Friday, May 31, 2013

David Stockman: "The Error Of Central Banking Has Become Universal".........AN ABSOLUTE MUST READ!

David Stockman: "The Error Of Central Banking Has Become Universal"

In the old normal when we had an honest Fed, under Volcker, David Stockman explains, the market could judge what Congress and the White House was doing and decide where the risk/reward equation was and how to price the bond, the note, the bills, but in the new normal, today, the market is entirely rigged. 

Stockman is no fan of deficits and as he notes is no fan of money-printing, pointing out that it's not honest, for the Fed to fund these chronically growing deficits and create an unsustainably and very dangerous financial system. 

Stockman sums it up perfectly when he notes, the error of central banking has become universal. THAT FOLKS IS THE GREAT DANGER! GREAT INDEED!

We're taxing future generations, they're going to damn you for the massive disaster that was handed to them.

Honesty will never come from the Fed or politicians who benefit in the short run from these disastrous policies. Of course we are all going to pay dearly in the long run.

You have both parties deeply entrenched and beholding to the military complex and we're spending billions more  for defense each year.

So the only honesty to be had will be in raising taxes.

The revolution will come when you tell the middle class they're not going to get a tax cut - that they're going to pay more, not less.

Then they will finally wake up.

Then they will march on Washington and demand that we do something about the giant programs that are currently in place and growing because everybody thinks the Fed will take care of the debt.

On Bernanke: 

He doesn't want to be around for the consequences of what he's doing.

On Fiat: 

Paper money doesn't have a very glorious history, but again, nothing imposed by government has a very long and glorious history.


On Europe's Crisis: 

You can postpone it all you want, but the problems just continue to mount.


On Capitalism: 

You are not supposed to take money away from the competent people and give it along with bailouts and stimulus money to the incompetent so that the incompetent can compete with the competent people who are using only their own money. That's not the way capitalism is supposed to work.

WE ARE HEADED FOR THE BIGGEST FINANCIAL CRISIS IN THE HISTORY OF THE WORLD! 

IT'S NOT AN HONEST SYSTEM, IT IS A SYSTEM BASED ON POWER AND GREED AND IT IS BUILT ON NOTHING BUT LIES.  

 

The Trick To Suppressing Revolution.........AN ABSOLUTE MUST READ!

The Trick To Suppressing Revolution  

The 30 million whose hard labor funds the parasitic status quo don't have to rebel; they simply have to stop going to work, stop starting enterprises, stop being productive.
 
Parasites must balance their drive to maximize what they extract from their host with the risk of losing everything by killing their host. 

This is the dilemma of the parasitic partnership of the central state and financial Elites everywhere: to extract the maximum possible in debt payments and taxes without sparking rebellion and revolution.
 
I have often commented on the current class structure, which paradoxically unites the interests of the top 1/5% of 1% and their political-class toadies and the bottom 50% who are drawing transfer payments/benefits from the state: both support the status quo because both receive direct benefits from it.  AND THEY HAVE NO DESIRE TO ELECT ANYONE WHO WILL FIX OR CHANGE ANYTHING THAT WILL DISRUPT THEIR CORRUPT AGENDAS.
 
The 20% who pay most of the tax and service much of the debt are in the middle, a political minority of debt/tax serfs who finance the status quo, i.e. cartel-crony capitalism owned and operated by the financial and political Elites.
 
The numbers of Americans drawing benefits from the state are astounding: almost 11 million people drawing lifetime disability from Social Security (The Number Of US Citizens On Disability Is Now Larger Than The Population Of Greece); Social Security (SSA) has 61 million beneficiaries as of March 2012; Medicare had 49.4 million beneficiaries in 2012, and Medicaid has over 50 million beneficiaries (another source puts the current number at 58 million, but the Kaiser Family Foundation says roughly 7 million "dual-eligibles" receive both Medicaid and Medicare, so let's use the data point of 50 million Medicaid-only recipients.)
 
This aligns fairly well with the 48 million drawing SNAP (food stamp) benefits: Food stamp Recipients Hit Record. 

This means roughly 110 million people are drawing significant direct benefits from the Federal government (central state) while the number of full-time workers is 116 million--about a 1-to-1 worker-beneficiary ratio. HOW WILL THE GENERATIONS COMING AFTER THE BOOMERS FUND THIS? THE ANSWER IS THEY WON'T! IF YOU THINK IT IS TOUGH IN AMERICA NOW, JUST WAIT. 
 
The problem is two-fold: the entitlement programs are running massive deficits even though the Baby Boom has barely started to enter the programs, and the number of workers earning enough to pay significant income taxes is remarkably limited.
 
As I detailed in The Fraud at the Heart of Social Security, the program paid out $707 billion in 2010 and collected $631 billion in taxes, a $76 billion shortfall for 2010. The current program (2012) cost is $817 billion, a leap of $100 billion in a few short years as Baby Boomers flood into the program.
 
Of the roughly 142 million workers in the U.S., 38 million earn less than $10,000 per year, 50 million earn less that $15,000 a year and 61 million earn less than $20,000 annually. All these numbers are drawn directly from Social Security Administration payroll data.
 
100 million wage earners, or 2/3 the entire workforce, earn less than $40,000 per year. GOVERNMENT PROMISES  ARE NOTHING BUT LIES! MANY PENSION FUNDS ARE IN SIMILAR POSITIONS. 
 
Most of the heavy-lifting in terms of paying income taxes falls to about 30 million people, the top 20% of wage earners.  EXACTLY WHY THESE ARE THE ONLY PEOPLE THE IRS AUDITS AND HARASSES. IT IS A RACKET FOLKS. THE BIGGEST CRIMINAL ENTERPRISE EVERY FOISTED UPON FREE A FREE SOCIETY. MOST AMERICANS ARE STUPID ENOUGH TO BELIEVE IT IS THEIR PATRIOTIC DUTY TO GO ALONG WITH THIS EVIL SCHEME.
 
As for debt-serfdom, the status quo has widely distributed huge debt loads via home mortgages and student loans. A trillion here and a trillion there and pretty soon you're talking real money:

 
 
The banks have written off some defaults but the debt load on the serfs hasn't declined much:


 
Meanwhile, real wages have been declining, meaning there is less money left to service debt:


This presents the partnership of the financial kleptocracy and the state with an insoluble problem: their parasitic skimming of rentier debt payments and taxes has reduced the income of 95% of the workers, leaving them less able to service more debt and pay more taxes.
 
The parasitic financial class is not about to accept lower wealth accumulation, so the state must protect the cartel-rentier arrangements of the Elites at all costs. 

But the state must also buy the complicity of 110 million (going on 150 million as the Baby Boom retires) potentially restive citizens, an open-ended spending commitment that is only sustainable if the economy and those employed full-time expand smartly.
 
Alas, financialization (debt-serfdom) and higher taxes (the transformation of the middle class into tax donkeys) have gutted the real economy, driving real income lower for 95% of the workforce that still has earned income.
 
Hmm, what's a parasitic kleptocracy to do? The ever-resourceful Elites have hit on a solution: 1) print money via central banks and 2) borrow trillions of dollars, euros, yen, yuan, etc. to fund the status quo.
 
These adaptations have enabled the parasites of the financial Elites and the state to maintain their exploitation of their primary host, i.e. the dwindling middle-class of tax donkeys and debt-serfs. But is this rentier arrangement sustainable in the long term?
 
In Nature, parasites weaken the resiliency of the host; when crisis strikes, the weakened host, though superficially stable and strong, suddenly collapses in a heap. The financial parasitism of the state and financial Elites is weakening the real economy everywhere: Japan, China, the European Union and the U.S. Massive money creation and state borrowing are keeping the host-parasite relationship stable for the time being, but the fragility of the host is increasing.
 
The financial-political Elites are confident that they have found a way to maintain their parasitic rentier arrangements--print money, keep all the phantom assets on the books, and keep interest rates low enough that the debt-serfs can still service their debts.
 
But the financial-political Elites' calculus cannot calculate the breaking point of the dwindling minority propping up the entire status quo.

In a way, a belief in the value, transparency, trust and reciprocity of the System is like a religious belief. The converts, the true believers, are the ones who work like crazy for the company or the service. And when the veil of illusion is tugged from their eyes, then the Believer does a reversal, and becomes a devout non-believer in the System. He or she drops out, moves to a lower position, or "retires" to some lower level of employment.

 
At what point do people choose to opt out of debt/tax-serfdom? 

What triggers their decision to renounce debt, go off the financial grid, and escape serfdom by fashioning a low-cost lifestyle in the cash economy? 

At what point do productive people tire of supporting parasitic financial and political Elites and millions of people who aren't working themselves to the bone to pay taxes and service debt?
 
The more the state pays in benefits and the higher it pushes taxes, the more appealing opting out becomes. 

The more The Reverse Robin Hoods of the Federal Reserve, Ben Bernanke and his Merry Band of Thieves prints money to fund the parasitic financiers, the more they weaken the real economy and fuel a recognition that the Federal Reserve is the enemy of free enterprise and democracy. 
 
The 30 million whose labor funds the parasitic status quo don't have to rebel; they simply have to stop going to work, stop starting enterprises, stop being productive. They just have to tire of being the host, tire of being debt-serfs, tire of being tax donkeys. And when they lay down their burden, there won't be anyone to pick it up: the parasitic financial and political Elites are incapable of being productive, and the working poor don't generate enough surplus to fund open-ended benefits for 110 million non-workers.
 
The trick to suppressing revolution is to keep debt-tax serfdom bearable. The parasitic Elites are keeping the host going, but at a very high cost in resiliency. 

Let's see how long the host lasts once the next crisis hits.

DO YOU REALLY BELIEVE THIS IS SUSTAINABLE.........IF YOU DO, YOU ARE A FOOL!

"Aggressive central bank actions in response to the bursting of one asset bubble often contribute to the creation of a new bubble," writes Michael Hartnett at Bank of America.

Hartnett's referring to the Asian financial crisis, which begot the dotcom boom, which begot the recent housing and credit bubble and on to the latest and current bubble in equities.

The recent financial crisis has prompted aggressive actions on the part of global central banks. And this has played out in surging bond prices and a collapsing yield.  ARE COLLAPSING YIELDS EVIDENCE OF A WEAK OR A STRONG ECONOMY? 

In the past 6 years, central banks around the world have cut interest rates 515 times, increased global liquidity by $12 trillion and crushed bond yields to the point that almost 50% of all global government bond market cap currently trades below 1%.  DESPERATION, PLAIN AND SIMPLE!  

The stunning collapse in interest rates across debt markets in recent years is shown in the chart below. For example, yields have dropped from 23% (Dec'08) to 5.6% today in High Yield Corporates, from 12% (Dec'08) to 4.5% today for EM $- denominated bonds and from 6% (Jun'07) to 2.6% today for Mortgage Backed Securities.

cotd

THE NEXT CRISIS IS THE MOTHER OF ALL CRISES!

PEOPLE CLEARLY KNOW WHAT IS COMING.......... MUST SEE GRAPHICS!

PEOPLE CLEARLY KNOW WHAT IS COMING

It appears that the USD is no longer the cleanest dirty shirt - but precious metals, perhaps? And amid all this chaos in fiat and non-fiat currency markets, equities and bonds remain somewhat stoic. This is the biggest 2-day drop in the USD in 19 months.

These are chaotic movements, of colossal size in major markets that completely dwarf equity market capitalization - but of course, none of that matters.

... do not, repeat DO NOT, exclude the $2.5 trillion in credit injected into the $16 trillion US economy by Ben Bernanke, or suddenly one may grasp just how 15% of US GDP is entirely thanks to the Fed.

AND AFTER TRILLIONS .........THIS IS WHAT THEY ARE AFRAID OF;

 

CAN YOU SAY MIRAGE? ..........

The chart below shows the year over year change in real wages and the 5 year moving average. 

... and sadly this next metric is not off the lows.

But aside from this minor fact, the US consumer has not been more confident in 5 years.


CAN YOU SAY COMPLETELY FULL OF SHIT?....... 


BECAUSE THAT'S EXACTLY WHAT OUR LEADERS, THE FED, AND 

MOST MONEY MANAGERS ARE, COMPLETELY FULL OF SHIT!


AND PEOPLE ARE FIGURING IT OUT.  


 

Jeff Gundlach: "There Is No Such Thing As Economic Analysis Anymore"...........ABSOLUTELY CORRECT!


Jeff Gundlach: "There Is No Such Thing As Economic Analysis Anymore"

From DoubleLine's Jeff Gundlach.

Since we're dealing with markets that are being manipulated by central bank policies, there is no such thing as economic analysis anymore. All you have is the imaginations of central bankers, and you don't know what they're going to do, so you have to be diversified. 

For the inflation part of the portfolio, silver is the right one. Because silver is the highest beta, you want silver for your inflation protection because you can put less in it. I believe if gold doubles, silver goes up 4x. You have twice as much money if you use gold instead of silver, so silver is a more efficient way to do it. 

We're in a deflationary world right now, not inflationary, though everyone is worried about inflation. The message the markets are saying, outside of the stock market, is deflation. 

I think that the complacency regarding stock market risk is very similar today to 1998, 1999 and and 2006 and 2007. This concept that it's the only game in town. This reason to own the stock market is TINA (there is no alternative). That's ridiculous.

THE ONLY REASON THIS IS THE CASE IS BECAUSE MONEY MANAGERS ARE GREEDY, IGNORANT, SELF SERVING DOLTS WHO WON'T TELL YOU THE TRUTH! THEY WOULD RATHER LIE TO PROTECT THEIR LITTLE FIEFDOMS, THEIR LIVELIHOODS, AND THEIR JOBS.  WE ALL LOSE WHEN THIS KIND OF IGNORANT, PETTY, ATTITUDE PREVAILS! 

There's just as many alternatives as there's ever been. There's cash, there's bonds, there's real estate, there's hedge funds, there's commodities, there's foreign markets. What a strange world. I can't even think of a worse argument to own a market than TINA. It's transparently flawed on the surface of it. We'll see what happens. I think we're at 92% bullishness right now in the world of advisors on stocks. The most extended sentiment I've ever seen is 98% bearishness mid-March of 2009. I'd say the bullishness today looks remarkably similar to the bearishness of March 2009.  PROVING EXACTLY HOW SMART THEY REALLY ARE.......


I think when the U.S. stock market falls, which is guaranteed to fall sometime between now and year-end. Who knows how much it'll fall after this sort of a run. You should be looking at Japan as a harbinger of whats to come.


This Won't End Well........YOU CAN COUNT ON THAT!

JAPAN IS THE CANARY IN THE COAL MINE! 

This Won't End Well


With both the Real Estate and Banking equity indices in Japan already in bear markets down over 20% from recent highs and the broad indices down over 15%, just how much pain can the massive influx of foreign capital take before the exodus really takes hold. 

Today's 'news' of the GPIF's allocation shift won't be enough to stem the tide as 'foreigners' who have flooded on an epic scale into Japanese stocks step away to the next hot-money focus... this won't end well.

The Real Estate and Banking indices were the best-performing, most hot-money riddled indices and evidence that things are shifting rapidly in Japan... SOON THEY WILL FLEE U.S. MARKETS, ESPECIALLY EQUITIES!




and with the recent flood of foreign capital into Japanese stocks, I suspect things will not get any better when the following chart 'normalizes'... The next crisis is clearly on the way as money realizes there is no safe place to hide.

 

Smile for No Good Reason.........

Smile for No Good Reason

Have you ever noticed that two people can confront the same circumstances with very different reactions? This is a matter of attitude and nothing else. Freedom is being able to say, "Rich or poor, alone or with a mate, physically healthy or not, employed or laid off, I believe that peace of mind is possible."

We have all experienced what it is like to be having a perfectly fine day and have a situation or crisis arise that sends us into a tailspin. It may be something small like a traffic jam making us late, or something more severe like the loss of a job. Our response can seem automatic.

Though at first it may be difficult to accept, freedom depends on recognizing that you're not upset because of what occurred, you are upset because of how you perceive the situation. Key to Attitudinal Healing is recognizing that you are not a victim of the world.

Another way of saying this is: There is absolutely nothing in the world that has the power to ruin your day. If you are upset, it is because you have directed your mind to be so. Initially these truths can be hard to accept because you have become so accustomed to giving your power away. Every time you blame another person for your unhappiness you are giving your power away. Stop blaming and start healing.

How you perceive a situation will determine your experience and your reaction.
 

Let's imagine that you have a favorite coffeehouse that you frequent. The staff knows your name and always has a warm and friendly greeting as you walk through the door. An extremely grumpy woman whom you have never seen before serves you this particular morning. She appears preoccupied rather than caring about you or what she is doing. As she pours your hot coffee a good portion spills in your lap. Despite your jumping in shock, no apology follows. Your experience is anger: both toward the waitress and the owner, Joe, for hiring such an incompetent person. Then, a friend of yours at the next booth says, "Isn't it great that Joe hired her!"

"Great! Are you out of your mind? She just spilled hot coffee in my lap and walked away," you reply with your best indignant voice.

"Oh, you didn't hear the story?" your friend whispers.

"What story?" you angrily reply, still drying off your new slacks, wondering how you will go through the day looking as though you wet your pants.

"Yeah, Joe didn't know her from Adam. He read in the paper that her husband had died last month in a car accident. Apparently her husband's health insurance stopped, and she was looking for another job in order to pay for her sixteen-year-old son's chemotherapy for leukemia," your friend responds.

Now, you still have hot coffee in your crotch, but are you still angry? Unlikely. The only thing that shifted was your perception and attitude. Through discovering a reason to be compassionate, your entire experience changed—and there are always reasons to be compassionate.

An important part of healing (i.e., letting go of fear) is developing compassion. Instead of going out in the world and finding plenty of reasons to be upset, go out and discover reasons to extend love, forgiveness and compassion. There are thousands of reasons waiting for you right now. A helpful thought to remember is that a miracle is nothing more than allowing an old grievance to become a current compassion.

If you ever run short on reasons to be compassionate, remember there is always one good reason: 

It makes you feel better than anything else you could do. When you are upset remind yourself the cause of your discomfort is very often your own attitude.  

Thursday, May 30, 2013

The Fed’s Flawed Model.........EVERY AMERICAN SHOULD READ AND UNDERSTAND THIS!

The Fed's Flawed Model

Challenging Assumptions on the Fed's Money Printing

Lacy H. Hunt, Ph.D., Economist

In May 22 testimony to the Joint Economic Committee of Congress, Fed Chairman Ben Bernanke issued another of many similar positive interpretations of central bank policy. Yet again, he continued to argue that quantitative easing has decreased long-term interest rates and produced other benefits. He called economic growth "moderate," a term that he has often used without acknowledging that the Fed's forecasts have repeatedly been far off the mark.

In spite of his continuing ebullience, the Fed's polices have not produced the much-promised re-acceleration in economic growth. The 1.7% growth in 2012 was actually less than the 1.8% average rise in GDP in the thirteen years of this century, and less than half the 3.8% GDP growth rate since 1790. Only growth in the 1930s was less than in the 2000s, a time when Dr. Bernanke played a major, if not dominant, role in monetary policy decisions.

Questions abound: how serious have their forecast errors been? Are they related to the Fed's failed policies? Has the Fed facilitated errant fiscal policies that are as much a problem as central bank policy? What may explain the Fed's excessive optimism? Are they so committed to what they are doing that they continue to make unsupported assessments, or is the Fed relying on an outdated understanding of how the macro-economy works – one that does not square with an impressive body of new scholarly research?

In its final forecast for 2011, made in late 2010, the Fed forecast that real GDP would rise 4% in 2011, and just prior to that projection they expected even stronger growth. For 2012, the Fed projected 3.3% growth, with previous assessments even higher. In both years, their forecasts were more than double the actual result. Augmenting horrendous forecasts, the Fed made overly optimistic economic assessments in the official minutes of the Fed Open Market Committee, as well as the Beige Book, that are very hard to reconcile with the poor economic outcome.  NOTHING THE FED PUBLISHES OR PROCLAIMS RISES HIGHER THAN THE LEVEL OF PROPAGANDA.
 
Four major defects in the Fed's approach are all too evident. 

First, they continue to fail to take into account that economic growth slows considerably once gross government debt reaches 90-100% of GDP, and that this relationship may turn nonlinear above that threshold – i.e., that growth deteriorates more than proportionately as debt levels escalate. 

Second, high levels of private debt to GDP have a similarly debilitating effect. 

Third, the Fed has relied on a wealth effect that is either nonexistent or extremely weak. 

Fourth, all three quantitative easing (QE) operations have raised, not lowered, long-term Treasury bond yields, thus serving to keep the interest rate higher than it otherwise would be.

The short-run impact of these policies also transitorily raised inflation. Since wages remained soft, real income of the vast majority of American households fell. If the Fed had not taken such extraordinary steps, interest rates and inflation would be lower currently than they are, and we could have avoided the unknowable risks embodied in the Fed's swelling balance sheet. 

In essence, the Fed has impeded the healing process, delayed a return to normal economic growth, and worsened the income/wealth divide while creating a new problem – how to "exit" its failed policies.

Bad Things Happen When Government Debt Exceeds 100% of GDP

Four different scholarly studies, all published in just the past three years, document this conclusion. These studies are highly relevant. Since Organisation for Economic Co-operation and Development (OECD) figures indicate that gross government debt exceeds 100% in the US, Japan, and the OECD countries of Europe. Three of these studies have been published outside the United States and were primarily conducted by foreign scholars, and thus avoid domestic political biases. 

Here are the studies, starting with the one with the broadest implications:

"Government Size and Growth: A Survey and Interpretation of the Evidence," from Journal of Economic Surveys. Published in April 2011, Swedish economists Andreas Bergh and Magnus Henrekson (both of the Research Institute of Industrial Economics at Lund University) found a "significant negative correlation" between size of government and economic growth. Specifically, "an increase in government size by 10 percentage points is associated with a 0.5% to 1% lower annual growth rate."

"The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for the Euro Area," in European Central Bank working paper, Number 1237, August 2010. Cristina Checherita and Philipp Rother found that a government-debt-to-GDP ratio above the threshold of 90-100% has a "deleterious" impact on long-term growth. Additionally, the impact of debt on growth is nonlinear – as the government debt rises to higher and higher levels, the adverse growth consequences accelerate.

The Real Effects of Debt, published by the Bank for International Settlements (BIS) in Basel, Switzerland in August 2011. Stephen G. Cecchetti, M. S.Mohanty, and Fabrizio Zampolli determined that "beyond a certain level, debt is bad for growth. For government debt, the number is about 85% of GDP."

"Public Debt Overhangs: Advanced-Economy Episodes Since 1800,"by Carmen M. Reinhart, Vincent R. Reinhart, Kenneth S. Rogoff, Journal of Economic Perspectives, Volume 26, Number 3, Summer 2012, pages 69-86. The authors identified 26 cases of "debt overhangs," which they define as public-debt-to-GDP levels exceeding 90% for at least five years. In spite of the many idiosyncratic differences in these situations, economic growth fell in all but three of the 26 cases. All of the instances, which lasted an average of 23 years, are included in the paper. They found that average annual growth is 1.2% lower for countries with a debt overhang than for countries without. The long duration of such episodes means that cumulative shortfall from the debt excess – i.e., several years in a row of subpar economic growth – is potentially massive. THE FED KNOWS ALL OF THIS AND YET THEY CONTINUE DOWN THE WRONG PATH ANYWAY. WHY? BECAUSE THEY WORK FOR THEIR POLITICAL MASTERS AND THE MONIED ELITES THAT SPONSOR THE POLITICOS. IT IS A CRIMINAL ENTERPRISE AND THEY ARE ALL ,NOTHING BUT COMMON THIEVES AND CON MEN!


Bad Things Happen When Private Debt Rises Above 160-175% of GDP

This argument is also operative since private debt to GDP in the US was 260% of GDP in the fourth quarter of 2012. This is a serious matter, since it strikes at one of the primary purposes of central banking – to promote private credit. But when private debt levels are excessive, efforts to promote more private debt are counterproductive. 

Thus, the Fed is destabilizing rather than facilitating economic growth. The two major studies on private debt, both completed in the past two years and published outside the US, bear directly on this issue.

In Too Much Finance, published by the United Nations Conference on Trade and Development (UNCTAD) in March 2011, Jean Louis Arcand, Enrico Berkes, and Ugo Panizza found a negative effect on output growth when credit to the private sector reaches 104-110% of GDP. The strongest adverse effects are for credit over 160% of GDP.

The second is the 2011 BIS study authored by Cecchetti, Mohanty, and Zampolli. They found that private debt levels become "cancerous" (in BIS economic advisor Cecchetti's own words) at 175% (90% for corporations and 85% for households) – just slightly more than the UNCTAD study.

The Nonexistent or Minimal Wealth Effect

The issue here is not whether the Fed's policies cause aggregate wealth to rise or fall. The question is whether changes in wealth alter consumer spending to any significant degree. The best evidence says that wealth fluctuations have little or no effect on consumer spending. Thus, when the stock market rises in response to massive Fed liquidity, the broader economy is unaffected.

According to Dr. David Backus, economics professor at New York University, the stock market boom in the late 1990s helped increase the wealth of Americans, but that did not produce a significant change in consumption. As the stock market rose, Backus did not observe a big increase in consumption. And when it subsequently fell, neither was there a big decrease (Flavelle, Christopher, Slate, March 6, 2010, "Debunking the Wealth Effect").

More Americans own houses than own stocks. This suggests that a change in home equity should have a bigger impact on spending than a comparable change in the stock market. However, Backus did not observe much of a wealth effect on consumer spending as housing prices rose, implying that the reverse effect was also minimal on the way down.

Backus' analysis confirms research done in 1999 at the New York Fed by Sydney Ludvigson and Charles Steindel. In the Economic Policy Review, they found a positive connection between aggregate wealth changes and aggregate spending. But they wrote: "Spending growth in recent years has surely been augmented by market gains, but the effect is found to be rather unstable and hard to pin down. The contemporaneous response of consumption growth to an unexpected change in wealth is uncertain and the response appears very short-lived."

In "Financial Wealth Effect: Evidence from Threshold Estimation" (Applied Economic Letters, 2011), Sherif Khalifa, Ousmane Seck, and Elwin Tobing found "a threshold income level of almost $130,000, below which the financial wealth effect is insignificant, and above which the effect is 0.004." Thus, a $1 rise in wealth would in time boost consumption by less than one-half of a penny, and only for those in the upper-middle class and above.

Quantitative Easing Effects on Treasury Bond Yields and Inflation

It might surprise you to learn that the 30-year Treasury bond yield increased during QE1 and QE2, as measured by the average rate from when the policy was announced until it ended versus the monthly average after each program ended. Since QE3 is ongoing, we measured the change from year-end 2012 to the end of the first quarter 2013. Rates rose during that period, too.

The 30-year yield rose in all cases, by 109, 33, and 23 basis points respectively. When the Fed says it wants higher inflation and radically expands its balance sheet to achieve that objective, the short-term effect is to raise inflation, inflationary psychology, and Treasury bond yields, which are the anchor for all interest rates. The higher transitory inflation caused by the quantitative easing cuts into real weekly earnings.

The Fed Has Only  Made Things Worse

In response to the Fed's QE programs, stock prices rose, but no convincing evidence indicates that this has boosted consumer spending in any meaningful way. Treasury yields rose during those operations, in part because the rise in stock prices has been interpreted as a possible sign of better economic conditions, rather than merely of the excess liquidity created by the Fed's balance sheet expansion. Although inflation has receded to less than a 1% annual rate, it did spike during the earlier phases of QE operations, thus eroding real income for those dependent on wages as their main source of income. The standard of living – defined as median household income – has fallen back to the level of 1995. The percentage of the population that is working is one percentage point lower than when the recession ended, and not far above the worst level of the past three decades.

As a sign of reduced economic opportunities from these failed monetary and fiscal policies, a record 1 out of 6.5 Americans is on food stamps, and a record percentage of those in the 25-34 age cohort is forced to live in their parents' homes. Thus, for most households, economic conditions would have been better if the Fed had simply done nothing. Moreover, the problem of what to do with the Fed's engorged balance sheet would not exist – a subject that has diverted valuable time from the more important discussion: how to right the mighty ship that once was, but no longer is, the US economy.

WE ARE ALL SAILING ON AN ECONOMIC VERSION OF THE  TITANIC.  


African Instability Threatens French Energy..........THE WORLD GROWS MORE DANGEROUS BY THE DAY!


African Instability Threatens French Energy

Last week, suicide bombers launched attacks on two different towns in the West African nation of Niger – one on a military barracks in Agadez, and the other one on the Somair uranium mine in Arlit, owned by the French conglomerate AREVA. The jihadist group MUJAO (Movement for Oneness and Jihad in West Africa) has claimed responsibility for both bombings, stating that they were targeting "the enemies of Islam in Niger."

The assault on the uranium mine left one dead and 14 injured, and was successful in damaging the crushing and grinding units, halting the mine's production. The importance of this mine in the uranium sector cannot be understated: it accounts for roughly 5% of the global output and more than 20% of AREVA's total production. The Somair mine is a key source of supply for France's 58 nuclear reactors which, in turn, provide more than 75% of the electricity generated in France.

This is not the first time AREVA's operation has been attacked: In 2010, seven employees of an AREVA subsidiary were kidnapped from their homes in Arlit. Four of the hostages are still being held by the militants at this time.

And it will definitely not be the last.

The recent French military intervention in nearby Mali has aggravated the Islamists in the region: MUJAO spokesmen stated that they "attacked France and Niger because of Niger's cooperation with France in the war against Sharia," a clear indication that the French presence is not welcomed by these terrorist organizations.

This first bombing is just the beginning – MUJAO and its allies will likely stop at nothing to see France's uranium production facilities burn to the ground.

Africa is not an easy place to do business: problems with security, bureaucracy, and infrastructure plague many nations on this continent.

So why does AREVA – a company which is mostly owned by the French public sector – remain to mine uranium in this dangerous area? The vulnerability of AREVA's operations is apparent, and the French cannot afford any more disruption in their uranium supply.

The reality is simple: there are just not that many places in the world where uranium concentrations are high enough to make economic development worthwhile. Even fewer of these jurisdictions have the political climate to make the exploration, development, and production of uranium possible. 

If there is anything that the attacks on AREVA's Somair mine in Arlit has shown us, it is that the uranium supply chain is actually quite fragile, and countries will be fighting each other in order to acquire safer sources of uranium. 

EVERYTHING WE THOUGHT WE KNEW ABOUT THE WORLD IS CHANGING QUICKLY AND BECOMING MORE DANGEROUS WITH EACH PASSING DAY.

 


An entire generation going to waste.........A DIRECT RESULT OF GREED AND NO REAL LEADERSHIP!

Greek Prostitution Soars By 150% As Youth Unempoyment Hits 75% In Some Areas

With Greece suffering the biggest economic depression in decades, all so a few rich men can preserve their wealth and not have their EUR-denominated savings wiped out (even if the alternative means finally being able to rebalance externally using the Drachma instead of forcing internal rebalancing via unemployment and plunging wages), it was only a matter of time before we found out just how humiliating the conversion of the entire economy to a "gray", non-tax paying one would be for the citizens of Greece.

As the NYT reports, in just the past two years, the numbers of Greeks engaging in prostitution as a last course source of income has more than doubled: according to the National Center for Social Research, the number of people selling sex has surged 150 percent in the last two years.

Furthermore, with every business in which there is exploding "competition" and client scarcity, it is not just any prostitution, but very deflationary prostitution:

"Five euros only, just 5 euros," whispered Maria, a young prostitute with sunken cheeks and bedraggled hair, as she pitched herself forward from the shadows of a graffiti-riddled alley in central Athens on a recent weeknight.

Many prostitutes have been selling their services for as little as 10 to 15 euros, a price that has shrunk along with the income of clients afflicted by the crisis. Many more prostitutes are taking greater health risks by having unprotected sex, which sells for a premium. Still more are subject to violence and rape.

Now a new menace has arisen: a type of crystal methamphetamine called shisha, after the Turkish water pipe, but otherwise known as poor man's cocaine, brewed from barbiturates and other ingredients including alcohol, chlorine and even battery acid.

And with a surge in prostitution come the drugs, and the danger of an epidemic of blood-transmitted diseases, like HIV:

A hit of shisha, concocted in makeshift laboratories around Athens, costs 3 to 4 euros. Doses come in the form of a 0.01-gram ball, leaving many users reaching for hits throughout the day. They include prostitutes, whom Mr. Tzortzinis photographed in a seedy central neighborhood of Athens called Omonia, next to a large police station.

Shisha is most often smoked. But it is increasingly being taken intravenously; because of the caustic chemicals it contains, a rising number of users are winding up in the emergency room. Health experts say the injections are also adding to an alarming rise in H.I.V. cases around Greece, which surged more than 50 percent last year from 2011 as more people turn to narcotics.

For Mr. Tzortzinis, who grew up in the area, seeing women give themselves for as little as 5 euros underscores one of the many horrors of Greece's drawn-out crisis.

Unfortunately for the country which is terrified to just say no to Europe due to the indoctrinated dread of what would happen if it left the Eurozone,
this is only the beginning as the problem is far deeper, and it goes to the root of everything: an entire generation going to waste.

But while the Greek unemployment rate is 
still soaring,and no surprise to anyone, it is the youth unemployment that is the problem. And as the Telegraph reports, in some areas of Greece, youth unemployment has now hit a inconceivable 75%.

Western Macedonia in Greece had the highest level of youth unemployment in the European Union, with the number of 16 to 24 year-olds out of work jumping to 72.5pc in 2012 from 52.8pc in 2011, according to Eurostat. Total youth unemployment in Greece stood at 55.3pc last year, more than double the EU average of 22.9pc.

The region, located in northern Greece, has been hit hard by the economic crisis, with total unemployment rising from 12.1pc in 2007 to almost 30pc in 2012 due to de-industrialisation and the migration of labour intensive industries to neighbouring countries, where wage demands are lower.

According to a report by the European Commission in December, more than a fifth of firms stopped trading in the region between 2008 and 2011.

Europe's response to this pandemic of unemployment?

Europe's leaders have called for more action to tackle joblessness in Europe. Earlier this month, European Commission president Jose Manuel Barroso urged Europe's leaders to come up with "a more ambitious plan to fight youth unemployment" at a next month's EU summit.  WORLD LEADERS ARE A SAD JOKE AND THEIR SOLUTIONS ARE NOTHING BUT ATTEMPTS TO MAINTAIN A DYING STATUS QUO.

"We must revive hope, especially for young people," he said. "We cannot wait for long, we are all aware this is urgent."

And when hope is not enough, and when these same young people end up as prostitutes, drug addicts or, worse, infected with HIV, maybe they should also hope that a cure for the disease is somehow discovered (and which they can afford).

Why? Just so the 0.001% uberwealthy can continue to get richer and richer courtesy of a year after year of flawed monetary and fiscal policy, even as the real world around them burns.

Wednesday, May 29, 2013

Peak Collateral.....AN ABSOLUTE MUST READ!

Peak Collateral

I wonder if we are reaching what we might call 'Peak Collateral'?  That state when the creation of assets, which the market will accept as collateral, is insufficient to sustain the demand for credit.

It's funny isn't it, how the terms we use, or are encouraged to use, have such an influence on how an analysis unfolds. So much of the eventual conclusion is already encoded in them. Especially the terms we are encouraged to choose as our starting place. Our leaders and the bankers have been so very concerned that every analysis begin and end with liquidity. But I think it is becoming clearer by the month that collateral is a more revealing term.

When Lehman Brothers and AIG collapsed was it just a shortage of liquidity? No of course not. That's like saying a man with the plague died of a high temperature. Certainly he had a temperature when he died but it was a symptom not a cause. Both Lehmans and AIG were running out of collateral and without collateral for the oxygen of repo and short term funding, they began to suffocate. 

Once those two began to choke, the money ran out for others. The collapse of Depfa and Hypo in Germany/Ireland, for example, was a direct result of them not being able to get the funding they relied upon from their sugar-daddy funder, AIG. That created a domino effect. AIG had run out of assets that it could pledge as collateral. It could not raise money that it could then use to lend to HYPO/Depfa. Hypo in turn had such poor assets they too had little or no chance of anyone accepting them as collateral.

It seems to me we are moving back to a similar situation. You might ask, out of sheer exasperation, how it could be, given all the tough talk and all the new requirements for capital and risk management? How, after all the bailing outs and now ins, all the endless and global QE, all the new rules and capital buffers, that we do not seem to have really gotten anywhere?

The image that comes to my mind is of the strange attractors which govern the lives of any non-linear system. And global finance is certainly made of many such non-linear systems.

This is the Lorenz attractor that governs convection in liquids and is thus one of the attractors which makes our weather both unpredictable and relatively stable. And it is this unpredictability within parameters which is one hall-mark of non-linearity.

Within an attractor, trajectories appear to jump around, taking hair-pin turns, reversing and re-reversing without warning, or rhyme or reason. Yet for all their unpredictability they are always orbiting within the shape of the attractor. The attractor is simply a map of all the possible states the system can be in. Each point on the attractor is the state of the entire system at one moment.

It turns out that non-linear systems which are massively unpredictable from moment to moment, are nevertheless still bounded. Map all the possible states the system can be in, and you find a shape. That shape is the attractor. All the system's many states exist within its bounds. Every trajectory, no matter how alarming in its twists and turns, collapses and recoveries, is some complex orbit within this shape – this attractor. And this, I think, is what we have been following for the last 5 years since that first set of dislocations occurred - another orbit of the attractor we have never left nor attempted to alter or escape from.

Our political leaders and their financial masters have made it clear that they will not really countenance any real change to the system. 

They were always willing to talk of 'better' rules or 'tighter' regulations but never of systemic changes. And thus, I would argue, nothing that has been done has changed the underlying nature of the global financial system nor, therefore, of the attractor or coupled attractors which govern it. We, therefore, have been careening round the same attractor as before, mistaking the gyrations and permutations inherent in it, for  signs of change.

Every attractor has a central region where the non-linearity resides. In the Lorenz attractors it is on the central saddle. For the last 5 years we have simply been passing through this region and being flung about as we did so.

Of course a system like the financial one is not governed by a single attractor. There are surely many. I am interested in the role and trajectory of 'collateral'.

There are conflicting forces pushing and pulling at the route collateral takes.

On the one hand everyone is desperate for yield. They want assets which give as high a return as they can find and that generally means assets that are unsafe and full of risk. Such assets are lucrative but, because they are risky, are not easily pledged as collateral themselves, and in fact require a lot of regulatory capital (other assets) held against them.

On the other hand, the same people who want risky assets,  also want assets which are as AAA safe as possible. These are not lucrative themselves but can be used as collateral for short term funding and/or as regulatory capital against the riskier assets.

The more risky the assets you have, the higher your VaR (Value at Risk) and your Counterparty Risk ( the risk that you may lose money because the  businesses to whose fortunes you are linked, via you assets, may themselves lose money)  which are two of the main things that determines how much regulatory capital you need to find and hold.

You may well look at these two conflicting desires and wonder what the problem is. Surely it is just a matter of a prudent balance which can be adjusted as times and needs change? And of course you are right. In the 'normal' course of events one person wants to re-balance in one direction, another the other way and the market is there to facilitate.

Two problems arise however when times are not normal. And ours are not.

That neat notion of the market facilitating people wanting to re-balance one way or another presupposes that people's needs are evenly distributed. Some need more risk others less, some more collateral others less.But what happens to this happy picture if everyone has too many risky assets and wants fewer, all at the same time? Or when everyone wants solid assets to hold as collateral all at the same time? The market is useless at those times because the market is only the pairing of seller and buyer. If there is no balance then there is no market. The invisible hand becomes palsied.

What people really want is assets that are both high yielding and safe enough to pledge as collateral. And where there is a desire the market will provide. And what it provides, seen from the outside, is a bubble. A bubble of unreasoning and unreasonable exuberant make-believe that something that is risky is also safe.

In 2007, risky and lucrative but still safe and pledge-able was mortgage backed securities. Today the same role is played by sovereign debt. Our lords and master did nothing to alter the system and the desires and distortions it demands/creates, they have merely found a new way of satisfying and sustaining the system. That it has jerked and convulsed back to life, they are keen to call 'fixed' and 'recovered'. Re-animation is perhaps better. Nothing has been fixed. Certainly nothing changed.

Where ratings agencies rated any old securitized tat as AAA, today governments and international bail out funds make extravagant claims of being willing to do 'whatever it takes' to ensure that government debt is risk free.  This has opened a wonderful world where nations can be kept in a state of permanent poverty and panic, forcing yields on their debt up to very lucrative levels, while also allowing them to be held as risk free and therefore perfect collateral.  How quickly do you think the banks want to see those nations 'fixed'? I would hazard that they would prefer that nations are held in this perfect state of fiscal impotence for as long as it takes to arrange the fire sale of its real assets.

All of which, to my mind, describes where we are. A seeming victory for the banks and financial class.

And yet…

The real risk of assets cannot be magicked away. It can be traded, as it is being, in magic sounding new trades to new people, who assure you they can contain and manage the risk in your assets in return for a fee. You keep the assets, they take the risk.

Believe the soothsayers of regulatory arbitrage, and the risk which used to weigh upon your balance sheet,disappears out of sight out of mind. Gone to some mathematical null space from which we are told it cannot escape. But we all know it can and will.

Where is this regulatory capital trade putting the risk really?  As far as I can trace it, it is being bought by hedge funds. And who owns those hedge funds (owns their shares)? Pension funds. Ooops! 

Once again the market's answer to those who say too much risk is systemically suicidal, is not to reduce risk but to put it where the regulators are not looking.

At the same time as risk is once again accumulating out of sight and mind, collateral too is once again becoming a problem. The problem is no one is creating new assets which really are safe and solid. They aren't because everyone is labouring under such an overhang of debt and bad debt that the organic growth of wealth producing activity (researching and developing and then making and selling stuff) is too slow.

Everyone wants yield now, if not sooner. And when I say everyone, I mean the financial world and those Treasury parts of businesses which are more a part of the financial world than they are a part of the manufacturing company whose name they carry.  Think of the financial arm of GE or GM.

Everyone wants collateral. They want it in order to pledge to central banks in order to get those AAA rated sovereign bonds. They want it to pledge for short term funding so they can keep breathing at night. They need it in order to be declared safe with adequate capital held against their loans.

But no one wants it really, not from the yield point of view. Better to say they are forced to 'want' it. If they can find a way to have collateral that is somehow also high yielding they would much rather have that. Which is at least part of why Cypriot and Greek banks held so much Greek debt and why MF Global kept buying Greek and Italian debt rather than safe German debt, till it all blew up and everyone but Joe Corzine got hurt.

Collateral is getting scarce. What truly is safe, has long ago been pledged mainly to the central banks. The rest has been ring-fenced into covered bonds and other super-safe investments. None of it also pledged elsewhere or re-hypothecated onwards to prop up other loans – honest! Even the central banks have had to relax and further relax their rules about what they will accept as safe enough to act as collateral for a central bank loan. Once it was genuinely AAA rated assets. Now if you have a beach towel from a Club Med holiday you once took, it'll do.

Once we had fiat money. Today we have super fiat, ultra fiat and super ultra zero-content fiat.

Why do you think China is buying more and more gold? 

China is preparing for a contingency of a currency implosion and is making sure it has the necessary gold reserves to market the Yuan as the only 'gold' backed global currency.

Peak collateral is just a notion. 

The notion that at the time we want yield and growth we are running out of collateral which is supposed to underpin the high yielding assets and loans. Such a shortage would cause the ponzi-like growth that is necessary to sustain a bubble, to stall and then implode. 

I think our lords and rulers know this and have decided that it must not be allowed. And this – the need for collateral – is the reason for the endless QE. If this is even close to the mark, then recent murmurings about the Fed tailing off its bond buying will prove to be hollow. The Fed will quickly find it cannot exit QE without precipitating precisely the disorderly collapse, to which it was supposed to be  the solution.  HOW LONG CAN THE FED MAINTAIN THIS RIDICULOUS FICTION BEFORE THEY LOSE ALL THEIR CREDIBILITY? THAT'S THE ONLY IMPORTANT QUESTION LEFT.

The replacement for AAA rated, yet very risky/lucrative mortgage backed securities is AAA yet junk sovereign debt that can never default but sometimes does.

What all this is enabling is the looting of those nations that are already upon the debt rack. Will it sustain? No of course not. But what does that matter to those enriching themselves in the mean time.  THIS DOES NOT END WELL!

The Economic Symptoms Don't Lie..........AN ABSOLUTE MUST READ!

The Economic Symptoms Don't Lie 

 Peter Schiff

A good doctor will not simply make a diagnosis based on measurements. The symptoms and complaints expressed by the patient are at least as important in making a determination as the data provided by diagnostic tools. When the data says one thing and the symptoms continuously say another, it makes sense to question the reliability of the instruments. 

This would be particularly true if the instruments are furnished by a party with a stake in a favorable diagnosis, say an insurance company on the hook for treatment costs. The same holds true for the U.S. economy. Although our government-supplied data suggests we are experiencing low inflation and modest economic growth, the economy shows symptoms of low growth, rising prices, and diminishing purchasing power.

In my latest commentary I discussed how the Big Mac Index (The Economist Magazine's 30 year data set on Big Mac prices) provided strong anecdotal evidence that inflation in the United States is higher than official figures. More information has come in since then that tells me the same thing: that Americans are downsizing their lives as their incomes fail to keep pace with rising prices. These symptoms are at odds with the widespread belief in an accelerating recovery that has resulted in braggadocio in Washington and euphoria on Wall Street.

Earlier this week Tyson Foods, one of the nation's largest providers of packaged meat products, announced that although their top line sales revenue increased by almost 2% (roughly in line with U.S. GDP growth), operating margins collapsed by almost 50%, leading to a 43% decline in profit. Consumer shifts away from relatively higher priced/higher margin beef and pork products to lower cost/lower margin chicken products were to blame. Tyson also noted that cost conscious consumers shifted away from higher margin packaged chicken products to fresh meat cuts, thereby sacrificing convenience for cost.

According to government statisticians, the Tyson announcement would reveal modest growth and low inflation. After all, revenue at the company grew and spending on their products had increased modestly. But rising prices were obscured by consumers purchasing lower quality products. Not only are consumers avoiding the beef and pork that they otherwise may have preferred, but they are opting out of the convenience of prepared foods. This behavior is symptomatic of diminished consumer purchasing power. This is known as getting poorer.

The trend corresponds with the steady increase in the share of income that Americans devote to food and energy. According to the Bureau of Economic Analysis data, in 2002 Americans spent about 17.8% of income on food and energy. In the first quarter of 2013 the share had risen by a factor of 20% to 21.3% of income. Increased share of spending on necessities like food and energy is consistent with falling living standards. In the poorest countries almost all of income is devoted to such things.

This week we also learned the seemingly positive news that the March trade deficit narrowed to $38.8 billion. But the reduction didn't come from increased exports (which actually declined), but by the sharpest drop in imports since February 2009.

Oil imports declined to a seventeen-year low, due to a record low in 13 years in gasoline consumption. While some may argue that is a function of greater energy efficiency, I believe it's more likely that usage is down because of high prices and high unemployment. Even more significant is that our trade deficit with China in March dropped by a whopping 23.6%, hitting a three-year low. On a year over year basis, the decline in our deficit with China was 90% attributable to the decline in imports.

In contrast to the declining import figures, the government reported that personal spending rose by .2% in March. If we are buying less stuff from abroad, where are Americans spending the extra money? If the prices are stable, and imports are way down, consumer spending should also be down and savings should be up. But the savings rate in March held steady at a meager 2.7%. The sad truth is that Americans are buying fewer Chinese products because they are spending more money on food, rent, utilities, healthcare, insurance, and other necessities that can't be imported. Again, this is consistent with a falling standard of living, as inflation forces consumers to forgo the things they want in order to buy the things that they need.

It was also announced this week that the big three airlines (United, Delta, and American) will be raising their "change fees" for booked tickets by 33%, from $150 to $200. However, it's unlikely that such a hike will make much of an impact on CPI. According to the CPI, airline fares in the United States increased only .3% from 2011 to 2012. This mild increase came at a time when airlines were rolling out more new fees than most air travelers could have possibly imagined.

But even if the government fully factored in the increase in fees, they would likely ignore the change in behavior that the increase would elicit. With the cost of changing a ticket so dramatically higher than it has been in the past, it is likely that far fewer Americans would be willing to change their travel plans once their tickets have been purchased. So even while the spending increase may be relatively small, the lost convenience is not factored into the equation. A ticket with low price (or no price) change option is a much better product than a ticket with high penalties.

CPI reports that from 2007 to 2012 air travel increased on average 4% per year. But that's only half the story. A new study released by MIT reports that during those five years, U.S. airlines cut the number of domestic flights by 14%,with the cuts falling most heavily on mid-sized regional airports. By 2012, the industry also closed more than 20 smaller airports, began using a higher percentage of larger airplanes, and reported record crowding on remaining flights. In other words, air travel not only became more expensive but less convenient and more crowded.  WHAT EVER HAPPENED TO CUSTOMER SERVICE? I DON'T BELIEVE I OR MY FAMILY WILL EVER FLY ON A COMMERCIAL FLIGHT EVER AGAIN.

How much loss in value does this inconvenience and lack of flexibility create? It's hard to say, but we all have experienced it with varying degrees of frustration. But what is sure is that the government isn't interested in such trivialities.

The combination of these symptoms suggests that the extent to which people are being impoverished by accelerating inflation is not reflected in official government measurements. This explains why unemployment remains high even as GDP appears to rise. The unprecedented expansion of the money supply under the current Fed leadership is pushing up prices for stocks, bonds, real estate, and consumer goods. Market indices neatly capture the price increases for all of these categories except for the latter, which has been concealed by an overly adjusted CPI.

If consumer inflation data were reported more accurately, it would be revealed that much of the apparent growth is an illusion. 

The patient is getting sicker by the day, but the doctors agenda does not include curing the patient, only pretending that he or she is still alive and has a chance at recovery.

What If Stocks, Bonds and Housing All Go Down Together?............A MUST READ!


What If Stocks, Bonds and Housing All Go Down Together?


The claim that central banks will never let asset bubbles pop ever again is somewhat dubious, based on their track record of inflating asset bubbles and then watching them collapse.
 
The problem with trying to solve all our structural problems by injecting "free money" liquidity into the banks is that all the money sloshing around seeks a high-yield home, and in doing so it inflates bubbles that inevitably pop with devastating consequences.
 
As noted yesterday, the Grand Narrative of the U.S. economy is a global empire that has substituted financialization for sustainable economic expansion. In shorthand, those people with access to near-zero-cost central bank-issued credit can take advantage of the many asset bubbles financialization inflates.
 
Those people who do not have capital or access to credit become poorer. 
 
Injecting liquidity by creating credit and central bank cash out of thin air is not a helicopter drop of money into the economy--it is a flood of money delivered to the banks and financial elites. The elites at the top of the neofeudal financialization machine already have immense wealth, and so they have no purpose for all the credit gifted to them by the central banks except to speculate with it, chasing yields, carry trades and nascent bubbles (get in early and dump near the top).

Life is good for the kleptocratic financial Aristocracy: for debt-serfs, not so good.

 
No wonder the art market and super-luxury auto sales have both exploded higher. Thanks to the central banks' liquidity largesse, the supremely wealthy literally have so much money and credit they don't know what to do with it all.
 
If you want to borrow money to attend college, the government-controlled interest rate is 9%. If you want to speculate in the yen carry trade or buy 10,000 houses, the rate is near-zero or at worst, the rate of inflation (around 2% to 3%). If you want to borrow money for anything other than a socialized mortgage to buy a single-family home, tough luck, you don't qualify. But if you want to speculate with $10 billion--here's the cash, please please please take it off our soft central-banker hands.
 
If your speculations end badly, then no problem, we transfer the toxic trash heap of debt and phantom assets onto the balance sheet of the central bank or onto the public (government) ledger.
 
Given this reality, it was inevitable that the stock, bond and housing markets would all be inflated into bubbles by this monumental flood of free money. 

Please consider these three charts:


 
Spot The Bubble: Average New Home Price Soars By Most Ever In One Month To All Time High 
 
Verdict: bubble.


 
Verdict: bubble.


 
Japanese Bond Market Halted At Open As Bond Selling Purge Goes Global 
 
Verdict: bubble popping.
 
It is widely accepted as self-evident that all these bubbles will not pop because the central banks won't let them pop. That's nice, but if this were the case, then why did stocks crater in 2000-2001 and 2008-2009, and why did the housing bubble implode in 2008-2011? Did they change their minds for some reason?
 
No; they assured us right up to the moment of implosion that everything was fine, there was no bubble, etc. The only logical conclusion is that bubbles pop even though central banks resist the popping with all their might.
 
In the past, central banks were pleased to inflate one bubble at a time, enabling money both smart and dumb to flee one smoking ruin and get busy inflating the next bubble-ready asset class.
 
But now, thanks to essentially unlimited liquidity and credit, the central banks have inflated three bubbles at the same time: stocks, bonds and housing. That raises an interesting question: what if all these bubbles pop in unison? Will the central banks be able to place a bid under all three markets simultaneously? If so, where will all that freed-up cash go next?
 
One possibility is gold, another is commodities such as grain and oil. The latter is especially interesting, because central banks and governments hate energy speculators with special intensity because the "Brent vigilantes" have the power to boost inflation where it matters, i.e. energy.
 
Once energy takes off in a speculative bubble, the rising cost of energy sucker-punches the already-anemic global recovery, and the responsibility eventually lands on the laps of the central banks who created all the bubbles. Their quantitative easing policies discredited, the central banks will have to restrain their liquidity hand-outs, and that will undermine what's left of the various speculative bubbles they've blown.
 
Those who argue bubbles won't be allowed to pop ever again should take a look at history from 1999 to the present again.

Crushed US Consumer + All Time High New Home Prices = Record Housing Bubble.........THE NEXT CRISIS IS ALMOST HERE.

Crushed US Consumer + All Time High New Home Prices = Record Housing Bubble

When we took median new home prices, which a week ago hit an all time high, which we then divided by the average American's purchasing power expressed through real disposable income per capita, we got this chart...



... which is impossible, as it would imply that not only are homes the most unaffordable they have ever been, but that the cheap credit propping up the housing market is bigger than it has ever been in history.

A LOT OF PEOPLE ARE IN FOR A VERY RUDE AWAKENING!