 recessions has been 37 percent. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety.

But this one will be worse.

A major contributor for this imminent recession is the fallout from a faltering Chinese economy. The megalomaniac communist government has increased debt 28 times since the year 2000. Taking that total north of 300 percent of GDP in a very short period of time for the primary purpose of building a massive unproductive fixed asset bubble that adds little to GDP.

Now that this debt bubble is unwinding, growth in China is going offline. The renminbi's falling value, cascading Shanghai equity prices (down 40 percent since June 2014) and plummeting rail freight volumes (down 10.5 percent year over year), all clearly illustrate that China is not growing at the promulgated 7 percent, but rather isn't growing at all. The problem is that China accounted for 34 percent of global growth, and the nation's multiplier effect on emerging markets takes that number to over 50 percent.

Therefore, expect more stress on multinational corporate earnings as global growth continues to slow. But the debt debacle in China is not the primary catalyst for the next recession in the United States. It is the fact that equity prices and real estate values can no longer be supported by incomes and GDP. And now that the Federal Reserve's quantitative easing and zero interest-rate policy have ended, these asset prices are succumbing to the gravitational forces of deflation. The median home price to income ratio is currently 4.1; whereas the average ratio is just 2.6.

Therefore, despite record low mortgage rates, first-time homebuyers can no longer afford to make the down payment. And without first-time home buyers, existing home owners can't move up.

Likewise, the total value of stocks has now become dangerously detached from the anemic state of the underlying economy. The long-term average of the market cap-to-GDP ratio is around 75, but it is currently 110. The rebound in GDP coming out of the Great Recession was artificially engendered by the Fed's wealth effect. Now, the re-engineered bubble in stocks and real estate is reversing and should cause a severe contraction in consumer spending.

Nevertheless, the solace offered by Wall Street is that another 2008-style deflation and depression is impossible because banks are now better capitalized. However, banks may find they are less capitalized than regulators now believe because much of their assets are in Treasury debt and consumer loans that should be significantly underwater after the next recession brings unprecedented fiscal strain to both the public and private sectors.

But most importantly, even if one were to concede financial institutions are less leveraged; the startling truth is that businesses, the federal government and the Federal Reserve have taken on a humongous amount of additional debt since 2007. Even household debt has increased back to its 2007 record of $14.1 trillion. Specifically, business debt during that time frame has grown from $10.1 trillion, to $12.6 trillion; the total national debt boomed from $9.2 trillion, to $18.9 trillion; and the Fed's balance sheet has exploded from $880 billion to $4.5 trillion.

Banks may be better off today than they were leading up to the Great Recession but the government and Fed's balance sheets have become insolvent in the wake of their inane effort to borrow and print the economy back to health. As a result, the federal government's debt has now soared to nearly 600 percent of total revenue. And the Fed has spent the last eight years leveraging up its balance sheet 77-to-1 in its goal to peg short-term interest rates at zero percent.

Therefore, this inevitable, and by all accounts brutal upcoming recession, will coincide with two unprecedented and extremely dangerous conditions that should make the next downturn worse than 2008.

First, the Fed will not be able to lower interest rates and provide any debt-service relief for the economy. In the wake of the Great Recession, former Fed Chair Ben Bernanke took the overnight interbank lending rate down to zero percent from 5.25 percent and printed $3.7 trillion. The Fed bought longer-term debt in order to push mortgages and nearly every other form of debt to record lows.

The best the Fed can do now is to take away its 0.25 percent rate hike made in December.

Second, the federal government increased the amount of publicly-traded debt by $8.5 trillion (an increase of 170 percent), and ran $1.5 trillion deficits to try to boost consumption through transfer payments. Another such ramp up in deficits and debt, which are a normal function of recessions after revenue collapses, would cause an interest-rate spike that would turn this next recession into a devastating depression.

It is my belief that, in order to avoid the surging cost of debt-service payments on both the public and private-sector level, the Fed will feel compelled to launch a massive and unlimited round of bond purchases. However, not only are interest rates already at historic lows, but faith in the ability of central banks to provide sustainable GDP growth will have already been destroyed, given their failed eight-year experiment in QE.

Therefore, the ability of government to save the markets and the economy this time around will be extremely difficult, if not impossible. Look for chaos in currency, bond and equity markets on an international scale throughout 2016. Indeed, it already has begun.

Michael Pento produces the weekly podcast "The Mid-week Reality Check,"is the president and founder of Pento Portfolio Strategies and author of thebook "The Coming Bond Market Collapse."

« Last Edit: January 15, 2016, 01:50:48 PM by objectivist1 » Logged

"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.
Crafty_Dog
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Posts: 35868


« Reply #893 on: January 27, 2016, 11:12:58 AM »

http://www.wsj.com/articles/china-sharpens-efforts-to-halt-money-outflow-1453898254
By Lingling Wei
Updated Jan. 27, 2016 11:58 a.m. ET
29 COMMENTS

China is ramping up efforts to halt a flood of money leaving the country in response to an economic slowdown, moves that risk undermining Beijing’s ambition to elevate the yuan’s profile on the world stage.

Its latest steps involve curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans, and banning yuan-based funds for overseas investments, people with direct knowledge of the matter said.

The measures, most of which haven’t been publicly disclosed, follow efforts by China’s central bank to discourage investors from betting against the yuan and to crack down on overseas money transfers.

“They’re sparing no effort to prevent capital outflows,” said a senior Chinese banking executive close to the central bank. “All the measures are the most aggressive I’ve seen in recent history.”
ENLARGE

The people with direct knowledge said the People’s Bank of China, the central bank, also is considering ways to lure money back to the country, including letting foreign residents and companies buy certificates of deposit for fixed periods. Currently they are restricted to ordinary deposit accounts.

The central bank didn’t respond to requests to comment.

The unusual moves come as China burns through foreign-exchange reserves to prop up its currency and stem an increasingly vicious cycle of easing credit, a weakening currency and fleeing capital. Too much outflow, Chinese officials say, could threaten the stability of the country’s financial system.

Just two months ago, the International Monetary Fund’s designated the yuan as one of the world’s reserve currencies, a nod to China as a global economic power. Still, Beijing is now retreating from its pledges to give markets more influence in setting the yuan’s value. Many investors say they are also concerned over what they consider to be inadequate communication by the central bank.

The last time central bank Gov. Zhou Xiaochuan spoke publicly was in early September, when he sought to reassure central bankers and finance ministers from the Group of 20 large economies that the rout in China’s stock markets was nearing an end.

Investors and analysts have questioned the government’s commitment to market liberalization following Beijing’s attempts to prop up the stock market this past summer and, more recently, sending mixed signals over yuan policy.

“China is aggressively reinserting capital controls,” said Scott Kennedy, a deputy director at Center for Strategic & International Studies, a bipartisan think tank in Washington. “It appears China has for the foreseeable future given up on the goal of substantial exchange-rate liberalization.”

The most obvious sign of China’s effort to stem capital outflows is a precipitous drop in its foreign-exchange reserves, which by December had fallen by about $700 billion from a record of nearly $4 trillion in mid-2014.

China had steadily accumulated reserves since the mid-1990s as its exports boomed. But the flow reversed after China devalued the yuan in mid-August, prompting the central bank to use its reserves to defend the currency. The risk was that a sharp fall could spark capital flight, as yuan-denominated assets become less attractive to hold.

In its latest efforts, the central bank instructed banks on the mainland to require more detailed documentation from corporate customers to remit profits back to their home countries. “The process is way more stringent than before,” said a U.S. property developer who has investments in Shanghai.

Meanwhile, the central bank on Monday started to impose reserve requirements on Hong Kong-based yuan deposits parked by offshore banks at a Bank of China Ltd. unit, said the people familiar with the matter.

Many foreign banks said they were surprised by the action since the reserve requirements previously applied only to yuan deposits held by offshore banks on the mainland, according to the people.

The new rule effectively reduces the amount of yuan funds in Hong Kong’s banking system by about 150 billion yuan ($23 billion), estimates China economist Larry Hu at Macquarie Securities, a Sydney-based investment bank. Yuan deposits total about 1 trillion yuan in Hong Kong.

“The central bank is squeezing liquidity in Hong Kong so it will be more expensive to wager against the yuan offshore,” Mr. Hu said.

In another effort aimed at limiting fund outflows, the central bank recently urged mainland banks to sharply raise the interest rates on any loans taken out by banks operating in Hong Kong for lending, the people said.

That has discouraged Hong Kong banks from taking yuan-based funds from the mainland, effectively making it all-but impossible to continue their yuan-lending business abroad.

“The offshore yuan-lending business is dead,” an executive at one of China’s top four state banks said.

The central bank has also forbidden foreign asset managers, including hedge funds and private-equity firms, from raising yuan-based funds aimed for overseas investment. That reversed previous efforts to promote yuan internationalization.

Write to Lingling Wei at lingling.wei@wsj.com
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G M
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Posts: 13270


« Reply #894 on: January 27, 2016, 11:31:26 AM »


Good thing that isn't happening here.

http://www.foxbusiness.com/politics/2016/01/05/irs-gets-new-powers-to-revoke-passports.html


http://www.wsj.com/articles/china-sharpens-efforts-to-halt-money-outflow-1453898254
By Lingling Wei
Updated Jan. 27, 2016 11:58 a.m. ET
29 COMMENTS

China is ramping up efforts to halt a flood of money leaving the country in response to an economic slowdown, moves that risk undermining Beijing’s ambition to elevate the yuan’s profile on the world stage.

Its latest steps involve curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans, and banning yuan-based funds for overseas investments, people with direct knowledge of the matter said.

The measures, most of which haven’t been publicly disclosed, follow efforts by China’s central bank to discourage investors from betting against the yuan and to crack down on overseas money transfers.

“They’re sparing no effort to prevent capital outflows,” said a senior Chinese banking executive close to the central bank. “All the measures are the most aggressive I’ve seen in recent history.”
ENLARGE

The people with direct knowledge said the People’s Bank of China, the central bank, also is considering ways to lure money back to the country, including letting foreign residents and companies buy certificates of deposit for fixed periods. Currently they are restricted to ordinary deposit accounts.

The central bank didn’t respond to requests to comment.

The unusual moves come as China burns through foreign-exchange reserves to prop up its currency and stem an increasingly vicious cycle of easing credit, a weakening currency and fleeing capital. Too much outflow, Chinese officials say, could threaten the stability of the country’s financial system.

Just two months ago, the International Monetary Fund’s designated the yuan as one of the world’s reserve currencies, a nod to China as a global economic power. Still, Beijing is now retreating from its pledges to give markets more influence in setting the yuan’s value. Many investors say they are also concerned over what they consider to be inadequate communication by the central bank.

The last time central bank Gov. Zhou Xiaochuan spoke publicly was in early September, when he sought to reassure central bankers and finance ministers from the Group of 20 large economies that the rout in China’s stock markets was nearing an end.

Investors and analysts have questioned the government’s commitment to market liberalization following Beijing’s attempts to prop up the stock market this past summer and, more recently, sending mixed signals over yuan policy.

“China is aggressively reinserting capital controls,” said Scott Kennedy, a deputy director at Center for Strategic & International Studies, a bipartisan think tank in Washington. “It appears China has for the foreseeable future given up on the goal of substantial exchange-rate liberalization.”

The most obvious sign of China’s effort to stem capital outflows is a precipitous drop in its foreign-exchange reserves, which by December had fallen by about $700 billion from a record of nearly $4 trillion in mid-2014.

China had steadily accumulated reserves since the mid-1990s as its exports boomed. But the flow reversed after China devalued the yuan in mid-August, prompting the central bank to use its reserves to defend the currency. The risk was that a sharp fall could spark capital flight, as yuan-denominated assets become less attractive to hold.

In its latest efforts, the central bank instructed banks on the mainland to require more detailed documentation from corporate customers to remit profits back to their home countries. “The process is way more stringent than before,” said a U.S. property developer who has investments in Shanghai.

Meanwhile, the central bank on Monday started to impose reserve requirements on Hong Kong-based yuan deposits parked by offshore banks at a Bank of China Ltd. unit, said the people familiar with the matter.

Many foreign banks said they were surprised by the action since the reserve requirements previously applied only to yuan deposits held by offshore banks on the mainland, according to the people.

The new rule effectively reduces the amount of yuan funds in Hong Kong’s banking system by about 150 billion yuan ($23 billion), estimates China economist Larry Hu at Macquarie Securities, a Sydney-based investment bank. Yuan deposits total about 1 trillion yuan in Hong Kong.

“The central bank is squeezing liquidity in Hong Kong so it will be more expensive to wager against the yuan offshore,” Mr. Hu said.

In another effort aimed at limiting fund outflows, the central bank recently urged mainland banks to sharply raise the interest rates on any loans taken out by banks operating in Hong Kong for lending, the people said.

That has discouraged Hong Kong banks from taking yuan-based funds from the mainland, effectively making it all-but impossible to continue their yuan-lending business abroad.

“The offshore yuan-lending business is dead,” an executive at one of China’s top four state banks said.

The central bank has also forbidden foreign asset managers, including hedge funds and private-equity firms, from raising yuan-based funds aimed for overseas investment. That reversed previous efforts to promote yuan internationalization.

Write to Lingling Wei at lingling.wei@wsj.com
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DougMacG
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Posts: 7500


« Reply #895 on: February 03, 2016, 10:00:05 AM »

One of the academic controversies in monetary policy is whether the Fed sets interest rates or follows them.

http://nypost.com/2016/02/01/the-fed-screwed-up-by-not-raising-interest-rates-sooner/
Remember when the Federal Reserve raised interest rates on Dec. 16? It did that for the first time in years by increasing something called the discount rate, which is one of the few borrowing costs it controls.

On that date, the yield on the 10-year US government bond was 2.314 percent.  Today, that yield is 1.933 percent.

So rates have actually gone down substantially since the Fed tried to raise them.
----------------------------

Did I mention this is a pathetically anemic economy?
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G M
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Posts: 13270


« Reply #896 on: February 03, 2016, 09:24:49 PM »

http://straightlinelogic.com/2016/02/03/crisis-progress-report-16-its-gone-by-robert-gore/

Gone.
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Crafty_Dog
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Posts: 35868


« Reply #897 on: February 07, 2016, 10:08:43 PM »

http://pamelageller.com/2016/02/iran-replaces-us-dollar-with-the-euro-in-oil-sales.html/
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