From Bernanke’s infamous 2008 “not forecasting a recession” call to Fannie Mae CEO Franklin Raines 2004 “subprime assets are riskless” commentary, the following 10 “predictions” – as opposed to Wien “surprises” – will go down in infamy for their degree of errant-ness…10) Ben Bernanke, 10th January 2008 – “The Federal Reserve is currently not forecasting a recession.”
A few months later, United States entered one of the wort recessions ever.
9) Herbert Hoover 1928: “The United States are nearer to the final triumph over poverty than ever before in the history of any land.”
The Great Depression started a year after. Stocks lost almost 80% under his presidency. Continue reading »
The most important chart that nobody at the Fed seems to pay any attention to, and certainly none of the economists who urge the Fed to accelerate its monetization of Treasury paper, is shown below: it shows the Fed’s total holdings of the entire bond market expressed in 10 Year equivalents (because as a reminder to the Krugmans and Bullards of the world a 3 Year is not the same as a 30 Year). As we, and the TBAC, have been pounding the table over the past year (here, here and here as a sample), the amount of securities that the Fed can absorb without crushing the liquidity in the “deepest” bond market in the world is rapidly declining, and specifically now that the Fed has refused to taper, it is absorbing over 0.3% of all Ten Year Equivalents, also known as “High Quality Collateral”, from the private sector every week. The total number as per the most recent weekly update is now a whopping 33.18%, up from 32.85% the week before. Or, said otherwise, the Fed now owns a third of the entire US bond market.
“We have to be careful of these kind of exponentially rising markets,” chides Marc Faber, adding that he “sees no value in stocks.” Fearful of shorting, however, because “the bubble in all asset prices” can keep going due to the printing of money by world central banks, Faber explains to a blind Steve Liesman the difference between over-valuation and bubbles (as we noted here), warning that “future return expectations from stocks are now very low.”
Nope no bubble here…
Along with this pattern…
which has emerged with striking fidelity since 2010, we observe a variety of other features typically associated with dangerous extremes: Continue reading »
Much has been said about the Fed’s attempt to stimulate inflation (instead of just the stock market) by injecting a record $2.5 trillion in reserves into the US banking system since the collapse of Lehman (the same goes for the ECB, BOE, BOJ, etc). Even more has been said about why this money has not been able to make its way into the broader economy, and instead of forcing inflation – at least as calculated by the BLS’ CPI calculation – to rise above 2% has, by monetizing a record amount of US debt issuance, merely succeeded in pushing capital markets to unseen risk levels as every single dollar of reserves has instead ended up as assets (and excess deposits as a matched liability) on bank balance sheets.
Much less has been said that of the roughly $2 trillion increase in US bank assets, $2.5 trillion of this has come from the Fed’s reserve injections as absent the Fed, US banks have delevered by just under half a trillion dollars in the past 5 years. Because after all, all QE really is, is an attempt to inject money into a deleveraging system and to offset the resulting deflationary effects. Naturally, the Fed would be delighted if instead of banks being addicted to its zero-cost liquidity, they would instead obtain the capital in the old-fashioned way: through private loans. However, since there is essentially no risk when chasing yield and return and allocating reserves to various markets (see JPM CIO and our prior explanation on this topic), whereas there is substantial risk of loss in issuing loans to consumers in an economy that is in a depressionary state when one peels away the propaganda and the curtain of the stock market, banks will always pick the former option when deciding how to allocated the Fed’s reserves, even if merely as initial margin on marginable securities.
However, what virtually nothing has been said about, is how China stacks up to the US banking system when one looks at the growth of total Chinese bank assets (on Bloomberg: CNAABTV Index) since the collapse of Lehman.
The answer, shown on the chart below, is nothing short of stunning.
Most people – certainly most governments and economists – define inflation as a general rise in prices. But this is wrong. Inflation is an increase in the money supply, of which a rising general price level is just one possible result – and not the most common one.
More often, excessive money creation shows up as asset bubbles, where the new money, instead of flowing equally to all the products that are for sale at a given time, flow disproportionately into the ‘hottest’ asset classes. Readers who were paying attention in the 1990s might recall that the consumer price index was well-behaved while huge amounts of money flowed into financial assets, producing the dot-com bubble.
The same thing happened in the 2000s, when excess currency flowed into housing and equities. In each case, mainstream economists and government officials pointed to modest consumer price inflation as a sign that things were fine. And in each case they were simply looking in the wrong place and completely missing the destabilizing effects of an inflating money supply. Continue reading »
Dr. Paul Craig Roberts was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University.
The Dying Dollar Federal Reserve and Wall Street Assassinate US Dollar
Since 2006, the US dollar has experienced a one-quarter to one-third drop in value to the Chinese yuan, depending on the choice of base.
Now China is going to let the dollar decline further in value. China also says it is considering undermining the petrodollar by pricing oil futures on the Shanghai Futures Exchange in yuan. This on top of the growing avoidance of the dollar to settle trade imbalances means that the dollar’s role as reserve currency is coming to an end, which means the termination of the US as financial bully and financial imperialist. This blow to the dollar in addition to the blows delivered by jobs offshoring and the uncovered bets in the gambling casino created by financial deregulation means that the US economy as we knew it is coming to an end.
According to a whistleblower that has recently come forward, Census employees have been faking and manipulating U.S. employment numbers for years. In fact, it is being alleged that this manipulation was a significant reason for why the official unemployment rate dipped sharply just before the last presidential election. What you are about to read is incredibly disturbing. The numbers that the American people depend upon to make important decisions are being faked. But should we be surprised by this? After all, Barack Obama has been caught telling dozens of major lies over the past five years. At this point it is incredible that there are any Americans that still trust anything that comes out of his mouth. And of course it is not just Obama that has been lying to us. Corruption and deception are rampant throughout the entire federal government, and this has been the case for years. Now that some light is being shed on this, hopefully the American people will respond with overwhelming outrage and disgust.
Jim Rogers hope-driven wish is that the politicians were smart enough at some point to say (to the central bankers), “we’ve got to stop this, this is going to be bad.” He adds, on the incoming QEeen, “she’s not going to stop it, first of all she doesn’t believe in stopping it, she thinks printing money is good.” However, Rogers warns in this excellent interview with Birch Gold, “eventually the markets will just say, “We’re not going to play this game anymore”, and we’ll have a serious collapse.” The world is blinded by central bank liquidity, and as Rogers somewhat mockingly notes “if everybody says the sky is blue, I urge you to look out the window and see if it’s blue because I have found that most people won’t even bother to look out the window…” Rogers concludes, “everybody should own some precious metals as an insurance policy,” because as he ominously warns, when ‘it’ collapses, “there will be big change.
Rachel Mills, Birch Gold Group (BGG): This is Rachel Mills for Birch Gold, and I am very pleased to be joined today by Jim Rogers, legendary investor. Thank you so much Jim for joining me.
Jim Rogers: I am delighted to be here Rachel.
BGG: So today I wanted to talk a little about stock market highs and Quantitative Easing and inflation and a little bit of Federal Reserve and when is the taper is going to happen and currency wars. But there is one question that I don’t have to ask you, which you get asked a lot, I know, and that is what your secret to being so prescient in the marketplace?
“…if everybody says the sky is blue, I at least urge you to go and look out the window and see if it’s blue because I have found that most people won’t even bother to look out the window…”
JR: As far as I know, I’m not quite sure. I do know that I have learned over the years, always, when nearly everybody is thinking the same way that means somebody’s not thinking that means we got to start thinking about it and see if there’s not another way, another approach. Because if everybody says the sky is blue, I at least urge you to go and look out the window and see if it’s blue because I have found that most people won’t even bother to look out the window. If they see on the television or in the newspaper or something that everybody says the sky is blue, I at least urge them to look out the window. I find that most people don’t want to do their homework, that’s the first problem that many people have, is just doing simple homework.
“…no matter what we all know today, it’s not going to be true in 10 or 15 years…”
So over the weekend, the world learned that Tiny Turbo Tax Timmy Geither had accepted a job with private equity giant firm Warburg Pincus. The news was about as much of a surprise as a lie popping out of Barack Obama’s mouth every time he opens it. Nevertheless, the move is particularly hilarious in light of a profile article of Geithner in New York magazine from January of this year, in which the king of cronyism tried to distance himself from Wall Street.
Here’s the money-shot paragraph from the piece:
Another fiction that has plagued Geithner is the idea that he is a creature of Wall Street, specifically that he worked for Goldman Sachs. He isn’t sure where it came from—probably just confusion with his predecessor, Hank Paulson, who was the former CEO—but “once it hardened, it was very hard to overcome.” Indeed, he has not really overcome it at all. I can write, right here, in all caps, TIM GEITHNER HAS NEVER WORKED ON WALL STREET, and still someone will comment on our website that he is a bankster who should just go back to Goldman Sachs. Geithner says it’s “extremely unlikely” he will take a job in the world of finance, but the idea that he is somehow, secretly, working hand in hand with that community persists, and every once in a while someone pulls out records of his phone calls and meetings with CEOs as evidence. Geithner is not really sure what to say about that. “I’m the secretary of the Treasury.” He laughs. “How am I supposed to run a financial rescue if I don’t take phone calls from people?”
It is becoming increasingly obvious that we are seeing the disconnect between financial markets and the real economy grow. It is also increasingly obvious (to Citi’s FX Technicals team) that not only is QE not helping this dynamic, it is making things worse. It encourages misallocation of capital out of the real economy, it encourages poor risk management, it increases the danger of financial asset inflation/bubbles, and it emboldens fiscal irresponsibility etc.etc. If the Fed was prepared to draw a line under this experiment now rather than continuing to “kick the can down the road” it would not be painless but it would likely be less painful than what we might see later. Failure to do so will likely see us at the “end of the road” at some time in the future and the ‘can’ being “kicked over the edge of a cliff.” Enough is enough. It is time to recognize reality. It is time to take monetary and fiscal responsibility – “America is exhausted…..it is time.”
#10 According to an official government report, the Federal Reserve made 16.1 trillion dollars in secret loans to the big banks during the last financial crisis. The following is a list of loan recipients that was taken directly from page 131 of the report…
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion
The Federal Reserve is creating hundreds of billions of dollars out of thin air and using that money to buy U.S. government debt and mortgage-backed securities and take them out of circulation. Since the middle of 2008, these purchases have caused the Fed’s balance sheet to balloon from under a trillion dollars to nearly four trillion dollars. This represents the greatest central bank intervention in the history of the planet, and Janet Yellen says that she does not anticipate that it will end any time soon because “the recovery is still fragile”. Of course, as I showed the other day, the truth is that quantitative easing has done essentially nothing for the average person on the street. But what QE has done is that it has sent stocks soaring to record highs. Unfortunately, this stock market bubble is completely and totally divorced from economic reality, and when the easy money is taken away the bubble will collapse. Just look at what happened a few months ago when Ben Bernanke suggested that the Fed may begin to “taper” the amount of quantitative easing that it was doing. The mere suggestion that the flow of easy money would start to slow down a little bit was enough to send the market into deep convulsions. This is why the Federal Reserve cannot stop monetizing debt. The moment the Fed stops, it could throw our financial markets into a crisis even worse than what we saw back in 2008.
Following his inconvenient truthiness yesterday, Andrew Huszar appeared on Bloomberg TV today (having dismissed the comic-book-written discussion he faced in CNBC’s Fast Money yesterday). As usual Bloomberg gave him more time to speak, listened, and challenged some of what he said, but we were struck by the man-who-ran-the-Fed’s-mortgage-book’s points that “we are eerily similar to 2008.” Simply out, he implores, “the structure of our economy has not changed,” and his apology (on behalf of the Fed), is because the Fed “helped squander an opportunity to see change in America.” The fact of the matter, this was folly, “The Fed does not have the ttols to help the economy.”
A banker named Andrew Huszar that helped manage the Federal Reserve’s quantitative easing program during 2009 and 2010 is publicly apologizing for what he has done. He says that quantitative easing has accomplished next to nothing for the average person on the street. Instead, he says that it has been “the greatest backdoor Wall Street bailout of all time.” And of course the cold, hard economic numbers support what Huszar is saying. The percentage of working age Americans with a job has not improved at all during the quantitative easing era, and median household income has actually steadily declined during that time frame. Meanwhile, U.S. stock prices have doubled overall, and the stock prices of the big Wall Street banks have tripled. So who benefits from quantitative easing? It doesn’t take a genius to figure it out, and now Andrew Huszar is blowing the whistle on the whole thing. Continue reading »
Just over four years ago, we highlighted a recently declassified top secret 1968 telegram to the Secretary of State from the American Embassy in Paris, in which the big picture thinking behind the creation of the IMF’s Special Drawing Right (rolled out shortly thereafter in 1969), or SDRs, was laid out. In that memo it was revealed that despite what some may think, the fundamental driver behind the promotion of a supranational reserve paper currency had one goal in mind: allowing the US to “remain masters of gold.”
Specifically, this is among the top secret paragraphs said on a cold night in March 1968:
If we want to have a chance to remain the masters of gold an international agreement on the rules of the game as outlined above seems to be a matter of urgency. We would fool ourselves in thinking that we have time enough to wait and see how the S.D.R.’s will develop. In fact, the challenge really seems to be to achieve by international agreement within a very short period of time what otherwise could only have been the outcome of a gradual development of many years.
One of the least discussed, but potentially most significant, provisions in President Obama’s budget is the use of the “chained consumer price index” (chained CPI), to measure the effect of inflation on people’s standard of living. Chained CPI is an effort to alter the perceived impact of inflation via the gimmick of “full substitution.” This is the assumption that when the price of one consumer product increases, consumers will simply substitute a similar, lower-cost product with no adverse effect. Thus, the government decides your standard of living is not affected if you can no longer afford to eat steak, as long as you can afford to eat hamburger. Continue reading »
The MSM did their usual spin job on the consumer credit data released earlier this week. They reported a 5.4% increase in consumer debt outstanding to an ALL-TIME high of $3.051 trillion. In the Orwellian doublethink world we currently inhabit, the consumer taking on more debt is seen as a constructive sign. Consumer debt has grown by 5.8% over the first nine months of 2013, after growing by 6.1% in 2012 and 4.1% in 2011. The storyline being sold by the corporate MSM propaganda machine, serving the establishment, is that consumers’ taking on debt is a sure sign of economic recovery. They must be confident about the future and rolling in dough from their new part-time jobs as Pizza Hut delivery men. Plus, they are now eligible for free healthcare, compliments of Obama, once they can log-on.
Of course, buried at the bottom of the Federal Reserve press release and never mentioned on CNBC or the other dying legacy media outlets is the facts and details behind the all-time high in consumer credit. They count on the high probability the average math challenged American has no clue regarding the distinction between revolving and non-revolving credit or who controls the distribution of such credit. It is fascinating examining the historical data on the Federal Reserve website and realizing how far we’ve fallen as a society in the last 45 years. Continue reading »
So as more and more pile into the electronic currency, some due to ideological reasons, some simply to chase momentum, some out of disappointment with the manipulated gold price looking to park their savings in an alternative, non-fiat based currency, which a year ago traded 40 times lower, the attention of the government is finally starting to shift to what has been the best performing asset class in the past year, outperforming even the infamous Caracas stock market.