Tag Archives: Fed

Which part is the Fed trying to play, Dumb or Dumber?

If you believe the newspapers, the Fed has begun a “tightening cycle.” It is on course to raise its key interest rate, little by little, in quarter-point increments.

It has to know this is a perilous thing to do. After so much market manipulation over a very long period, prices all up and down the capital structure – from junk bonds to quality stocks and solid real estate – have been bent and distorted.

After all, that was the idea: drive up the price of stocks and bonds by driving down interest rates. People would be forced to spend or invest their money rather than save it. And higher financial asset prices would make the rich feel even richer.

Walking down the street, the dollars would overflow from their pockets like turnips rolling off the back of a produce truck.

They’d feel so flush, they’d buy, buy, buy… sending the plain people into a flurry of trucking, toting, and busting their humps to provide them with goods and services.

Then, after the rich were fully satiated (how many martinis can the 1% drink?), they’d have to invest.

Cash would flow into money-losing startups like Tesla and Snapchat. Headline acquisitions, such as Amazon’s purchase of Whole Foods, would keep stock prices bubbling higher. And trillions of dollars in stock buybacks would make the rich even richer still!

But the feds could only work this miracle by buying bonds. And the feds didn’t have any money. What could they do?

No problem! They used their fake money, the post-1971 credit dollars – trillions of them — money they could create at will.

From the post-crash bottom in 2009 to today’s top, U.S. stocks and bonds registered a cumulative increase of about $21 trillion. And upon that mirage now rest the hopes, dreams, and contentment of millions of people all over the planet.

One has planned his retirement based on his gains over the last eight years. Another has taken out a loan against his stocks to fund his business. Still another – a major player on Wall Street – has a billion-dollar hedge fund portfolio… a leveraged bet on “low vol,” which depends on further support from the Fed.

And look at super investor Warren Buffett…the latest headline news tells us his gifts to charities now top $27 billion. The money is to be used to fight illness and poverty worldwide. But the gifts came in the form of Berkshire stock – not cash. Imagine how the halt and the hungry will suffer if the stock goes down!

Which brings us back to our question: How dumb is the Fed?

As you can see from the foregoing, the boom of 2009–17 was wrought by the Fed and paid for with fake money. It is a classic credit bubble, in other words – not genuine prosperity.

Almost all the new jobs created during this period were low-wage or part-time jobs in health care or government, not high-value jobs in manufacturing. That’s why real earnings, per family, have scarcely improved… and real employment (as a percentage of the available workforce) has gone down.

All the bubbly action, in other words, is in the financial markets, not the real Main Street economy. And as the Austrian School economists tell us, every boom not financed on real savings must end in a bust.

Nothing comes from nothing. Fake money produces fake prosperity. Take away the fake money… and the fake prosperity goes “poof,” too.

Which is why the Fed will never, voluntarily, stop manipulating prices. It can’t let the markets return to “normal” price discovery.

Because the markets are likely to discover prices a lot lower than Dow 20,000.

“Normal” may be a lot higher than a 2% yield on a 10-year Treasury yield, too.

“Normal” may mean a deep depression as the economy shakes off the foolish investments and misallocations of the last eight years. “Normal” would also mean the disgrace of Janet Yellen and Ben Bernanke, who are largely responsible for this bubble.

But “normal” won’t stop there. The crisis of 2008–09 was a repudiation of the Fed’s fake-money debt bubble. The stock market crashed as the bubble deflated, just as it normally does. But then central banks went back to work, doubling down on their error with more hot air than ever before.

Federal debt alone almost doubled from about $10 trillion to about $20 trillion. Worldwide, $68 trillion in debt has been added since 2007 – a 45% increase – bringing the debt-to-GDP ratio to 327%.

All of this debt now hangs on the feeble reed of more ultra-low interest rate policies.

The Fed says it is going to return its interest rate policy back to normal…

No chance. It’s not that dumb.

 

[From an article written and published by Bill Bonner of Bonner and Partners]

 

…………………………………………………..

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

Leave a comment

Filed under Uncategorized

Losing ground in America’s heartland, continued…

(THIS IS A LONG ARTICLE, BUT WELL WORTH READING.)

 

The Fed’s crusade to pump-up inflation toward its 2.00% target by hammering-down interest rates to the so-called zero bound is economically lethal. The former destroys the purchasing power of main street wages while the latter strip mines capital from business and channels it into Wall Street financial engineering and the inflation of stock prices.

In the case of America’s 80 million working age adults (25 or over) with a high school education or less, the Fed’s double whammy has been catastrophic. As we demonstrated yesterday, the employment-to-population ratio for this group has plummeted from 60% prior to the great recession to about 54% today.

In round terms this means that the number of job holders in that pool of the less educated has shrunk from 49.4 million to 43.5 million since early 2007. That’s nearly 6 million workers gone missing or 12% of the total from just nine years ago.

And as we documented yesterday this plunge is not due to aging demographics. The MSM meme that it’s all about the baby boomers hanging up their spikes doesn’t wash; the labor force participation rate of persons over 65 has actually increased sharply in recent years.

Shrinking Pool Of Workers With High School Education Or Less

But even those who have managed to stay employed have suffered a devastating reduction in purchasing power. In fact, based on our Flyover CPI, each dollar of wages would buy 3.1% less annually or a cumulative 70% less since 1999.

And that assumes just 65% of the budgets of these lower-wage households are consumed by the four horsemen of inflation—-food, energy, medical and housing. There can be little doubt that they actually spend a materially greater share on these necessities than we have allocated to them in our index.

Flyover CPI Since 1999

By contrast, nominal wages rates for the high school and under workers have risen by less than 50% over the same period. That means drastic purchasing power compression.

In fact, flyover America’s vast cohort of less educated workers has experienced an approximate 1.1% decline in their real weekly wages every year this century. In 2015 dollars of purchasing power, average pay has declined from $475 per week to $397 per week.

That’s right. When viewed on an annualized basis, households which were scrapping by on $24,700 per year in 2000 have seen the purchasing power of their pay checks drop to $20,600 today or by nearly 17%.

Yet the house of academic fools in the Eccles Building keep insisting that we have insufficient inflation!

Likewise, the all knowing pundits of the Acela Corridor (Washington/Wall Street) can’t figure out why Donald Trump has come roaring out of nowhere.

Real Weekly Wages- High School Graduates, No College

 

That gets us to the Wall Street/Keynesian cult of consumer spending. The latter holds that Americans who “shop until they drop” are the mainspring of the US economy based on the silly observation that personal consumption expenditures (PCE) comprise 70% of the GDP accounts, which themselves are a Keynesian construct.

Then again, no one told them that fully $3.5 trillion or 28% of total PCE consists of imputed housing consumption via OER (owners equivalent rent) and health care costs heavily funded by third-parties such as government entitlements and employer-based health insurance plans.  No one “shopped” to fund either of these huge PCE components, but self evidently someone worked to pay the taxes and premiums.

That is, real capitalist growth and prosperity stems from the supply-side ingredients of labor, enterprise, capital and production, not the hoary myth that consumer spending is the fount of wealth.

Yet even within the framework of our Keynesian monetary central planners, how did real PCE grow so strongly during the last two decades when real incomes for a huge share of the work force were falling so sharply?

In a word, debt. The flip-side of the Greenspan/Bernanke/Yellen wage crushing operation was a national LBO in the household sector.

During the 21 years between Greenspan’s arrival at the Fed in August 1987 and the early 2008 peak, household debt erupted from $2.7 trillion to $14.3 trillion or by 5.3X.

To be sure, nearly $12 trillion of extra debt, representing an annual growth rate of nearly 8.5%, speaks for itself in terms of the implied monumental excess. But our Keynesian witch doctors have a way of attempting to minimize the import of it by what we call the “inflation lockstep fallacy”.

That is to say, there is purportedly not so much to see here because much of this huge gain represents inflation; and, of course, wages and incomes were inflating over this 21 year period, too. What counts, or so claim our Keynesian bettors, is “real dollar” amounts as computed by their bulimic inflation indices.

Au contraire!

Wages in the Chinese export factories were not being set by the PCE deflator less food and energy as confected and tabulated by some GS-16s in the BLS’ statistical puzzle palace. On the margin, the “China price” in the world’s labor market was less than $1 per hour equivalent during most of that time.

And that’s a full stop. Constant dollar statistical deflators had nothing to do with it.

The Fed’s policy of systematically and massively inflating the domestic cost of living and household debt, therefore, resulted in a giant economic deformation—-one even greater than that implied by the parabolic debt gains through 2008 shown above.

Indeed, the full import can only be grasped by considering the sound money contrafactual case. To wit, as we demonstrated in an earlier post on this topic the CPI would have declined by 1-2% per year under a sound money regime after the early 1990’s when China’s export machine took off.

That means that even under a scenario of 3% labor productivity growth and constant household leverage ratios (i.e. debt-to income), total household debt would have grown by perhaps 2% per annum.

So by 2008 outstanding household debt would have been in the range of $4 trillion, not $14 trillion.

That’s right. Thanks to the utterly wrong-head monetary policies of Greenspan and his successors, US households ended up with $10 trillion of extra debt to lug around. And in the bargain, they got bloated nominal wage rates, which resulted in the massive off-shoring of their jobs, and shrinking purchasing power, which lowered the living standard of the less educated flyover zone work force by 17% just since the turn of the century.

The extent of this destructive household sector LBO is hinted at in the graph below. Historically, the ratio of household debt—-mortgages, credit cards, car loans and the rest—–was under 80% of wage and salary income.

After Nixon pulled the props out from the last vestiges of sound money at Camp David in August 1971 and turned the Fed loose to print at will, however, the ratio began to creep steadily higher.

Yet it was only after the arrival of Greenspan in the Eccles Building that the household leverage ratio went virtually parabolic, climbing from about 100% of wages and salaries to nearly 225% by the early 2008 peak.

We have called this a one-time parlor trick of monetary policy because while the leverage ratio was rising, it did permit households to supplement spending from their current wages and salaries with the proceeds of incremental borrowings. Undoubtedly, this artificial goosing of living standards by the central bank money printers did help insulate flyover America from feeling the full brunt of its shrinking job opportunities and  the deflating purchasing power of its pay checks.

No more. The household LBO is over and done, but the slightly declining leverage ratio shown in the chart is not a measure of progress; it’s an indicator of the distress being felt by households that have been forced to cut their consumption expenditures to the level of current earnings, which, in turn, are not rising nearly as fast as the 3.1% inflation rate afflicting flyover America.

Household Leverage Ratio

There is no secret or mystery as to how America’s working households were led into this appalling debt trap. The fact is, the befuddled Greenspan actually bragged about it when he celebrated the higher consumption levels that were being funded by MEW or mortgage equity withdrawal.

That was just Fedspeak for the fact that under its interest rate repression policies, American families were being massively incentivized and encouraged day and night by cash-out mortgage financing ads ( e.g “Lost another one to Ditech!”) to hock their homes to the mortgage man and splurge on the proceeds. This reached nearly a $1 trillion annual rate and 9% of disposable personal income at the peak just before 2008.

That Greenspan took great pains to track the data and publish the above chart is a measure of how far the Fed had descended into “something for nothing” economics.

Did they think that the leverage ratchet would never stop rising? Did they not recognize the fundamental economic fact of the present era? Namely, that there is a massive 80-million strong baby-boom generation heading for retirement and that for better or worse, home equity accumulation owing to the deductibility of interest has been its primary vehicle of savings?

Well, apparently not in the slightest. Here is what was happening behind the screen during Greenspan’s spurious MEW campaign. American households were strip-mining the equity from their homes and burying themselves in mortgage debt.

Total mortgage debt outstanding soared from $1.8 trillion to $10.7 trillion or by nearly 6X during this 21 year period. And even though housing prices more than doubled, the ratio of equity to owner-occupied housing asset value plunged from 67% to 37% over the period.

Here’s the thing. The MEW party ended nine years ago, but virtually all of Greenspan’s MEW is still there. Flyover America may not know exactly how it got buried in such massive debts, but it knows that the current Washington/Wall Street Bubble Finance regime has left it high and dry. It now suffers a relentless shrinkage of living standards even as these contractual debt obligations chase the huge cohort of baby-boomers right into their retirement golden years.

The only thing worse than the MEW legacy plaguing seniors is what’s happening on the other end of the demographic curve. Among student age Americans, the degree of debt enslavement has become even more draconian.

In the last decade alone, total student loans outstanding have nearly tripled, rising from $500 billion in 2006 to $1.34 trillion at present. And for reasons laid out below, a disproportionate brunt of this massive student loan burden is being shouldered by flyover America.

That’s mainly because the preponderant share of the nation’s 25 million higher education students comes from the flyover zones. Those precincts still had a semblance of a birth rate 25 years ago, unlike the culturally advanced households of the bicoastal meccas.

Stated differently, these staggering debt obligations were not incurred by Wellesley College art history majors or even needs-based diversity students at Harvard Law School. They are owed by the inhabitants of mom and pop’s basements scattered over the less advantaged expanse of the land.

After all, the Ivy league schools including all of their graduate departments account for only 140,000 students or 0.5% of the nation’s total. Even if you add in the likes of MIT, Stanford, Caltech, Northwestern, Duke, Vanderbilt and the rest of the top 20 universities you get less than 250,000 or 1% of the student population.

The other 24 million are victims of the feckless Washington/Wall Street ideology of debt and finance. To wit, tuition, fees, room and board and other living expanses have erupted skyward over the last two decades because Washington has poured in loans and grants with reckless abandon and Wall Street has fueled the madcap expansion of for-profit tuition mills.

Even setting aside the minimum $50,000 annual price tag at private institutions, the tab has soared to $20,000 annually at public 4-year schools and nearly $30,000 per year at the tuition mills.

These figures represent semi-criminal rip-offs. They were enabled by the preternaturally bloated levels of debt and finance showered upon the student population by the denizens of the Acela Corridor.

So the former now tread water in an economic doom loop. Average earnings for 35 year-olds with a bachelors degree or higher are $50,000 annually, compared to $30,000 for high school graduates and $24,000 for dropouts.

Thus, the sons and daughters of the flyover zones feel compelled to strap-on a heavy vest of debt in order to finance the insanely bloated costs of higher education. But once so “educated”, the overwhelming majority end up with $30,000 to $100,000 or debt or more.

In this regard, the so-called for-profit colleges like Phoenix University, Strayer Education and dozens of imitators deserve a special place in the halls of higher education infamy. At their peak a few years ago, enrollments at these schools totaled 3.5 million.

But overwhelmingly, these “students” were recruited by tuition harvesting machines that make the all-volunteer US Army look like a piker in comparison. To wit, typically 90% of the revenues of these colleges were derived from student grants and especially loans——-hundreds of billions of them—-but less than one-third of that money went to the cost of education, including teachers, classrooms, books and other instructional costs.

At the same time, well more 33% went to SG&A and the overwhelming share of that was in the “S” part. That is, prodigious expenditures for salesmen, recruiters, commissions and giant bonuses and other incentives and perks.

Needless to say, this made for good growth and margin metrics that could be hyped in the stock market.  In fact, after the cost of education and all of the massive selling expense to turbocharge enrollment growth was absorbed, there was still upwards of 35-40% of revenue left for operating profits.

That’s right. For a decade until the Obama Administration finally lowered the boom after 2011, the fastest growing and most profitable companies in America were the for-profit colleges.

In short order they became a hedge fund hotel, meaning that the fast money piled into the for-profit college space like there was no tomorrow. So doing, they often drove PE ratios to 60X or higher, bringing instant riches to start-up entrepreneurs and top company executives, who, in turn, were motivated to drive their growth and profit “metrics” even harder.

At length, they became tuition mills and Wall Street speculations that were incidentally in the higher education business, or not. The combined market cap of the six largest public companies went from less than $2 billion to upwards of $30 billion in a decade.

The poster boy for this scam is surely Strayer Education. Between 2002 and the 2011 peak, its sales and net income grew at 25% per year and operating profit margins clocked in at nearly 40%.

Not surprisingly, Strayer was peddled as the second coming of “growth” among the hedge funds. The momo chasers thus pushed its PE ratio into the 60-70X range in its initial growth phase, and it remained in the 30-40X range thereafter.

Accordingly, its market cap soared by 7X from $500 million to $3.5 billion at the peak. The hedge funds made a killing.
STRA Market Cap Chart

STRA Market Cap data by YCharts

Then the Federal regulators threw on the brakes, and it was all over except the shouting. Total market cap of more than $27 billion disappeared from the segment within three years after 2011 and the hedge fund hotel experienced a mass stampede for the exits.

What was left were millions of flyover zone thirty-something’s stuck with crushing unpaid loans, educations of dubious value and a lot more years in mom and pop’s basement.

Should any of these tuition mills have even existed, let alone been valued at 60X earnings——-earnings that did not derive from real economic value added and which were totally at the whims of the US department of education?

Of course not.

But then again, after 20 years of radical financial repression the Wall Street has been turned into a casino that scalps the flyover zone whenever it gets half the chance.

 

[by David Stockman, writing for DAVID STOCKMAN’S CONTRA CORNER]

 

………………………………………

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

2 Comments

Filed under Uncategorized

Financial time bombs hiding in plain sight…

“The Fed is operating a giant monetary sump pump for no rational purpose whatsoever, and it’s based on pure financial fraud to boot.”

 

Monetary central planners are pushing on a credit string to no effect except to further drastically deform and destabilize a financial system that is already on the verge of implosion.

 

The bear will soon be arriving in earnest, marauding through the canyons of Wall Street while red in tooth and claw. Our monetary central planners, of course, will once again—for the third time this century——be utterly shocked and unprepared. That’s because they have spent the better part of two decades deforming, distorting, denuding and destroying what were once serviceably free financial markets. Yet they remain as clueless as ever about the financial time bombs this inexorably fosters.

The sum and substance of Keynesian central banking is the falsification of financial prices. In essence, this means pegging interest rates below market clearing levels on the theory that more borrowing and spending will thereby ensue.

To this traditional credit channel of monetary policy transmission has been added in recent years the notion of an FX channel, which works through currency depreciation and export stimulus; and the wealth effects channel, which seeks to levitate the paper wealth of the top 10% of households so that they will feel emboldened to spend more at luxury retail emporiums, BMW showrooms and upscale vacation spots.

Needless to say, currency trashing might work for a tiny export economy like New Zealand. But on a global scale among the big national economies, it’s just a recipe for a race to the bottom. Ultimately it leads to nothing more than the inflation of imported commodities and goods and the reallocation of income and wealth from domestic industries and households to exporters and their shareholders.  Japan proves that in spades.

With respect to the false FX channel, even Black Rock’s chief big thinker, Peter Fisher, hit the nail on the head last week on Bloomberg:

“But let’s be clear, negative rates for the FX rate is about a race to the bottom of competitive devaluation,” he asserted. “The International Monetary Fund was established to try to prevent us from doing that again, what we did in the 1920s and ’30s that were such a disaster.”

It is a measure of the political euthanasia induced into American politics by 20 years of central bank dominance that the so-called wealth effects channel is even taken seriously. It amounts to a massive fiscal transfer and trickle-up to the most affluent 10% of US households who own 85% of financial assets.

Moreover, this odious reverse Robin Hood feat is effected by 12 unelected apparatchiks who sit on the FOMC. From their august perches, they perform live monetary experiments on the American public with no accountability whatsoever.

That these depredations are fostering a hideously unjust redistribution of wealth from main street to a tiny elite of money shufflers, gamblers and silicon valley bubble-riders is attested to by the rise of Bernie Sanders, and Donald Trump, too. Besides stoking xenophobia and racial prejudice, The Donald is heading toward the GOP nomination because, ironically, he is self-funded and can loudly and honestly boast that he is not beholden to the Fat Cats who rule the country.

Besides the rank injustice, there is also the sheer stupidity of it. Implicit in the whole misbegotten wealth effects doctrine is the spurious presumption that the Wall Street gambling apparatus can be rented for a spell by the central bank. So doing, our monetary central planners believe themselves to be unleashing a virtuous circle of increased spending, income and output, and then more rounds of the same.

At length, according to these pettifoggers, production, income and profits catch-up with the levitated prices of financial assets. Accordingly, there are no bubbles; and, instead, societal wealth continues to rise happily ever after.

Not exactly. Central bank stimulated financial asset bubbles crash. Every time.

The Fed and other practitioners of wealth effects policy do not rent the gambling apparatus of the financial markets. They become hostage to it, and eventually become loathe to curtail it for fear of an open-ended hissy fit in the casino. Bernanke found that out in the spring of 2013, and Yellen three times now——in October 2014, August 2015 and January-February 2016.

But unlike the last two bubble cycles, where our monetary central planners did manage to ratchet the money market rate back up to the 6% and 5% range, by 2000 and 2007, respectively, this time an even more obtuse posse of Keynesian true believers rode the zero bound right to the end of capitalism’s natural recovery cycle.

Accordingly, the casinos are populated with financial time bombs like never before. Worse still, the central bankers are now so utterly lost and confused that they are all thronging toward the one thing that will ignite these time bombs in a fiery denouement.

That is, negative interest rates. This travesty reflects sheer irrational desperation among central bankers and their fellow travelers, and will soon illicit a fire storm of political revolt, currency hoarding and revulsion among even the gamblers inside the casino.

Besides that, they are crushing bank net interest margins, thereby imperiling the solvency of the very banking system that the central banks claim to have rescued and fixed.

We will treat with some of the time bombs set to explode in the sections below, but first it needs to be emphasized that the third bubble collapse of this century is imminent. That’s because both the global and domestic economy is cooling rapidly, meaning that recession is just around the corner.

Based on the common sense proposition that the nation’s 16 million employers send payroll tax withholding monies to the IRS based on actual labor hours utilized—-and without any regard for phantom jobs embedded in such BLS fantasies as birth/death adjustments and seasonal adjustments——my colleague Lee Adler reports that inflation-adjusted collections have dropped by 7-8% from prior year in the most recent four-week rolling average.

Federal Withholding Tax Trend - Click to enlarge

As Lee noted in his Wall Street Examiner:

The annual rate of change in withholding taxes for collections through Thursday, February 18, approached a level which signals not just recession but is within a couple of percent of indicating a full fledged economic depression. As of February 18, 2016, the annual rate of change was -5.6% in nominal terms versus the corresponding period a year ago. That’s down from -3.7% a week before, +0.6% a month before, +5.8% three months ago, and down from a peak of +8.7% in early February 2015…….Adjusted for the nominal growth rate of employee compensation, the implied annual real rate of change is now roughly –7.5 to -8% year over year.

So there will be carnage in the casino when it becomes evident that recession has again visited this fair land, but that the Fed is utterly out of dry powder. There is not a chance in the world that NIRP will work or even be permitted by what will be the suddenly awaked politicians of Washington.

Even Peter Fisher admitted that NIRP signals the end of the road for Keynesian central bankers:

Fisher believes that central bankers’ growing penchant for negative policy rates stems from a desire to avoid admitting that they’ve expended all of their monetary ammunition.

Yet what immense societal damage these fanatics have done charging mindlessly toward this dead end. In fact, our monetary central planners have become so self-deluded and drunk with power that they now dispense sheer nonsense with complete alacrity. Thus, the Fed’s actual printing press operator, Simon Potter of the New York Fed, relieved himself of the following tommyrot in a speech today at Columbia University:

The Fed used to use a scarcity of bank reserves to set monetary policy but has had to adopt new tools for raising rates with a balance sheet of $4.5 trillion.

“We have achieved excellent control over the effective federal funds rate, and we have done so while avoiding unintended effects on the financial system or financial stability,” Potter said.

Is this man kidding? There is no Federal funds market worthy of the name. The Fed’s massive bond purchasing program and the monumental excess reserves it generated obviated and destroyed the fed funds market long ago; and at a miniscule $45 billion, the residue of a market which trades virtually by appointment now amounts to just 0.3% of the footings of the US banking system.

Well, here are the Fed’s “new tools”. What they achieve is not a financial price or interest rate; what they produce is a purely counterfeit rate issuing from what amounts to a monetary circle jerk.

To wit, the Fed raised the cap on its domestic reverse repo bid from $300 billion to $2 trillion and set the yield at 25 basis points. On top of that, it has raised the foreign bank repo pool to $250 billion, where its now paying approximately 33 basis points. Finally, the interest rate it pays member banks with excess reserves (IOER) of approximately $2.5 trillion has been raised to 50 basis points.

Just call the combination of these three facilities the mother of all Big Fat Bids. And throw in the fact that the US treasury is now also flooding the market with T-bills. Under those conditions, how could it be otherwise than that money market rates, including federal funds, would settle in the FOMC’s 25-50 basis point target range?

So what? The Fed is operating a giant monetary sump pump for no rational purpose whatsoever, and it’s based on a pure financial fraud to boot.

On the former point, there is not a single rational business in America that would actually wish to fund its working capital or any other assets on an overnight tender. That’s why even floating rate revolvers have terms of a year or longer and contractual guarantees of availability if covenants are complied with.

The only beneficiaries of overnight money at 38 bps are Wall Street carry trade gamblers, and they would be just as grateful for an announced peg at 12 bps or 100 bps or even 250 bps. The only thing they really care about is short-run certainty about the cost of carrying their gambling chips—-something the Fed’s peg unfailingly provides. From the perspective of the main street economy, however, the whole federal funds targeting gambit is a thoroughly pointless farce.

So, yes, the Keynesian fools in the Eccles Building are mounting what amounts to a $6 trillion bid in order to peg with great precision a money market rate that is of absolutely no moment to the main street economy. That’s because the US household and business sectors are already at Peak Debt. Consequently, the old Keynesian credit channel of monetary policy transmission is over and done. The monetary central planners, therefore, are pushing on a credit string to no effect except to further drastically deform and destabilize a financial system that is already on the verge of implosion.

But what makes the world so dangerous is that they are doing it with a fraudulent Rube Goldberg Contraption that establishes beyond a shadow of doubt that the FOMC is lost in a monetary puzzle palace, and is capable of virtually any kind of desperate gambit. After all, just recall where this Big Fat Bid of $6 trillion equivalent comes from.

The $2 trillion overnight reverse repo facility essentially means that the Fed is hocking a part of its massive $4.5 trillion trove of treasury bonds and mortgage-backed securities to borrow cash that it doesn’t need. And, yes, this repo collateral was previously purchased with fiat credits that it had conjured from thin air and deposited into the bank accounts of Wall Street dealers who sold these securities to the Fed’s Open Markets desk via QE.

Then again, the banking system in aggregate didn’t have an immediate need for the new reserves injected via QE so they accumulated at the New York Fed, rising from a level just $40 billion in August 2008 to $2.5 trillion at present. Now, stacked as they are in towering digital piles at 33 Liberty Street, the second component of the Feds “new tools” keeps these previously inconceivable quantities of excess reserves happily sequestered. That is, they are bribed to stay put by 50 bps of IOER payments.

There shouldn’t be any confusion here. The Fed is gratuitously subsidizing its member banks to the tune of $13 billion annually for no rational purpose whatsoever except to keep these funds from leaking into the money market and quashing its pointless fed funds target.

And the same goes for the 33 bps being earned by offshore banks which have deposited $250 billion of excess cash in the NY Fed’s foreign repo pool. Surely Deutsche Bank, Barclays, BNP Paribas and the assorted other dinosaurs of European socialism are grateful for a better return on their idle cash than the negative yield on offer from their own NIRPing central bank in Frankfurt.

Yet does this goofball Simon Potter really think that this rank outrage is a measure of the Fed’s “excellent control” over its money market targets?

And that ain’t the half of it. All the bribes being paid through these three different channels in order to peg a completely pointless target for the non-existent fed funds market reduces the Feds annual “profit”.  And if the notion of profit, which lies at the very heartbeat of capitalism, ever needed to be qualified in quotation marks, this is the case.

The Fed earns revenue of approximately $120 billion per year from the $4.5 trillion trove of assets that it paid for with fictional credit rather than the proceeds of work, production and real economic value added. From that intake, it consumes $5-6 billion on its 22,000 staffers and army of contractors and consultants, many of whom otherwise pretend to teach “economics” in the nation’s colleges and universities. It now also spends upwards of $15 billion or so to pay the IOER and interest on its reverse repo borrowings and foreign bank depositors, resulting in net “profits” of about $100 billion.

This abortion of the very concept of profit is then recycled back to the US treasury as a giant bribe to keep the politicians at both ends of Pennsylvania Avenue pacified and out of its hair. Worse still, the Fed’s remanded profits are booked as an offset to the interest cost on the nation’s staggering $19 trillion of public debt, thereby enabling the politicians to believe there is a fiscal free lunch after all.

Unfortunately, all of this fraudulent monetary shuffling has a terrible consequence in the financial casinos here and aboard. It drives interest rates to sub-economic levels and triggers a massive hunt for yield among the world’s money managers and home gamers alike.

Today Bloomberg published a telling study of the baleful consequence this central bank fostered hunt for yield has had on the world’s energy and mining industries. To wit, it has enabled companies in what are highly cyclical, risky and volatile commodity industries to borrow heretofore inconceivable amounts of money, and plow it into massive malinvestments and excess capacity.

The bottom line is simple. The great wave of commodity and industrial deflation now sweeping through the world economy is the bastard offspring of the debt binge that was enabled by the central banks over the last two decades. Yet they now pretend that this massive headwind to growth originated in some exogenous force that must be counted with even more of the same monetary intrusion.

That’s how we get to the crime of NIRP. Keynesian central banks cannot imagine a problem for which more debt is not the solution. But is it not lack of “aggregate demand” which is idling an increasing share of the world’s oilfield drilling equipment; nor did it cause Caterpillar’s heavy mining machinery sales to plunge or the Baltic Dry index to plummet to 30-year lows.

What is driving output, wages and profits drastically southward throughout the materials and energy complex is drastically sinking profits and a desperate need to conserve cash flow in order to survive. The CapEx budget of global mining giant BHP is a proxy for what is becoming a global CapEx depression in the world’s industrial economy.

To wit, at the peak of the global credit boom and China/EM growth frenzy a few years ago, BHP’s capital budget was about $23 billion. This year, by contrast, it is expected to come in at just $7 billion and plunge further to only $5 billion in 2017.

Needless to say, it does not take much imagination to envision how a 78% cut in capital spending by a giant user of heavy machinery and engineered infrastructure like rail lines and port facilities will cascade down the supply chain. And since the top executives who ran these operations right over the credit bubble cliff are being fired right and left, another thing is quite certain.

That is, there are no takers for incremental debt at any price, NIRP or otherwise, in the global mining and energy industries. Epic damage has already been done, and the overhang of excess capacity and malinvestment will linger for years to come. Even then, hundreds of billions of the debt which funded this massive and mindless investment spree will be restructured or written off entirely, as is already emerging in the US shale patch.

These kinds of financial time bombs are lurking everywhere in the global economy——even if the central bankers don’t see them coming.

 

[by David Stockman, writing for David Stockman’s Contra Corner]

 

……………………………………..

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

Leave a comment

Filed under Uncategorized

Federal Reserve makes another huge mistake…

US economic bubble

As stocks continue to crash, you can blame the Federal Reserve, because the Fed is more responsible for creating the current financial bubble we’re living in than anyone else.

When the Federal Reserve pushed interest rates all the way to the floor and injected lots of hot money into the financial markets during their quantitative easing programs, this pushed stock prices to wildly artificial levels.  The only way it would have been possible to keep stock prices at those wildly artificial levels would have been to keep interest rates ultra-low and to keep recklessly creating lots of new money.  But now the Federal Reserve has ended quantitative easing and has embarked on a program of very slowly raising interest rates.  This is going to have very severe consequences for the markets, but Janet Yellen doesn’t seem to care.

There is a reason why the financial world hangs on every single word issued by the Fed: The massively inflated stock prices we see today were a creation of the Fed and are completely dependent on the Fed for their continued existence.

Right now, stock prices are still 30 to 40 percent above what the economic fundamentals say they should be based on historical averages.  And if we are now plunging into a very deep recession as I contend, stock prices should probably fall by a total of more than 50 percent from where they are now.

The only way stock prices could have ever gotten this disconnected from economic reality is with the help of the Federal Reserve.  And since the U.S. dollar is the primary reserve currency of the entire planet, the actions of the Fed over the past few years have created stock market bubbles all over the globe.

But the only way to keep the party going is to keep the hot money flowing.  Unfortunately for investors, Janet Yellen and her friends at the Fed have chosen to go the other direction.  Not only has quantitative easing ended, but the Fed has also decided to slowly raise interest rates.  The Fed left rates unchanged on Wednesday, but we were told that we are probably still on schedule for another rate hike in March.

So how did the markets respond to the Fed?

Well, after attempting to go green for much of the day, the Dow started plunging very rapidly and ended up down 222 points.

The markets understand the reality of what they are now facing.  They know stock prices are artificially high and that if the Fed keeps tightening that it is inevitable that they will fall back to earth.

In a true free market system, stock prices would be far, far lower than they are right now.  Everyone knows this – including Jim Cramer.  Just check out what he told CNBC viewers earlier today…

Jim Cramer was tempted to resurface his “they know nothing” rant after hearing the Fed speak on Wednesday. He was hoping that a few boxes on his market bottom checklist might be checked off, but it seems that the bear market has not yet run its course.

The Fed’s wishy-washy statement on interest rates today left stocks sinking back into oblivion after a nice rally yesterday,” the “Mad Money” host said.

Without artificial help from the Fed, stocks will most definitely continue to sink into oblivion.

That is because these current stock prices are not based on anything real.

And so as this new financial crisis continues to unfold, the magnitude of the crash is going to be much worse than it otherwise would have been.

It has often been said that the higher you go the farther you have to fall.  Because the Federal Reserve has pumped up stock prices to ridiculously high levels, that just means that the pain on the way down is going to be that much worse.

It is also important to remember that stocks tend to fall much more rapidly than they rise.  And when we see a giant crash in the financial markets, that creates a tremendous amount of fear and panic.  The last time there was great fear and panic for an extended period of time was during the crisis of 2008 and 2009, and this created a tremendous credit crunch.

During a credit crunch, financial institutions because very hesitant to lend to one another or to anyone else.  And since our economy is extremely dependent on the flow of credit, economic activity slows down dramatically.

As this current financial crisis escalates, you are going to notice certain things begin to happen.  If you own a business or you work at a business, you may start to notice that fewer people are coming in, and those people that do come in are going have less money to spend.

As economic activity slows, employers will be forced to lay off workers, and many businesses will shut down completely.  And since 63 percent of all Americans are living paycheck to paycheck, many will suddenly find themselves unable to meet their monthly expenses.  Foreclosures will skyrocket, and large numbers of people will go from living a comfortable middle class lifestyle to being essentially out on the street very, very rapidly.

At this point, many experts believe that the economic outlook for the coming months is quite grim.  For example, just consider what Marc Faber is saying

It won’t come as a surprise to market watchers that “Dr. Doom” Marc Faber isn’t getting any more cheerful.

But the noted bear at least found a sense of humor on Wednesday into which he could channel his bleakness.

The publisher of the “Gloom, Boom & Doom Report” told attendees at the annual “Inside ETFs” conference that the medium-term economic outlook has become “so depressing” that he may as well fill a newly installed pool with beer instead of water.

If the Federal Reserve had left interest rates at more reasonable levels and had never done any quantitative easing, we would have been forced to address our fundamental economic problems more honestly and stock prices would be far, far lower today.

But now that the Fed has created this giant artificial financial bubble, the coming crash is going to be much worse than it otherwise would have been.  And the tremendous amount of panic that this crash will cause will paralyze much of the economy and will ultimately lead to a far deeper economic downturn than we witnessed last time around.

Once the Fed started wildly injecting money into the system, they had no other choice but to keep on doing it.

 

[by Michael Snyder, writing for The Economic Collapse Blog]

 

……………………………………….

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

 

Leave a comment

Filed under Uncategorized

Yes, it CAN happen here. In fact, it has already started.

Remember Enron, the company that collapsed because of its massive accounting fraud? Can you imagine what would happen in the US, and around the globe, if the Federal Reserve were shown to be conducting a similar accounting fraud?

 

When a central bank fails, it ALWAYS tries to print its way out of trouble.

The Fed started following that script in 2008. They printed more than $4 trillion to rescue the economy.

When their loans go bad… when interest rates start to rise…. when the accounting hoax hits the mainstream… they will be forced to print even more worthless dollars.

History proves it’ll happen, just like it has time and time again.

But there’s a limit to how much a central bank can print before triggering a major crisis of confidence in our currency.

Pull any dollar bill from your wallet and take a closer look at it. Today’s Federal Reserve notes are not backed by any real asset. Instead, our entire monetary system is based on nothing but trust.

It’s that trust in our currency that has made America an economic superpower over the past century. It was trust that allowed our government to bail out major banks and prevent the collapse of our financial system in 2008. And it’s that trust that has given us a great standard of living.

It has allowed us to live in McMansions, drive BMWs and Mercedes, pay far cheaper gasoline prices, buy 3-D HDTVs, load our pantries with cheap food, and so much more.

Simply put… without trust in our currency, our way of life is over.

Unfortunately, once the Fed’s insolvency becomes evident, everyone will lose trust in the U.S. dollar… once and for all.

No one will want to buy or hold U.S. dollars after the Federal Reserve proves to have been hiding losses, either. That’s why Forbes recently published an article, warning:

The possibility [of the Fed being insolvent] ought to concern you if you have any Federal Reserve notes in your wallet. These notes aren’t redeemable for gold or anything else tangible. They are trust-me money. What if people stop trusting the dollar? What are you going to be able to buy with it?”

The answer is… you won’t be able to buy much. When people lose trust in our currency, the price of things like gas, medicine, corn, wheat, milk will skyrocket. I’m talking about paying $9.50 per gallon at the gas station… $10 for a gallon of milk… and $5 for a loaf of bread. Millions of unprepared Americans will hit rock bottom.

Seniors who live on a fixed income will become poor virtually overnight… and may even struggle to feed themselves. Social Security and Medicare benefits will be cut in half. Pension funds will be devalued, ruining the retirement plans of millions of retirees. Global markets will plunge, as investors bail out of stocks. Anything that’s backed by the U.S. government will become worthless.

Nouriel Roubini, the New York University professor who correctly predicted the 2008 collapse, has warned about this risk. Here’s what he said: “At some point [the Fed] may crack, in which case, the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued.”

That means things like FDIC insurance won’t mean anything anymore, which will lead to a run on the banks, similar to what happened in the Great Depression. You may not even be able to redeem your money, or pull any of your savings out of the system.

But here’s what’s really scary: The day Americans and foreigners no longer have faith in Federal Reserve notes as “money” is closer than anyone thinks.

Governments Around the World Are Already
Preparing for This Collapse

Some people think that even if there’s a crisis of confidence, the dollar won’t crash because there are no alternatives to our currency.

But that is NOT true. There IS a replacement ready to roll forward and take the dollar’s spot as the world’s reserve currency. The International Monetary Fund, or IMF, is the world’s bank. And the IMF knows what I’m telling you here today. They can see the accounting records. They can read the tea leaves just like I can. And they know the Fed is functionally insolvent.

They know the Fed has so much leverage that they won’t be able to print much more money without triggering a collapse of the dollar. They know the Fed won’t be able to save our financial system in the next crisis.

Which is why they’ve developed an emergency plan that involves a new global “money.”

The plan is to use this “new money” to replace the dollar as the world’s reserve currency during the coming crisis.

The IMF has designed an emergency plan based on a new global money known as Special Drawing Right, or SDR.

For the past few years, the institution has openly called for the SDR to replace the dollar as the world reserve currency.

And they may be planning to print SDRs to save our financial system during the next collapse. Strauss-Kahn, the former head of the IMF, has confirmed that in the next crisis, “the IMF might even be called upon to provide a globally issued reserve asset.” That’s when the SDR could replace the dollar as the world’s reserve currency. And this day is closer than anyone thinks.

Barron’s has already reported: “The talk [to replace the U.S. dollar by SDRs  as the world’s reserve currency] has gained momentum recently.”

The Financial Times has already picked up on the story, reporting: “In the eyes of the IMF, the best way to ensure the stability of the international monetary system is actually by launching a global currency.”

Once this plan to replace the dollar is fully executed, the dollar will finally be dethroned as the king of the financial world.

As the dollar goes down… so does the American economy… and the entire way of life we’ve enjoyed for decades.

When the Federal Reserve collapses, when the dollar goes down, and when a whole new competing currency enters the financial markets, the stock exchanges will plummet. The value of your dollars will instantly drop overnight. Riots may break out when Americans can’t get cheap, easy access to all the things they’ve taken for granted, things like water, gas and food.

It will be nearly impossible to get your hands on your own savings, just like it’s always been throughout history in times of economic crisis. It’ll be no different here when the collapse comes.

 

[by Jim Rickards, writing for AGORA FINANCIAL]

 

……………………………………..

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

Leave a comment

Filed under Uncategorized

Alarm bells going off as 11 critical indicators scream that the global economic crisis is getting deeper

Economic activity is slowing down all over the planet, and a whole host of signs are indicating that we are essentially exactly where we were just prior to the great stock market crash of 2008.  Yesterday, I explained that the economies of Japan, Brazil, Canada and Russia are all in recession.  Today, I am mainly going to focus on the United States.  We are seeing so many things happen right now that we have not seen since 2008 and 2009.  In so many ways, it is almost as if we are watching an eerie replay of what happened the last time around, and yet most of the “experts” still appear to be oblivious to what is going on.  If you were to make up a checklist of all of the things that you would expect to see just before a major stock market crash, virtually all of them are happening right now.  The following are 11 critical indicators that are absolutely screaming that the global economic crisis is getting deeper…

Alarms are flashing all over the globe...

#1 On Tuesday, the price of oil closed below 40 dollars a barrel.  Back in 2008, the price of oil crashed below 40 dollars a barrel just before the stock market collapsed, and now it has happened again.

#2 The price of copper has plunged all the way down to $2.04.  The last time it was this low was just before the stock market crash of 2008.

#3 The Business Roundtable’s forecast for business investment in 2016 has dropped to the lowest level that we have seen since the last recession.

#4 Corporate debt defaults have risen to the highest level that we have seen since the last recession.  This is a huge problem because corporate debt in the U.S. has approximately doubled since just before the last financial crisis.

#5 The Bloomberg U.S. economic surprise index is more negative right now than it was at any point during the last recession.

#6 Credit card data that was just released shows that holiday sales have gone negative for the first time since the last recession.

#7 As I mentioned yesterday, U.S. manufacturing is contracting at the fastest pace that we have seen since the last recession.

#8 The velocity of money in the United States has dropped to the lowest level ever recorded.  Not even during the depths of the last recession was it ever this low.

#9 In 2008, commodity prices crashed just before the stock market did, and late last month the Bloomberg Commodity Index hit a 16 year low.

#10 In the past, stocks have tended to crash about 12-18 months after a peak in corporate profit margins.  At this point, we are 15 months after the most recent peak.

#11 If you look back at 2008, you will see that junk bonds crashed horribly.  Why this is important is because junk bonds started crashing before stocks did, and right now they have dropped to the lowest point that they have been since the last financial crisis.

If just one or two of these indicators were flashing red, that would be bad enough.

The fact that all of them seem to be saying the exact same thing tells us that big trouble is ahead.

And I am not the only one saying this.  Just today, a Reuters article discussed the fact that Citigroup analysts are projecting that there is a 65 percent chance that the U.S. economy will plunge into recession in 2016…

The outlook for the global economy next year is darkening, with a U.S. recession and China becoming the first major emerging market to slash interest rates to zero both potential scenarios, according to Citi.

As the U.S. economy enters its seventh year of expansion following the 2008-09 crisis, the probability of recession will reach 65 percent, Citi’s rates strategists wrote in their 2016 outlook published late on Tuesday. A rapid flattening of the bond yield curve towards inversion would be an key warning sign.

Personally, I am convinced that we are already in a recession.  There is a lag in the official numbers, so often we don’t know that we are officially in one until it is well underway.  For example, we now know that a recession started in early 2008, but in the summer of 2008 Ben Bernanke and our top politicians were still insisting that there was not going to be a recession.  They were denying what was actually happening right in front of their eyes, and the same thing is happening now.

And of course if the government was actually using honest numbers, we would all be talking about the recession that never seems to end.  According to John Williams of shadowstats.com, honest numbers would show that the U.S. economy has continually been in recession since 2005.

But just like in 2008, the “experts” at the Federal Reserve are assuring all of us that everything is going to be just fine.  In fact, Janet Yellen is convinced that things are so rosy that she seems quite confident that the Fed will raise interest rates in December

Federal Reserve Chair Janet Yellen signaled Wednesday that the Fed is all but certain to raise interest rates this month for the first time in nearly a decade, saying that gains in the economy and labor market have met the central bank’s goals.

Her comments at the Economic Club of Washington amount to the strongest indication the Fed has provided so far that it will take action at a December 15-16 meeting.

This is the exact same kind of mistake that the Federal Reserve made back in the late 1930s.  They thought that the U.S. economy was finally recovering, and so interest rates were raised.  That turned out to be a tragic mistake.

But this time around, any mistake that the Fed makes will have global consequences.  The rising U.S. dollar is already crippling emerging markets all around the globe, and an interest rate hike will just push the U.S. dollar even higher.  For much more on this, please see my previous article entitled “The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse“.

Many people are waiting for “the big crash”, but the truth is that almost everything has crashed already.

Oil has crashed.

Commodities have crashed.

Gold and silver have crashed.

Junk bonds have crashed.

Chinese stocks have crashed.

Dozens of other stock markets around the world have already crashed.

But the “big event” that many are waiting for is the crash of U.S. stocks.  And just like in 2008, it is inevitable that a U.S. stock crash will follow all of the other crashes that I just mentioned.

The exact same patterns that we experienced back then are playing out once again right in front of our eyes.

 

[by Michael Snyder, writing for THE ECONOMIC COLLAPSE BLOG]

 

………………………………………

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

 

Leave a comment

Filed under Uncategorized

“The life the Fed was trying to breathe into the financial markets was really being sucked out of the US economy”…

The presses are humming...

“If you think the Fed is finished printing money…they’re just getting started.”

 

The printing presses are firing up all over again… err, at least the digital ledgers are, anyway.

Financial expert and infamous goldbug Peter Schiff was interviewed by Fox Business from the floor of the U.S. Stock Exchange.

Schiff warned viewers that “everyone is preparing for the wrong outcome with the U.S. economy.”

That outcome? The financial world has been waiting with feverish anticipation for “the big day” when the Federal Reserve finally raises interest rates – a quiet move big enough to shift economic tectonic plates.

But contrary to conventional wisdom about when the Federal Reserve will raise interest rates, and thus turn the page on a new era of the economy, Schiff says they can’t and won’t raise rates anytime soon – though they should have several years ago.

It didn’t happen months ago when many expected it. It won’t happen now in September, and likely not for a long time.

Why?

Because the Federal Reserve can’t raise rates without collapsing the bubble economy.

“I was saying they weren’t going to raise rates. Not because they shouldn’t, but because they can’t, because they will prick this bubble economy that they worked so hard to inflate,” Peter Schiff told Fox Business.

Instead of letting certain markets fail as they should have, they were propped up by the Fed. And these zombie banks and businesses have been sucking life out of the real economy – at great expense to average people.

“The economy has never been good. We’ve really been in a recession, I think, for the entirety of the recovery. I think the policies that the Federal Reserve has used to prop up the stock market and the real estate market have hurt the real economy. That’s why things are actually getting worse. But on Wall Street, yeah, things look good. But if the Fed takes away those monetary supports, we’re going to be in a bear market. We’re going to be in a deeper recession. We’re going to resume the financial crisis that was interrupted by this monetary policy.”

“The problem is that when the Fed was breathing life, or breathing air, into the financial markets, it was sucking it out of the real economy. That’s why we haven’t had a recovery. But everybody who thinks that the Federal Reserve policy succeeded, there’s no success here. There’s no success until you raise interest rates and shrink your balance sheet. And the Fed can’t do that. That’s why rates have been at zero for seven years. Why didn’t they raise them two or three years ago?”

And things are sure to get worse before they get better…

Market Watch was among the outlets making excuses for Yellen’s non-decision on raising rates:

The job of easy money isn’t done, and its inflation risks are still way over the horizon. August’s employment report makes that clear, just as the Fed nears its big day. […] sometime around the Fed’s third quantitative easing program in 2012, the purpose of easy money moved from supporting once-more stable markets to the still-shaky real economy.

But the real truth is that the system who created this illusion isn’t about to burst its own bubble, and doesn’t know how to land the thing without a spectacular and shocking crash.

The Fed has little choice at this point but to print ever-greater quantities of money, and inflate the stock market and the broader artificial appearance that all is normal and well. According to Schiff:

“The Federal Reserve caused all the problems that led to the 2008 financial crisis, and now they’ve made them all worse. So all they can do is keep interest rates at zero.

They’re setting up for another round of quantitative easing. People who think the Federal Reserve is finished printing money – they’re just getting started.”

Schiff claims some investors are buying into the U.S. dollar because they are expecting the Fed to reduce its balance sheets and increase interest rates. But nothing could be further from the truth.

“QE4 is coming, and you want to get out of U.S. assets, take advantage of the fact that other people have no idea what the U.S. economy is really going to do, what the Fed’s going to do, and buy foreign assets when they’re on sale. You can buy foreign stocks, you can buy commodities, and yes, you can buy gold.

Bottom line: Hold on for as long as you can to whatever makes the most sense to you.

 

[by Mac Slavo, writing for SHTFplan.com]

 

…………………………………………

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

Leave a comment

Filed under Uncategorized