Tag Archives: central bank policies

We Can’t “Grow Our Way Out” of Debt, by Bill Bonner

Posted on October 9, 2019 | Leave a comment

We’re no longer getting enough economic bang from each additional buck of debt to reduce the debt pile. From Bill Bonner at bonnerandpartners.com:

YOUGHAL, IRELAND – Today, we turn to something no one cares much about, even though it threatens to cause the biggest financial calamity in US history:

Debt.

Glorious Valhalla

Total U.S. debt – public and private – now approaches $74 trillion. The economy that supports this debt has grown steadily, but nowhere near fast enough to keep up with it.

As we remarked yesterday, money is time. So when you owe money, what you really owe is time. And time is not something you can fool around with. It comes and it goes… no matter what you think or what you do.

Historically, Americans have owed 1.5 days of work in the future for every day of work in the present. That is, the ratio of debt to GDP averaged about 1.5 to 1 for the first eight decades of the 20th century.

Then, debt went up, and now stands at 3.5 days of future GDP for every day of present output.

Have we arrived in some great and glorious Valhalla, where the old rules no longer apply, where debt no longer matters… or where time is no longer our master, but our servant?

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The Illusion of Control, Part Two, by Robert Gore

Posted on October 1, 2019 | 27 comments

The coming chaos

Part One

The US government has gone all in on taxation, redistribution, spending, expansion of its power, ever more intrusive laws and regulations, the increasing curtailment of liberty, debt funding, and debt-based “money” it and the Federal Reserve produce at will. The coercion and fraud implicit in these measures have been poisons on American political culture and are destroying the US economy and way of life.

Control, illusory or otherwise, requires resources. Government produces nothing, so the resources must be taken or borrowed. The economic grave it’s digging for itself is the greatest threat to the US government’s control. Taxation discourages production. Regulation throws sand in the economy’s gears and can stop it entirely. Steadily mounting debt and its consequent debt service exact an increasing toll. Most US debt funds consumption, which generates no offsetting return, not production, which potentially does.

Monetary flim-flam—the central bank using its created-at-will debt to buy the government’s created-at-will debt—is embraced in some particularly deluded quarters as a panacea, but it’s really a perpetual motion snare. Nothing is created or produced, so it’s tempting to say the central bank-government fiat debt exchanges have the same economic effect as two people exchanging twenty-dollar bills.

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Posted in Civil Liberties, Collapse, Debt, Economy, Government, Insurrection, Politics

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Financial Storm Clouds Gather, by Charles Hugh Smith

Posted on September 25, 2019 | Leave a comment

Do what you can to protect yourself from the downpour. From Charles Hugh Smith at oftwominds.com:

The price of this “solution”–the undermining of the financial system–will eventually be paid in full.

The financial storm clouds are gathering, and no, I’m not talking about impeachment or the Fed and repo troubles–I’m talking about much more serious structural issues, issues that cannot possibly be fixed within the existing financial system.

Yes, I’m talking about the cost structure of our society: earned income has stagnated while costs have soared, and households have filled the widening gap with debt they cannot afford to service once the long-delayed recession grabs the economy by the throat.

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Posted in Banking, Business, Collapse, Debt, Economy, Financial markets

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The Inevitable Bursting of Our Bubble Economy, by Charles Hugh Smith

Posted on September 12, 2019 | Leave a comment

Debt bubbles that grow faster than the underlying economy’s ability to service that debt invariably pop. From Charles Hugh Smith at oftwominds.com:

All of America’s bubbles will pop, and sooner rather than later.

Financial bubbles manifest three dynamics: the one we’re most familiar with is human greed, the desire to exploit a windfall and catch a work-free ride to riches.

The second dynamic gets much less attention: financial manias arise when there is no other more productive, profitable use for capital, and these periods occur when there is an abundance of credit available to inflate the bubbles.

Humans respond to the incentives the system presents: if dealing illegal drugs can net $20,000 a month compared to $2,000 a month from a regular job, then a certain percentage of the work force is going to pursue that asymmetry.

In our current economy, corporations have sunk $2.5 trillion in buying back their own stocks because this generates the highest work-free return. This reflects two realities:

1. Corporations can’t find any other more productive, profitable use for their capital than buying back their own shares (enriching the managers via stock options and the 10% of American households who own 93% of the stocks)

2. Thanks to the Federal Reserve and other central banks injecting trillions of dollars of nearly-free credit into the financial sector, corporations can borrow billions of dollars to play with at near-zero rates that are historically unprecedented.

So borrow billions at 2.5%, pour it all into buying back your own stock and reap the gains as your stock rises 10%. Recall the basic mechanism of stock buy-backs: by reducing the number of shares outstanding, sales and profits go up on a per share basis–not because the company generated more revenues and profits, but because the number of shares has been reduced by the buy-backs.

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Posted in Banking, Business, Debt, Economy, Financial markets, Governments, Investing

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Fictitious Markets, False Economics, and the Reality of Fraud, by Gary D. Barnett

Posted on September 10, 2019 | Leave a comment

Fiat debt and central banking have created an artificial economy. The end result will be disastrous. From Gary D. Barnett at lewrockwell.com:

In the past, there was a belief in the logic of the market, but no science of reasoning concerning the stock market was ever fully legitimate, as logic requires a market free from outside interference. Fast forward to today, and the manipulation is so extreme that little if any honesty is evident, and only fraud remains.

This stark reality should alarm investors, but many if not most, continue to rely on black magic economics as espoused by the mainstream media, those like Paul Krugman and his ilk, and a cadre of other Keynesian followers. As a rule, Keynesian or not, when it comes to market conditions and predictions, economists are always wrong. This is so due to the manipulative and bogus aspects of the Federal Reserve driven market, but even those who have genuine knowledge and understanding of free market economics, best described as Catallactics, cannot forecast with certainty. In a corrupt and fabricated market system such as exists today, it is impossible to predict outcomes with any accuracy because no pure market economy actually exists.

Currently, most open discussions about economics are convoluted and rely on a mix of politics, managed and controlled trade, trade wars, Fed policies, and minute-by-minute tweets from a narcissistic president consumed by his false prowess as manipulator-in-chief. The entirety of the American financial system is simply asinine at this stage of the game.

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Bill Dudley’s Noble Lie, by Ron Paul

Posted on September 9, 2019 | 1 comment

We need to audit the Fed to see what’s it done, then we need to get rid of it. From Ron Paul at ronpaulinstitute.org:

Former Federal Reserve official Bill Dudley’s recent op-ed calling for the Federal Reserve to implement policies that will damage President Trump’s reelection campaign states that such action would be unprecedented. Dudley claims the Federal Reserve bases its policies solely on an objective evaluation of economic conditions. This is an example of a so-called noble lie — a fiction told by elites to the masses supposedly for the people’s own good, but really designed to maintain popular support for policies that benefit the elites. Dudley’s noble lie is designed to bolster a rapidly (and deservedly) eroding trust in the Federal Reserve. The truth is the Federal Reserve has always been influenced by, and has always tried to influence, politics.

President George H.W. Bush and other members of his administration blamed his 1992 defeat on then-Federal Reserve Chairman Alan Greenspan’s refusal to reduce interest rates. Greenspan was more cooperative with Bush’s successor, Bill Clinton. Lloyd Bentsen, Clinton’s first Treasury secretary, wrote in his autobiography that the Clinton administration and the Federal Reserve had a “gentleman’s agreement” regarding support for each other’s policies. Greenspan also boosted President George W. Bush’s “ownership society” agenda by lowering interest rates after 9-11 and the collapse of the tech bubble, thus creating a housing bubble.

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Posted in Banking, Cronyism, Government, Politics

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New World Order in Meltdown, But Russia Stronger Than Ever, by Jon Hellevig

Posted on September 1, 2019 | 2 comments

This is the best analysis of both the global and Russian economy we’ve seen in a long time. Prepare for a very bumpy road, and forget about a new world order. From Joh Hellevig at thesaker.is:

Last week was full of portentous events. Only somebody who has not been awake for the last few years will fail to realize how these at first sight unconnected events are part of the same matrix. There was the ever louder talk in mainstream media about an approaching global recession, inverted yield curves and the negative yields, which tell us that the Western financial system is basically in coma and kept alive only by generous IV injections of central bank liquidity. By now it has dawned on people that the central bankers acting as central planners in a command economy and printing money (aka quantitative easing) to fuel asset bubbles are about to wipe off the last vestiges of what used to be a market economy.

Then we saw Trump taking new twitter swipes at China in his on-and-off “great trade deal” and the stock markets moving like a roller coaster in reaction to each new twitter salvo. Also, we had both Trump and Macron sweet talking about getting Russia back and again renaming their club G8. Last Tuesday at a G7 presser in Biarritz, the Rothschild groomed Macron took it one step further opening up about the reasons why they all of a sudden longed for friendship with Russia: “We are living the end of Western hegemony.” In the same series, Britain’s new government under Boris Johnson was telling his colleagues in Biarritz that he is now decisively going for a no-deal Brexit, after which he went back to London and staged a coup d’état by suspending parliament to ensure no elected opposition interfered with it.

Perhaps the weirdest news to crown it all, came from Jackson Hole, Wyoming, where the Western central bankers were holed up for their annual retreat. The president of Bank of England Mark Carney shocked everybody (at least those not present) by announcing that the US dollar was past its best-before and should be replaced with something the central bankers have up their sleeves.

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Posted in Business, Debt, Economics, Economy, Foreign Policy, Geopolitics, Governments, Imperialism

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The Fantasy of Central Bank “Growth” Is Finally Imploding, by Charles Hugh Smith

Posted on August 28, 2019 | Leave a comment

How about that, central bank debt monetizing government debt at ultra-low interest rates isn’t the route to healthy growth and permanent prosperity. From Charles Hugh Smith at oftwominds.com:

Having destroyed discipline, central banks have no way out of the corner they’ve painted us into.

It was such a wonderful fantasy: just give a handful of bankers, financiers and corporations trillions of dollars at near-zero rates of interest, and this flood of credit and cash into the apex of the wealth-power pyramid would magically generate a new round of investments in productivity-improving infrastructure and equipment, which would trickle down to the masses in the form of higher wages, enabling the masses to borrow and spend more on consumption, powering the Nirvana of modern economics: a self-sustaining, self-reinforcing expansion of growth.

But alas, there is no self-sustaining, self-reinforcing expansion of growth; there are only massive, increasingly fragile asset bubbles, stagnant wages and a New Gilded Age as the handful of bankers, financiers and corporations that were handed unlimited nearly free money enriched themselves at the expense of everyone else.

Central banks’ near-zero interest rates and trillions in new credit destroyed discipline and price discovery, the bedrock of any economy, capitalist or socialist.

When credit is nearly free to borrow in unlimited quantities, there’s no need for discipline, and so a year of university costs $50,000 instead of $10,000, houses that should cost $200,000 now cost $1 million and a bridge that should have cost $100 million costs $500 million. Nobody can afford anything any more because the answer in the era of central bank “growth” is: just borrow more, it won’t cost you much because interest rates are so low.

And with capital (i.e. saved earnings) getting essentially zero yield thanks to central bank ZIRP and NIRP (zero or negative interest rate policies), then all the credit has poured into speculative assets, inflating unprecedented asset bubbles that will destroy much of the financial system when they finally pop, as all asset bubbles eventually do.

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The Benefits of a Profoundly Shattering Recession, by Charles Hugh Smith

Posted on August 26, 2019 | Leave a comment

Sometimes you have to take a system down completely to have any hope of coming up with anything better. From Charles Hugh Smith at oftwominds.com:

Does anyone really think The Everything Bubble can just keep inflating forever?

What do I mean by a profoundly shattering recession? I mean, a systemic, crushing recession that can’t be reversed with central bank magic, a recession that only deepens with time. The last real recession was roughly two generations ago in 1981; younger generations have no experience of a profound recession, and perhaps older folks have forgotten the shock, angst and bitterness.

A profoundly shattering recession leaves tremendous damage and pain in its wake. Millions of people who reckoned their position was secure get laid off, businesses that looked solid melt into air, large corporations flip from hiring thousands to firing thousands, and everyone on the edge of insolvency gets a hard push over the cliff.

Profoundly shattering recessions feed on themselves in a self-reinforcing dynamic: the first domino could be a supply-shock, or a decline in demand due to credit exhaustion. Since businesses have cut everything to the bone in the past decade, there are no buffers left: layoffs begin immediately, and those layoffs further reduce demand as households have to tighten their belts to survive as even those who escape the first round of layoffs find bonuses and overtime have been slashed.

Since the problem isn’t high interest rates, central banks reducing rates or pushing them into negative territory only reveals their impotence. If negative interest rates boosted the real economy, Europe and Japan would be experiencing rapid expansion instead of stagnation.

Layoffs, the failure of central banks and soaring fiscal deficits trigger a drop in consumer and investor sentiment which feeds back into declining sales and profits, which then trigger more layoffs as businesses must cut expenses as revenues crater.

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America’s Debt Burden Will Fuel The Next Crisis, by Lance Roberts

Posted on August 26, 2019 | 2 comments

The next debt crisis will prove impervious to all the kick-the-can nostrums that were applied in the 2008-2009 crisis. From Lance Roberts at realinvestmentadvice.com:

Just recently, Rex Nutting penned an opinion piece for MarketWatch entitled “Consumer Debt Is Not A Ticking Time Bomb.” His primary point is that low per-capita debt ratios and debt-to-dpi ratios show the consumer is quite healthy and won’t be the primary subject of the next crisis. To wit:

“However, most Americans are better off now than they were 10-years ago, or even a few years ago. The finances of American households are strong. 

But, that’s not what a lot of people think. More than a decade after a massive credit orgy by households brought down the U.S. and global economies, lots of people are convinced that households are still borrowing so much money that it will inevitably crash the economy.

Those critics see a consumer debt bomb growing again. But they are wrong.”

I do agree with Rex on his point that the U.S. consumer won’t be the sole cause of the next crisis. It will be a combination of household and corporate debt combined with underfunded pensions, which will collide in the next crisis.

However, there is a household debt problem which is hidden by the way governmental statistics are calculated.

Indebted To The American Dream

The idea of “maintaining a certain standard of living” has become a foundation in our society today.Americans, in general, have come to believe they are “entitled” to a certain type of house, car, and general lifestyle which includes NOT just the basic necessities of living such as food, running water, and electricity, but also the latest mobile phone, computer, and high-speed internet connection. (Really, what would be the point of living if you didn’t have access to Facebook every two minutes?)

But, like most economic data, you have to dig behind the numbers to reveal the true story.

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