Tag Archives: central bank policies

Robinhood Thursday and the Washington Idiots at Work, by David Stockman

Central banks’ profligate production of fiat debt liquidity is behind the Gamestop fiasco and stock market valuations completely untethered from underlying economic value. From David Stockman at David Stockman’s Contra Corner via lewrockwell.com:

Today, especially, the “idiots at work” sign should be flying high over Capitol Hill.

We are referring to the boisterous congressional hearings about who is to blame for the crash of GameStop, the alleged nefarious machinations of the hedge funds and Robinhood and the purportedly innocent victims in mom’s basement who thought call options were the greatest new video game since Grand Theft Auto IV.

But among today’s silly foibles, the incessantly repeated idea that the Reddit Mob was a victim of a “pump and dump” scheme surely takes the cake. If these people were stupid enough to think that the value of a company dying in plain sight (i.e. GME) could go from $400 million to $23 billion in less than six months while its reported finances continued to deteriorate, they deserve to loose every dime of the stimmy money they threw into the Robinhood pot.

Still, the fact that the greedy, dimwitted Reddit Mob got its just desserts isn’t the half of it.

What was really on display Thursday in the recently christened (since January 6th) Holy of Holies of American Democracy is the utter cluelessness on both sides of the political aisle with respect to the financial elephant in the room: Namely, that the Fed has transformed Wall Street into a giant, destructive gambling den, which is now sucking a growing share of the populace into the pursuit of instant get-rich speculations that have no chance of panning out.

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“Controlled Yields” Are Curving Towards Gold, by Matthew Piepenburg

“Yield curve control” is just another way of shoving more fiat debt into a global financial system that’s already awash in it. From Matthew Piepenburg at goldswitzerland.com:

Looking Behind the Labels

Regardless of one’s politics, most would agree that extremely complex issues are typically given extremely misleading titles.

Not all those of the extreme left, for example, are all that “woke” and not everyone on the far right, to be fair, is a “domestic terrorist.”

Nevertheless, words are often misused and abused to place, as well as burry, otherwise nuanced realities behind simple phrases, as we’ve seen in everything from the “Patriot Act” to “Monetary Stimulus.”

Financial Fiction Writers

So many of the fancy words and phrases tossed about by our financial elites come in such deliberate yet pear-shaped tones of calm, authority and wisdom.

Even the title, “Federal Reserve,” is one loaded with irony for what is otherwise a private bank…

Many of the economic labels and euphemisms disguised as sound policy are now part of a global vernacular, from “quantitative easing” and “Fed accommodation” to “Modern Monetary Theory.”

These are carefully chosen labels. So confident, so academically comforting…

But for those familiar with basic math, economic history or the modern wave of policy hypocrisy masquerading as “forward guidance,” such terms, as well as the deeper truths behind them, have all the tragic irony of an Orwellian dystopia.

In short, they can be used to simplify, and thereby control, an inaccurate public perception.

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Technocrats Everywhere: Central Bankers as Political Saviors, by Robert Aro

Central bank band-aids are often mistaken for economic and financial cure-alls. From Robert Aro at mises.org:

The word “technocrat” is seldom used by the liberty crowd. It invokes the idea of a bureaucracy using technical experts to somehow make the right decisions on behalf of the entire nation and stands as the antithesis of a free society. Sadly, it captures the essence of central banking as well. This week, news came out of both Italy and Australia showcasing how this works. Starting with Italy, on Tuesday, the New York Times praised the technocrat when announcing that former head of the European Central Bank Mario Draghi was summoned to Italy in hopes of becoming the next prime minister. Described in the paper as the “pie-in-the-sky wish of many of Italy’s European Union-friendly politicians,” Draghi appears to be the man destined to guide the nation out of the current pandemic. As explained:

By officially bringing in Mr. Draghi as a potential leader in a critical moment, Italy seemed poised to return to the model of the technocratic government that has the reputation of bailing out the country when its political forces fail.

The press tells us politics has failed the country, but salvation can be found through electing a better, more skilled and experienced leader. In this case, it becomes the job of one of “Italy’s highest profile international officials,” who it said to have once steered Europe out of crisis almost a decade ago:

He is credited with easing interest rates and proclaiming in 2012 that he would do “whatever it takes” to save the euro as the Central Bank’s president during the eurozone debt crisis.

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Economic and monetary outlook for 2021, by Alasdair Macleod

SLL doesn’t do end-of-the-year review and preview articles, or compile a list of predictions. My prediction for 2021 is that it’s going be a whole lot worse than 2020. Alasdair Macleod agrees. From Macleod at goldmoney.com:

The most important event in the new year is likely to be the Fed losing control of its iron grip on markets. The dollar’s declining trend is already well established against other currencies and commodities, leading to this outcome.

Events in 2021 will be the consequence of a developing hyperinflation of the dollar. Foreign holders of dollars and dollar assets — currently totalling $27.7 trillion — are sure to increase the pace of reducing their exposure. This is a primal threat to the Fed’s policy of using QE to continually inflate assets in the name of promoting a wealth effect and continuing to finance a rapidly increasing federal government deficit by supressing interest rates.

Bubbles will then pop, leaving establishment investors exposed to a combined collapse of fiat currencies, bonds and equity markets, which could turn out to be very rapid. The question remaining is what will replace collapsing fiat currencies: limited issue distributed ledger cryptos, such as bitcoin, or precious metals, such as gold?

Clearly, when the dust settles, it will be gold for no other reason that central banks already own it in their reserves, and it has a long track record of success as money in the past.

This article examines the 2020 economic and financial background to likely developments in 2021 before arriving at its conclusions.

Introduction

It is that time again when we reflect on recent events and what might be ahead of us in the new year. 2020 was dominated by a pre-March descent into a financial slump, when the S&P500 index lost a third of its value between January and March, until the Fed cut its funds rate to zero on 16 March and followed up with a statement of intent to expand QE without limit on the following Monday.

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Unhinged….. And Then Some! by David Stockman

Buy stocks because bonds are so central-bank suppressed that they’re the guaranteed investment from hell. That’s what passes for wisdom on Wall Street these days. From David Stockman at davidstockmanscontracorner.com via lewrockwell.com:

Jerome Powell puts you in mind of the boy who killed both of his parents and then threw himself on the mercy of the court on the grounds that he was an orphan!

That’s what JayPo essentially did in his presser yesterday while trying to explain that the most hideous equity market bubble in history is actually not that at all:

“If you look at P/Es they’re historically high, but in a world where the risk-free rate is going to be low for a sustained period, the equity premium, which is really the reward you get for taking equity risk, would be what you’d look at,” Powell said.

“Admittedly P/Es are high but that’s maybe not as relevant in a world where we think the 10-year Treasury is going to be lower than it’s been historically from a return perspective,” Powell said.

Right. The Fed has essentially murdered the bond yield. So relatively speaking, grossly inflated stocks are a bargain compared to dead-in-the-water bonds.

Bloomberg even has a chart to prove all this based on the so-called “Fed model”:

The S&P 500’s earnings yield – profit relative to share price – is 2.5 percentage points higher than the yield on 10-year Treasury notes. The comparison, loosely labeled the Fed model, sits well above what the spread was before the burst of the internet bubble, when bonds yielded more than equities by that measure.

Then again, the “earnings yield” is not exactly cash you can take to the bank, unlike a bond coupon as meager as it might be at present. The former is just a computational hope that today’s vastly inflated stock prices relative to earnings stay inflated indefinitely, world without end.

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The Hannibal Trap Will Crush Global Wealth, by Egon von Greyerz

What goes up, especially that which goes up propelled by central bank helium and hopium, generally comes down. From Egon von Greyerz at goldswitzerland.com:

Is the global investment world about to be caught in the Hannibal trap?

Hannibal was considered as one of the greatest military tacticians and generals in history. He was a master of strategy and regularly led his enemies into excruciating defeats.

The trap that investors are now being led into has many similarities with Hannibal’s strategy in his victory over the Romans at Lake Trasimene in 217 BC.

Hannibal was a general and statesman from Carthage (now Tunisia) who successfully fought against the Romans in the Second Punic War.

THE BATTLE AT LAKE TRASIMENE

In 218 BC Hannibal took his troops, with cavalry and elephants, over the Alps and into Italy. Hannibal enticed the Roman Consul Flaminius, and his troops, in 217 BC to follow him to Lake Trasimene in Umbria. The Romans followed Hannibal’s troops into a narrow valley on the northern shores of the lake. When the Roman troops were inside the valley, they were trapped. They had the Carthaginians ahead of them, the lake on their right and hills on their left.

What the Romans didn’t know was that Hannibal had hidden his light cavalry and part of his army up in the hills. So once the Romans were locked into the valley, they were attacked from both ends with nowhere to escape.

Over 15,000 Romans were killed and 10,000 captured in a catastrophic defeat.

So what has Hannibal got to do with the present world? Well, it is pretty obvious. It is all about being led into a fatal trap without even being aware.

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The Sisyphean Folly of Printing Press Money, by MN Gordon

Central bankers believe that every economic ill can be cured with their fiat debt instruments, and if the ill isn’t cured, throw more fiat debt at it. From MN Gordon at economicprism.com:

Something remarkable happened on Tuesday.  The Dow Jones Industrial Average (DJIA) broke the 30,000 point barrier for the first time ever.  President Trump commemorated the feat by calling the number “sacred.”

Some Americans were especially grateful as they said their Thanksgiving Day grace.  These generally include wealthy owners of stocks and other financial assets.  Forty years of inflationary monetary policies have elevated their prosperity to holiness.

The remaining Americans, through no fault of their own, missed out on these sanctified blessings.  Perhaps they’ll get some leftover table scraps for Christmas.  These, indeed, are the questions being asked.

Will Washington make this a Merry Christmas for cash strapped Americans?  Will the Treasury send out a second round of $1,200 stimulus checks for the yuletide?  Will Congress be Ebenezer Scrooge or Mr. Fezziwig?

These are important questions as 2020 approaches its twilight.  And this is the season of giving.  After months of rolling lockdowns ordered by state and local governments Americans need relief.  Moreover, they must first receive from Uncle Sam so they can give to their fellow kindreds.

This was a recent finding of a Franklin Templeton-Gallup survey.  Specifically, the survey found that 16 percent of Americans plan to spend more on holiday gifts this year.  But with another $1,200 stimulus check, 22 percent of Americans say they will spend more this holiday season.

Somehow, Christmas spending has become dependent on government stimulus checks.  But, remember, government stimulus is dependent on printing press money.  And printing press money is dependent on the dollar retaining some semblance of value.

Thus, herein lies the sacred folly.  The more that printing press money’s emitted, the more value the dollar loses.  We’ll have more on what this means for you and your wealth in just a moment.  But first some context…

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Global Inflation watch, by Alasdair Macleod

Currency debasement is inflation, and governments and central banks are debasing their currencies with abandon. From Alasdair Macleod at goldmoney.com:

his article posits that fiat currencies are on the path to hyperinflation and looks at the evidence in the prices of financial assets and commodities. So far, gold has notably underperformed, which indicates that the early signals of hyperinflation are confined to the cryptocurrencies, whose participants broadly understand fiat debasement, to equities reflecting the desire not to maintain cash and deposit balances, and in international trade, where commodity prices of all stripes have risen in price.

Given that the early warnings of hyperinflation of money supply are here, the article then looks at the qualities required of a sound money to replace fiat currencies.

Introduction

Figure 1 shows how prices have moved from the Friday before the Fed’s announcement on 23 March that it would go all-in on its support for the US economy with unlimited quantitative easing. It amounted to a commitment to hyperinflate the money supply if needed. Before the Fed cut its funds rate to zero on 16 March nearly all these prices were falling.


Screen Shot 2020 11 27 at 7.04.52 AM
Since late-March every category has seen increases in prices. Sector and specialist analysts will always claim that there are identifiable reasons why prices for an individual category or commodity have risen. But the fact is that with the exception of the dollar and the other fiat currencies listed in the table all prices have risen. This cannot happen without the dollar and these currencies losing purchasing power.

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A New World Monetary Order Is Coming, by Stefan Gleason

The envisioned monetary order will be, like the whole coronavirus and climate change scams, just another means by which the Davos Crowd will rule the world. At least that’s how the Davos Crowd imagines things. From Stefan Gleason at activistpost.com:

The global coronavirus pandemic has accelerated several troubling trends already in force. Among them are exponential debt growth, rising dependency on government, and scaled-up central bank interventions into markets and the economy.

Central bankers now appear poised to embark on their biggest power play ever.

Federal Reserve Chairman Jerome Powell, in coordination with the European Central Bank and International Monetary Fund (IMF), is preparing to roll out central bank digital currencies.

The globalist IMF recently called for a new “Bretton Woods Moment” to address the loss of trillions of dollars in global economic output due to the coronavirus.

In the aftermath of World War II, the original Bretton Woods agreement established a world monetary order with the U.S. dollar as the reserve currency.

Importantly, the dollar was to be pegged to the price of gold. Foreign governments and central banks could also redeem their dollar reserves in gold, and they started doing so in earnest in the 1960s and early 1970s.

In 1971, President Richard Nixon closed the gold window, effectively ushering in a new world monetary order based solely on the full faith and credit of the United States. An inflation crisis followed a few years later.

In response, the Federal Reserve took the painful step of jacking up interest rates to defend its wilting Federal Reserve Note and tame rising prices.

Fast forward to 2020, and the Fed has assumed for itself novel policy mandates that are a precursor to a new monetary system.

But the monetary masters aren’t contemplating a return to sound money. Rather, they’re planning for even more debt, more inflation, and picking of winners and losers in the economy.

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How to Tackle the Depression Head On, by MN Gordon

To tackle a depression head on, the first step is to admit its inevitability, and to pretend that government and central bank debt and spending will prevent one only makes the problem worse. From MN Gordon at economicprism.com:

I want to see people get money.” – Donald J. Trump, U.S. President, September 17, 2020

“Now is not the time to worry about shrinking the deficit or shrinking the Fed balance sheet.” – Steven Mnuchin, U.S. Secretary of the Treasury, September 14, 2020

Money for the People

The real viral contagion that has infected the American populace is not an illness of the body.  It’s something far worse than COVID-19.  The American populace is suffering from an illness of the mind.

The general malady, as we diagnose it, is the unwavering belief that the government has an endless supply of free money, and the expectation that everyone, except the stinking rich, has claim to it.  Why pursue self-reliance and independence when a series of stimulus acts promises the more abundant life?  This viral contagion’s really ripped through the population in 2020.

For example, just a year ago, the American populace thought they could all live off the forced philanthropy of their neighbors.  That to pay Paul you had to first rob Peter.  The CARES Act proved to Boobus americanus that, without a shadow of a doubt, there’s free ‘money for the people’ in Washington.  Sí se puede!

This week the Congress did its part to further the greatest show on earth.  The people want stimulus.  Congress intends to get to them, in good time.

Of course, the need to sprinkle the Country with printing press money was already a foregone conclusion.  There was no discussion of the wisdom of not having a stimulus bill.  The debate at hand was centered on how much.

Crazy Nancy wants $3.4 trillion.  Senate Republicans want $500 billion.  Something called the House Problem Solvers Caucus wants $2 trillion.

President Trump wants Republicans to “go for the much higher numbers.”  His rationale: “it all comes back to the USA anyway (one way or another!).”

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