Archive for the ‘inflation’ tag
Real estate, and the careers that depend upon it, is a boom-bust business in the age of inflation. The illusion of wealth is everywhere . . . . until it is snatched away.
That’s why it’s a great time for David Mamet’s Pulitzer Prize winning “Glengarry Glen Ross” to make its third appearance on the Broadway stage. It’s a show about Chicago real estate salesmen selling Florida properties through deception and intimidation. The show appears just as Iowa dirt ascends to new heights, hope springs eternal that home prices have stopped falling, and Bernanke’s tonic is finally putting some sizzle in the home market.
I’m a huge fan of the movie, as those who attended last year’s Vancouver Symposium may have detected. When asked during the Whiskey Bar panel what movie depicted the U.S. economy, I offered up “Glenngary Glen Ross.” I was sky high with anticipation taking my seat on 4th row. I was not disappointed. Broadway is indeed magic, especially when you can see the shine on the actor’s shoes and spit flies as they say their lines.
Reviewers are carping that the production is nothing but a vehicle for Al Pacino, who plays deluded has-been Shelly Levine. Maybe, but Bobby Cannavale steals the show as Ricky Roma, the role Al Pacino earned an Oscar nomination for in the 1992 movie version. Cannavale brings more swagger to the Roma role than even Pacino did. He combs his slick Guido-style hairdo using his sun glasses as a vanity mirror. He looks to have stolen his suit, suspenders, white-collared shirts, and argyle socks from Gordon Gecko’s closet.
The audience was on the edge of their seats ready to react to any utterance or facial expression Pacino would produce. Still, his portrayal of ‘The Machine’ did not have the Willie Loman desperation that Jack Lemmon brought to the role on the big screen. John C. McGinley on the other hand makes for an even angrier Dave Moss than the Ed Harris movie version. If there’s a plot to Glenngary, Moss is its protagonist. It is his desperate plan to do something, rather than just being stuck with the deadbeat sales leads, that puts the Premier Properties office in turmoil and sets up the climax.
Real estate investment is an opportunity. We paraphrase that great investment mind Ricky Roma, the alpha male salesman at the top of his game. Investments can teach a man about himself, as Roma waxes philosophical to the lonely James Lingk. It’s the power of suggestion plying the vulnerable.
In real life today, there is no shortage of vulnerable, especially not in Sioux County, Iowa.
On October 25th in Iowa, no spell was needed to entice buyers of fertile Iowa farmland. No condos or McMansions will sit on this land, only corn or soybeans. Auctioneers took turns taking bids as prices climbed for 80 acres in this heart of corn country. When bidding hit $20,000 per acre, reported an observer, “you could hear a gasp in the room.” Applause broke out when bidding stopped at $21,900.
It’s been awful dry in the midwest, but the land market continues on fire, with prices up over 31 percent in the past five years, according Bloomberg Businessweek. Yep, it’s a no-brainer; income from crops “and the long-term appreciation of the property,” professor Michael Duffy opines.
In a similar way, the Toronto condo market has defied reason and gravity for years, enticing investment from around the world. One reason is that people like Herbert Crockett believe in the old saw, passed on to him by his father: Invest in things you can touch. So Mr. Crockett took the plunge on a Trump Tower Hotel condo for C$904,000.
The “Trump” salesforce told Crockett he would rack up between a 5 and 27 percent annual return from his investment in the big-name project. That sure beats the 2.25% regulated rate banks are paying in Crockett’s home in France. “We bought into the Trump name and what we were being told was a hot real estate market in Toronto for this kind of project,” Crockett told Bloomberg in an interview. “It turns out that the hotel had nothing to do with him and that it isn’t a good investment after all.”
The Toronto market, with more condos under construction than any other city in the world, is now beginning to soften and Mr. Crockett and others that bought are only renting their units a quarter of the time projected. Instead of receiving a monthly check from his investment, the retired HR director is now losing C$7,000 a month according to his lawsuit.
Although the Donald was featured prominently in Trump Tower sales literature, he and his staff were not involved in the development other than selling his famous name to the project and attending the grand opening. An attorney for Trump said, he “was not involved in the sales process and Talon, the developer, made no representations to buyers regarding return on investment.”
But while the Trump legal staff paints the picture that he didn’t have anything to do with Toronto’s tallest building, evidently EVP and daughter Ivanka didn’t get the memo. “We look forward to continuing to achieve great success at Trump International Hotel & Tower Toronto,” she told Bloomberg in an email. “Our team is dedicated to providing world-class service and amenities only found in a Trump Hotel Collection property.”
Great success? Well, yeah. “The hotel is an unbelievable success,” Trump attorney Alan Garten says. Hey, occupancy might not be great. Investors might be losing money. But, the Canadian Automobile Association has awarded the hotel restaurant’s a four diamond rating and TripAdvisor.com rates the Trump Hotel tops in Toronto.
Mr. Crockett has hired lawyers to fix his mistake. In his court filing, Crockett contends he is “the victim of an investment scheme and conspiracy based upon reckless and negligent misrepresentations.”
With the Toronto boom turning into a bust, the advice of Mr. Crockett’s late father is not so sage. It turns out he’s an investing neophyte. “These are not sophisticated investors,” said Javad Heydary, who heads the law firm that is suing the developer and Trump for Crockett and 20 other investors. But the developer’s head man says this is all just a case of “buyer’s remorse” and the plaintiffs just want to get out of their deals.
What were dreams and opportunities in a boom, become in the bust the fraudulent schemes of court filings. The charming and helpful salesmen are suddenly liars and crooks. “There’s the illusion of movement in the Toronto housing sector with sales and buyers,” Crockett told Bloomberg, “But now it seems more like a Ponzi scheme.”
Central bankers can print money and for a while, in some markets of some things, create the illusion of wealth and prosperity. There will always be salesmen around to facilitate the transaction — Glengarry style. But neither the Fed nor the salesmen can stop the busts, the ruined lives, and hard feelings. The money printing and money manipulations — all taking place on a epic scale — only creates more.
There was a time when it was nothing short of economic blasphemy and statist apostasy to suggest three things: i) that the Fed’s canonic approach to monetary policy, in which Stock not Flow was dominant, is wrong (as we alleged, among many other places, here); ii) that the Fed is monetizing the deficit, thus enabling politicians to conceive any idiotic fiscal policy: the Fed will always fund it no matter how ludicrous, converting the Fed effectively into a political power and destroying any myth of its “independence” (as we alleged, among many other places, most recently here in direct refutation of Bernanke’s sworn testimony); and iii) that by overfunding bank reserves, the same banks are left with one simple trade – to frontrum the Fed in its monetization of the long-end, in the process destroying the bond curve’s relevance as an inflationary discounting signal, with more QE, leading to tighter 10s, flatter 10s30s, even as the propensity for runaway inflation down the road soars, in the process eliminating any need for the massively overhyped, and much needed to rekindle animal spirits “rotation out of bonds and into stocks” trade (as we explained, first, here). Well, that time is now officially over, with that stalwart of statist thinking, JPMorgan, adopting all of the above contrarian views as its own, and admitting that once again, the Fed and conventional wisdom was wrong, and fringe bloggers were right all along.
College Conspiracy is the most comprehensive documentary ever produced about higher education in the U.S. The film exposes the facts and truth about America’s college education system. ‘College Conspiracy’ was produced over a six-month period by NIA’s team of expert Austrian economists with the help of thousands of NIA members who contributed their ideas and personal stories for the film. NIA believes the U.S. college education system is a scam that turns vulnerable young Americans into debt slaves for life.
NIA tracks price inflation in all U.S. industries and there is no industry that has seen more consistent price inflation this decade than college education. After the burst of the Real Estate bubble, student loans are now the easiest loan to receive in the U.S., and total student loan debts now exceed credit card debts. The government gives out easy student loans to anybody, regardless of grades, credit history, what they are majoring in, and what their job prospects are. NIA believes it is illegal for the U.S. government to be in the student loan business because the U.S. constitution doesn’t authorize it. Just like how the U.S. government created Fannie Mae and Freddie Mac to make housing affordable, but instead drove housing prices through the roof; the U.S. government, by trying to make college more affordable, is accomplishing the exact opposite and driving tuition prices to astronomical levels that provide a negative return on investment.
The U.S. has been experiencing 5.15% annual college tuition inflation this decade. Despite this, 70.1% of high school graduates are now enrolling into college, a new all time record. 2/3 of college students are now graduating with an average of $24,000 in debt. There is nothing special about getting a college degree if everyone else has one, and it is certainly not worth getting $24,000 into debt to camouflage yourself into the crowd. NIA’s President is friends with hundreds of CEOs of mid-sized corporations who tell him that someone who skipped college is a lot more likely to stand out amongst the hundreds of applicants who apply for each job available.
What we are witnessing is the death throes of the financial system. It is in full capitulation. There is a big move coming up, and everyone is going to have to pick a side, because there will be no middle ground.
The strict deflationist camp says that all prices are going down, and capital will move into USTs and dollars. This is the typical scenario concerning deflation for the last umpteen years.
The strict inflationists point to the money printing of the central banks, and say prices are going to rise. Inflation will be the Fed’s main concern and they will keep their target come hell or high water.
Stagflation is also a worry. Here, the concern is that prices will rise, but that wages will not keep pace. This has been the scenario so far, albeit without the proper inflation numbers. Using oil in the CPI, inflation is much higher than the US government is saying.
All of these scenarios are likely, and in fact, all will occur. That is why the system is dying; it is pricing all of this in at once. Once the system realizes the dire straights, it will finally roll over. Anything could happen to equities, but concerning the dollar and USTs, I don’t think they are the safe haven the once were. Maybe they do not go into hyperflation, but they should not be the only safe play. Precious metals will keep that hedge.
With oil production peaking, oil will not fall much, and this too will keep a lid on the dollar, since they trade inversely. This scenario is bullish for silver, as silver trades with oil, and with gold.
In all likelihood, the system is set to fail, and I am not sure how much longer it can be propped up. What matters is what new policies arise. If money printing continues at its breakneck pace, inflation will take the lead. If not, the massive deflation hitting real estate etc could take down equities. I would also not be surprised if stagflation ruled for a few months while politicians and policy makers messed around.
Each time we begin to approach the end of an announced QE period, the nervous jitters of financial markets start to set in. Will Bernanke continue with QE(n+1) or won’t he? Now it’s true that professional traders live and die by their ability to front run rumor and perception, but for long term investors who fret over such decisions, it demonstrates a fundamental lack of understanding of what QE really is. To put it succinctly, QE is an economic deal with the Devil. Once it is begun in earnest there can be no turning back. It must be played to its ultimate conclusion.
In Bernanke’s 2009 interview on 60 Minutes, he suffered a momentary lapse into honesty and stated that Quantitative Easing was effectively money printing. So why then the complicated euphemism of Quantitative Easing? Because that is what modern central banking sponsored economics is all about – the intentional obfuscation of otherwise simple economic principles to cause the eyes of normal people to glaze over. Once accomplished, the central bankers (and their financial community brethren) are able to pursue policies that greatly benefit themselves but are devastating to everyone else. .
Long term investors who worry about whether QE will continue clearly recognize the fact that everything is now correlated to the Fed’s balance sheet. What they don’t understand is how QE is related to the larger economic cycle and its mission of preventing economic recessions.
Keeping the tent inflated
Sometimes physical analogies are the most helpful in understanding complex relationships. Let’s think of the economy as a large inflated tent. The extent of the tent’s inflation is the health of the economy. Under normal economic conditions the tent is fully inflated. In the course of time, events take place that cause the need for a correction to the economic system. New technology can come along which obsoletes old industries, bad investments and debt must be liquidated etc. When this happens a free market economy will correct itself. Capital tied up in failed industries will be reallocated and invested in new businesses. New jobs will ultimately be created and people will go back to work. Of course this reorganization takes place over time and this is what a recession is – a healing process for the economy. In our tent we can think of this as a tear that forms in the fabric. While this hole is being repaired, air escapes and the tent begins to sag a little. The extent of the drooping is the extent of the recession. Once fixed, the tent and the economy go back to normal.
QE is a wholly different method of keeping the tent propped up. It does not repair the hole, but rather attempts to keep the tent inflated by pumping more air in than is escaping through the hole. This is the new money being created and pushed into the economy to offset the credit destruction in the banking system. This is a dynamic process that must be maintained. The catch is that the hole doesn’t just stay a fixed size. The tear begins to lengthen allowing greater amounts of air to escape. The economic tent begins to sag until the volume of air being pumped in is increased to overcome the outflow. This is why QE can never end. To stop now, with such a large hole, would result in a severe and frightening recession. The tent would lose a tremendous amount of air in the time it takes to make such an extensive repair.
This process continues until eventually the hole is so large that the tent collapses around the massive flow of pumping air. This is the ultimate fate of money printing as policy – a currency crisis – the endless flow of new money loses purchasing power faster than it can be created. We are left with an inflationary depression in which savings are decimated and the standard of living of most Americans is dramatically lowered.
QE is economic central planning
When an institution such as the Federal Reserve is allowed to create as much money as it wants and do with it whatever it pleases, without any oversight or transparency, then the free market and its self correcting mechanisms no longer exist. How can capital from failed business and banks be reallocated to more efficient uses when these institutions are bailed out and not allowed to fail? Prices and interest rates are the nervous system of a free market economy. They are the feedback mechanisms that direct all of the individual participants to behave in the most productive and efficient manner. There can no free market when prices and interest rates are de-linked from supply and demand. We are now a centrally planned economy run by our central bank.
But here’s the really insidious part of QE that almost no one in the general public understands: A free society cannot exist independent of free markets. There is a disequilibrium that occurs between the two and over time one will win out over the other. And so here we are, stuck in a decaying economic system that prevents resources from being used in their most efficient manner. We simply can no longer compete with freer markets in other parts of the globe. We are saddled with the weight of central economic planning much like the old Soviet Union was. There will be no recovery and no rush of new jobs created. We will live under the burden of a burgeoning Federal government that operates completely independent of the will of its citizens. It is now beholden only the money manufacturers at the Federal Reserve and will spend money as fast as Bernanke can add zeros to its account.
The problems we are experiencing have been a long time in the making. They began in earnest in 1913 with the formation of the Federal Reserve. It’s taken several generations for the Federal government and its central bank to usurp the world’s monetary system and as such few have noticed. But what’s different now is that we have hit the knee in the curve, the point at which events start to accelerate dramatically as we approach the end of the line. Those who understand QE realize that America as we knew it is already gone. Over the next decade the rest of America will become painfully aware of that fact as well.
by Jim Willie CB, Golden Jackass
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USFed Chairman Bernanke and the Quantitative Easing programs are caught in a negative feedback loop, the instruments at risk being the USDollar and the USTreasury Bond. The former suffers from lost integrity and direct inflation effect. The latter suffers from direct intervention and market ruin. The next QE round is guaranteed by the failure of the previous program in an endless cycle to be recognized later this year. Leaders are confused why the recovery does not take root. It is because the entire system is insolvent, and the 0% rate assures total capital destruction, not to mention the big US banks are sacred, never to be liquidated, a primary condition for recovery. Liquidation is tantamount to abdication of power of the Purse and control of the Printing Pre$$, never to happen. The greatest hidden damage is psychological, where the USDollar and its erstwhile trusted USTreasury Bond are no longer viewed as the safe haven. Capital destruction is the main byproduct of monetary inflation, a concept totally foreign to the inflation engineers at the USFed and its satellite central banks. They are agents of magnificent systemic devastation. In the wake of each QE round are discouraged creditors who turn away in disgust. The damage and inflation feeds upon itself in stages of intense wreckage. The motive, need, and desperation for QE3 is being formed here and now, to be announced by late summer probably. Prepare for QE to infinity, endless hyper-inflation, a process that cannot be stopped, as the urgent needs grows. Any attempt to halt the process results in almost immediate total annihilation. So continuation of QE rounds serves to manage the deterioration process and guide the financial structures gradually and orderly into oblivion.
VICIOUS CYCLE FEEDS UPON ITSELF
Simply stated, each QE round guarantees the next round, since damage is done, nothing is remedied, and the funding needs intensify. The list of damage factors is actually growing. The main factor is capital destruction from monetary inflation, as the price of capital is declared zero, and it flees from the USEconomy. Witness the industry long gone, hardly a critical mass remaining to support the system with legitimate income. Government regulation and taxes assure the flight continues in exodus. Almost half of the US Gross Domestic Product is derived from financial paper shuffling, whose negative value has been clearly displayed in the form of mortgage bond wreckage, profound bond fraud, home foreclosure processing, absent home equity withdrawals, bankruptcy processing, and piles of debt that burden households. US economists fail to comprehend the entire concept of capital, this from the supposed leading capitalist nation. The banking and political leaders struggle to produce jobs without a clue of what capital is, instead seeking to put cash in consumer hands. They should pursue business formation, with capital investment, encourage risk taking, provide broad tax incentives, and lead the consumer spending process with job creation and income production. But no. They prefer QE, the accelerator that pushes the nation over the cliff.
The bond market has been disrupted and corrupted, as the debt monetization has driven off foreign creditors, leaving the USFed isolated as buyer. The 0% rate slows the USEconomy tremendously by removing a proper return on honest savings. Return on capital is greatly disrupted all through the USEconomy. The heavily increased monetary supply maintains the emphasis on asset bubbles, as desperation sets in to find the next asset to produce a new bubble. The answer is USTreasury Bonds. A mildly violent reaction has come to the long-term USTBonds, while the short-term USTBills stay near 0% but with the aid of intense leverage power of Interest Rate Swaps. The long end reacts negatively to QE, while the short end is under QE control from the big bulging bid. The entire financial structure is crumbling under the surface. The USEconomy will continue to falter at minus 3% to minus 5% growth in a powerful ongoing recession, covered up by the fraudulent quarter to quarter calculations that permit deep deceptions from adjustments. Businesses cannot justify any expansion, given the household dependence upon home equity has vanished. Businesses have been put on notice, a certain shock, that the national health care plan will place greater burden on the business models. So the USGovt deficits will perpetuate in high volume, making the supply overwhelming in USTreasury securities and making the creditors retreat in a cringe of fear, shock, and disgust. The more the USFed buys its own paper feces with USTBond labels, the more the securities lose their security, the more the foreign creditors refuse to participate in the next auction, the more the integrity of the US$ and USTBond is shredded and lost. The United States has become a Weimar nation with gradual global recognition. Instead of a recovery, it slides into the Third World. Thus the need for the USFed to cover the next USTreasury auction in full, or almost in full. It is deeply committed to monetizing the entire USGovt debt. Call it Weimar, Third World, Banana Republic, whatever!!
An encouragement has come from the QE movement to the entire world to revolt against the USDollar, to seek an alternative, to establish bilateral trade mechanisms, and to bypass the current system that enables privilege, fraud, market meddling, which permits an unwarranted standard of living to the US and its people. The bilateral accords between Russia and China, between China and Brazil, between Germany and Russia, and between India and Iran are all telltale signs of revolt. They wish not to participate in the US$-based system. The consequence is a new trend to diversify out of the USTreasurys with existing reserves, and to avoid accumulation in the future within banking systems for satisfaction of trade settlement in global commerce. The foundation on a global level is crumbling for the USDollar. As the bilateral links build, eventually enough fabric will be woven to support a new global currency, or a new global system. Often mentioned in certain circles is a sophisticated barter system, built upon high level credits in exchange, with a vast trickle down flow of funds, within a balanced system. Nations addicted to deficits will be left out in the cold. The most deficit ridden is the United States, dragged down by endless war costs. Their location has another name, the Third World.
Furthermore, the inflation effect has crossed from the monetary side to the price systems, hitting the entire cost structure in a profound way. The moron bankers strive to cut off the process from handing higher wages to the workers, so that they can afford a higher cost of living. The leaders thus strive to bankrupt the Middle Class, hardly a pursuit in commitment of economic recovery. The cost squeeze is deeply felt by both businesses and households, businesses that cannot hold their workers as profits erode badly, and households that cannot maintain their spending patterns as incomes are devoted increasingly to food, fuel, clothing, insurance, and everything else. Tax revenues from wages and corporate profits and capital gains are descending into the gutter, not available to cover the USGovt deficits. Witness the death of the USEconomy in hyper-drive, pushed by the USFed Quantitative Easing. The impact on the worsening recession at the macro level, and the shrinking of both businesses and households, translates to larger deficits. Notice that in early 2009 when QE1 was first announced, and later when QE-Lite was announced, the USGovt minions forecasted reduced budget deficits for 2010 and 2011. The USGovt posted its largest monthly deficit in history in February, a $223 billion shortfall. Most decisions center on budget cuts, for education, welfare, projects, and more, while war spending is largely intact, priorities revealed. They have no clue how to build tax revenues. The Jackass forecast was for greater deficits due to the ravages of capital destruction and cost inflation, which both arrived with billboard attachments. The dependence therefore upon the USFed for its Printing Pre$$ buyer of USTreasury Bonds will increase with each QE round, assuring the next round.
The harsh savage negative reaction to QE2 kicked into high gear the movement of funds out of the USTreasury complex and into commodities generally. The shift to financial commodities in Gold & Silver has been even greater than for crude oil, the traditional hedge. Despite not being the leading non-financial commodity in price increase, the crude oil impact is enormous, in food production, in transportation costs, and especially in industrial feedstock costs. The result is an energy tax, compounded by a systemic cost that acts like a gigantic tax. The USFed QE program thus imposed a significant tax increase on the entire USEconomy. The entire population is aware, except for the USFed, the Wall Street master, and banking elite. Actually, they are aware, but they cannot speak about the scourge they unleashed since they would invite criticism and turn the blame onto themselves for destroying the United States financially, economically, and systemically. The moral fiber is long gone among leaders, as the US nation is being recognized as a fraud king playpen. The end result is that in the cycle, movement from USTreasurys to the USEconomy is not happening during this death spiral, as it normally does. Instead, the next bubble is in the entire commodity arena. Beware that such a trend is highly destructive, since it erodes the profit margins and disposable income, thus causing deep recession if not systemic collapse. The energy and material tax renders huge harm, pushing the system into a deeper recession. It never ended.
Money is fleeing bonded paper, as all bond markets are in a severe situation.Even the stock market is supported heavily by the Working Group for Financial Markets and Flash Trading, a form of self-dealing, whereby both prop up stock share prices. Hence, the USFed is left more isolated to purchase its own inbred cousin toxic paper securities. The USFed must continue with QE3, the only remaining details are the securities that join the USTreasurys. My bet is state and municipal bonds, along with a bigger swath of mortgage bonds that would otherwise be put back to the Big US Banks, the dead pillars taking up space casting long shadows. Numerous are the bond candidates for official rescue, since all of them are in deep trouble. Buyers are simply vanishing. The bond markets is in ruins, propped by QE.
LAST ASSET BUBBLE
The tragedy is that the USTreasury Bond is the location of the biggest and most important asset bubble in the last 100 years. It is propped by the QE debt purchase, enforced by the USFed, made urgently necessary by the USGovt deficits, and blessed by the USDept Treasury. The USTBond bubble is the last bubble with any semblance of positive benefit. The next bubble in commodities will be negative, harsh, and highly destruction, as they will lift costs without a corresponding rise in wages. That event has already been triggered. The key characteristic of asset bubbles is that in the late stages, they require an accelerated source of funds just to maintain their inflated condition. The QE programs will be endless because the USTBond bubble demands it, even infinite funds. Thus the mantra in criticism of QE TO INFINITY. With the heightened source and blossoming channels to fund it, the integrity of the USTreasury Bond complex will be ruined even as the reputation and prestige of the USDollar will be shattered. This is an end chapter, marked by central bank frachise model failure.
USDOLLAR FACES THE ABYSS
The US$ DX index is a bad joke, but its performance is highly revealing. As preface, the DX major component is the Euro, even though the biggest trade partner of the United States is Canada, with Mexico and China close behind. The argument is old and tired. Rare is the 30-year chart offered by the Jackass, since its reliance as a tool is often evidence of shallow analysis and little insight to offer for the current year and its main events. But the historical USDollar chart shows the great danger, since the world banking system rests on its unit of exchange. The DX index lows from 1991, 1992, 1995, and 2005 have all been breached, a major warning signal. Jesse at Cafe Americain points out the pennant flag pattern formed in the last three years. It must resolve up or down. My contention is that the pennant has already been broken on the lower barrier, a bear signal. The next QE3 announcement should send the DX index heading fast toward the 2008 critical low with a 71-72 handle. It is written; it will be done.
Many technical analysts are pre-occupied with monitoring the critical support levels. Those levels are 72, 75, and 76.5, seen in the weekly chart. Instead, focus on the lower barrier of the crucial pennant. The pennant trendline has been broken on the downside, an important development. Traders in the currencies, a multi-$trillion market, will take the minor technical breakdown and push the already weak USDollar lower. Many argue the Euro is in deep trouble, with a union in the midst of dismantlement. That might be true, but in the Reverse Beauty Pageant, the USDollar is by far the ugliest of the coined damsels. Its deficits are on par with the PIGS of Southern Europe in percentage terms. Besides, the US is the site of QE, the greatest monetary inflation scourge in modern history. Notice that the bounce in recovery off the October and November low of 76.5 could not manage a rise about the 20-week or the 50-week moving average. Those MA series serve as current overhead resistance. The DX chart is caught in powerful downward momentum. My forecast is for a breach of 76 in the next few weeks, and a battle of paramount importance at 74, the next critical support.
The intraday US$ DX chart shows more trouble in the very short term. The recovery off the 76 floor could not be maintained. In fact, the sudden swoon displayed its weakness if not artificial props. Be sure that the USDept Treasury with its fascist business model trusty tagteam of JPMorgan and Goldman Sachs are trying to do the herculean feat of preventing the USDollar from a powerful decline. The ugly truth is that JPM & GS are probably trying to manage the decline in the USDollar down to the 50-60 range in the US$ DX index, all as part of the USGovt agenda. The plan is to weaken the USDollar sufficiently enough to make the USEconomy competitive again with respect to export trade. The backfire in their faces is the price inflation curse and anathema. The price structures will rise first from the QE exercise in Weimar desperation, and will rise second from the US$ decline most assuredly worse than its major currency competitors. The report card will be seen in a much worse recession in the USEconomy, grander USGovt fiscal deficits, even larger USTBond issuance, and more grotesque QE debt monetization more characterisitic of a Third World Banana Republic.
SWIRL DOWN TOILET IN DETERIORATION
Within the Jackass archives, an item was found from work done in 2005. What began as a graphic display of the grand liquidity trap emanating from the failed housing & mortgage bubble has turned out to be highly relevant in the aggressive metastasizing process from monetary inflation cancer combined with basic economic deterioration from capital destruction. Many are the ills of the USEconomy and its fractured financial foundation. Take the time to note all the different powerful factors at work that slow the entire system down. Forces are shown from external shocks and internal shocks.The money supply velocity is falling, ordered slower by the short-term interest rate stuck at 0%, the Zero Interest Rate Policy described as an important chamber label of failure. Recall the empty calls for an Exit Strategy throughout 2009 and into early 2010, as vacant as the Green Shoots and Jobless Recovery basis of propaganda that unmasks the fraudulent bank leadership. The Fed Funds Rate stuck at 0% cannot rise by USFed dictate, because the housing market would implode more quickly, because the USEconomy would sink more quickly, because the US stock market would dive like a dead mallard, because the USGovt borrowing costs would bring more deficit from debt service than other major items. The USFed has been backed in a corner for two years, no longer relying upon a temporary 0% rate to stimulate. It is stuck with 0% as a badge of dishonor, as a two ton cement block around its neck, as a Weimar membership card. The complex chart should remind the reader of a toilet, sewer drain, or even a rectum.
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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at: JimWillieCB@aol.com
Before the United States House of Representatives, Committee on Financial Services, Monetary Policy and the State of the Economy, March 2, 2011
Every day we hear stories about rising prices. Whether it be food, gasoline, or clothing, the cost of living is going up, and not just for Americans, but for people around the globe. The Federal Reserve’s program of quantitative easing has taken some of the blame for this, and rightly so in my opinion. This program, known as QE2, sought to purchase a total of $900 billion in US Treasury debt over a period of 8 months. Roughly $110 billion of newly created money is flooding into markets each month, markets which are still gun-shy after the events of the last few years. Banks still hold underperforming mortgage-backed securities on their books, and are hesitant to loan out further money, holding well over a trillion dollars on reserve with the Fed. Is it any wonder, then, that this new hot money is flowing into commodities around the world?
Cotton is up over 170% over the past year, oil is up over 40%, and certain categories of food staples are seeing double-digit price growth. Yet while the Fed takes credit for the increase in the stock market, it claims no responsibility for the increases in food and commodity prices. What is always lost on economists is that inflation is at root a monetary phenomenon. As the money supply increases, more money chases the same amount of goods, and prices rise. There may be other factors that contribute to price rises, such as famine, flooding, or global unrest, but these effects on prices are always short-term, not long-term. Consistently citing rising demand or bad weather while ignoring monetary policy is a cop-out. Governments throughout history have sought to blame price increases on bad weather, speculators, and a whole host of other factors, rather than acknowledging the effects of their inflationary monetary policies.
We must also remember that those policymakers who exercise the most power over the economy are also the least likely to understand the effects of their policies. Chairman Bernanke and the other members of the Federal Open Market Committee were convinced in mid-2008 that the economy would rebound and continue to grow through 2009, even though it was clear to many observers that we were in the midst of a severe economic crisis.
These policymakers are also the last to feel the effects of inflation, in fact, they benefit from it. Inflation, that is an increase in the money supply, results in a rise in prices, but those who use this new money first, such as government employees, contractors, and bankers are able to use this new money before prices begin to increase, while those further down the totem pole have already had to deal with price increases before they see any of this new money.
For too long the Federal Reserve’s monetary policy has led to higher prices and a decreased purchasing power of the dollar. It is well overdue that this Committee exercise increased oversight and scrutiny of the Fed’s actions, and I look forward to further Committee action to rein in the Fed.
Copyright Dr. Ron Paul
The following are some snippets from the most recent issue of the International Forecaster. For the full 31 page issue, please see subscription information below.
Many ask, what will happen when quantitative easing ends? China doesn’t want to accumulate more Treasury and Agency bonds and we find the buying from London and the Cayman Islands questionable at best. We have always suspected that the real buyers in part from those locations were the Fed. Quite frankly we believe that QE2 is much further ahead in issuance than we are told. Remember they actually began adding liquidity last June. Problems as a result of such creation of money and credit have been the leveraged unnatural elevation of the stock market. All the funds normally devoted to cleaning up the Treasury/Agency market by banks and institutions have allowed these entities to dis-intermediate their funds to the stock market and commodities. This process has allowed the artificial inflation of prices in stocks and commodities, which in time will become problematic. The Fed knew that the course they were taking would result in just what we have seen and the minute markets see that easing is going to end they would end their participation. One of the key reasons of the treasury bail out was to keep the stock market up. The mirage of wealth had to be maintained since wealth in real estate for the most part had been destroyed. The multiyear bond bull market also looked like it could be coming to an end as real interest rates began to climb some six months ago. QE2 has again fostered risk taking in the form of leverage. We might also add that many other governments have done the same thing and that means when forcing liquidity ends every market will fall simultaneously.
The result of Fed and bipartisan policies has been price inflation in commodities and particularly food prices. Higher costs have spread worldwide and will continue to do so for the next two years or more. Our conclusions on extending QE2 to QE3 are simple. It is not going to end. If it were to end the bottoms would fall out of everything except gold and silver. Central banks have deliberately chosen higher inflation rather than face reality. That decision is going to cost them dearly. Inflation can be contained but that comes with a price, less money and credit, higher interest rates and deflationary depression. As you can see they are trapped in a box and they cannot get out, worse yet, they are well aware that there is no escape.
There will be Treasury debt to be sold perpetually with deficits of $1.6 trillion. Congress talks in terms of cutting $60 billion and the administration wants to add $50 billion. That is virtually no effort at all, as the deficit nears 11% of GDP. Truly a banana republic number. The liquidity created by the Fed to create depth to the Treasury market is little more than a mirage with side effects. The monetization has to bring inflation. It in no way solves the out of control debt creation that has to be adjusted at the White House and in Congress and that has not happened and it looks like it isn’t going to happen. The excesses are worsening not getting better. QE1 and QE2 have created terrible distortions and only delayed higher interest rates that are naturally underway in the real market. We have just observed a quick bond market rally, but will it last? We find it hard to believe that it will under these nervous conditions, as other sovereigns withdraw from purchasing. These conditions have to drive yields higher with very negative consequences. Big players at some point will come to the realization that the debt situation is no longer manageable and recognize that there has to be a purging process. When that process finally begins markets will go starkly negative.
The budget for next year plans for the fourth consecutive deficit of $1.65 trillion or more. This is the official estimate. In reality the deficit is considerably higher. Officially that is 44% of projected federal spending. We see lots of figures that put government debt between 85% and 103% of GDP. These are very significant numbers, because they indicate that that total effort has to be devoted to servicing debt and growth can’t continue. That is why we saw five fading quarters of GDP growth to 3% to 3-1/4%. QE2, plus stimulus, will only bring 2% to 2-1/4% this time in what we have called the law of diminishing returns. Simply, the focus of debt service does not help GDP growth. It is like putting out an endless fire comparable to being in hell. A QE3 plus the same stimulus will only produce an official 1% GDP growth, when in reality the figure will be minus 1-1/2%. Without the boost real GDP growth would be minus 3%. Are you getting the message? It is a façade and it won’t work. If we throw in municipal and state debt, personal and corporate debt, we are really in trouble. If we look across the pond we see England and Europe experiencing the same problems, because they have done the same thing although in a smaller way. By the end of the year the US will have reached debt of more than 100% of GDP. How far can this go? We don’t know, but the day of reckoning is not far away. We might add, what will happen when corporate America can no longer keep two sets of books, particularly the financial sector? What is interesting is that government, Wall Street, the BIS, the FASB and the financial media never mention the existence of such a practice, which renders financial reports bogus and irrelevant.
It is quite obvious that QE2 and the stimulus are not getting the desired results. That is understandable considering that nothing they can do can resurrect the economy. The insiders are well aware of that. The system will fold when they want it too. Their problem is they know we are waiting for them to pull the plug, so we can then react and spoil their plans. Thinking people now realize that the entire stimulus isn’t and hasn’t worked. There have been no spending cuts and there won’t be. What they are doing has not worked and won’t work; it is a perpetual stalling for time. In late 2009 it was announced that the recession was over, yet, unemployment has improved only slightly. A commission was set up to reduce budget deficits and their recommendations were essentially ignored. Goodness, who would want to cut spending $1 trillion a year for four years? The disintegration is underway and it is only a matter of time before the wheels come flying off the economy. There is absolutely no discipline or any effort to seriously save the system.
Earlier Japan and now China have been financing the US. The Japanese have been in a depression since 1992 and as long as they keep doing what they are doing they will sink further. China is now in the position that Japan has been in for so long. The sale of US debt by either the Japanese or Chinese in any meaningful way would sink all three economies and the world economy would join in for the ride. You might call it mutually assured destruction. What has happened is that on a net basis both have cut back or stopped buying US obligations. They and others are non-buyers or sellers of US debt. China has recently sold about $50 billion in US debt. The question is will they continue to do so and our answer is probably yes. That means the Fed has to be the buyer and that can only be accomplished via monetization followed by inflation.
The US deficit increases exponentially each year into the trillions of dollars. In the meantime Wall Street, banking and others have been bailed out of their grievous mistakes. The solution has been more government spending, some $850 billion a year and quantitative easing. The Fed creates money out of thin air, and buys Treasury and Agency securities. In fact the Fed owns 25% more of the Treasuries and Agencies than China and they in time probably will end up owning them all. In fact we believe that the Fed already owns $1.5 trillion of that paper. The US and the Fed will have no buyers in the end and only default can follow. Foreigners are well aware of what is going on and that is why the US 10-year T-note’s yield has risen from 2.05% to 2.20% and recently to 3.74%. That is quite a leap. We see 4% to 4-1/4% by yearend and 5% to 5-1/2% by the end of 2012. The bull market in Treasuries is over and in time the entire game will be over. It is called the ultimate Ponzi scheme and it will not work. That is why you have to have gold and silver related assets; they are the only real money.
We have great reservations concerning the Fed’s balance sheet because of derivatives and swaps, and who knows what else they are up too. The balance sheet has expanded almost $225 billion over the past 16 weeks, as global central bank assets have catapulted $1.5 trillion yoy, which means the Fed is not the only central bank printing money and credit under the euphemism quantitative easing. Over the past two years the increase has been $2.6 trillion, or 40% to $9.3 trillion. The result has been the bailout of financial companies in the US and Europe and presently the continued flow of funds to these institutions and the funding of sovereign debt. These policies have created a false sense of security, bought time, and extended the false façade of healthy markets and economies. As the strong underflow of deflation persists, governments and central banks instill re-inflation, because if they do not do so their seemingly healthy financial and economic environment will collapse. This conceptual pursuit has in its process allowed great flows of capital to flow into stock markets thereby raising equity prices, which in turn has produced false confidence. Be as it may this papering over of systemic problems will not permanently allow the instability lurking just below the surface.
Such developments have again raised the level of leveraged speculation. The banks, hedge funds and other financial institutions have avoided sovereign debt, because that is being managed by the Fed, and have launched another wild spate of speculation. You would have thought they would have had learned their lessons almost three years ago. There is no question the world is awash in liquidity, which is very dangerous and disastrous for currencies versus gold and silver. At the same time North Africa and the Middle East are enveloped in turmoil and who knows where it could lead next. At the same time food prices hit new highs and availability becomes more difficult, as commodity prices keep rising as investors begin a flight to quality. We now have price inflation as well as monetary inflation. Most professionals and investors disregard these dull problems at their peril.
We don’t have to remind you of what is happening in Libya and could happen in Saudi Arabia. That realization is finally being reflected in a small way in US and foreign markets. The potential for future problems is enormous, especially in oil production. In the meantime the seduction of speculation holds forth. This time the players could be very wrong and the losses unmanageable.
The Saudi’s are terrified, so much so that they increased social spending by $36 billion including a 15% pay increase, which will prove to be additionally expensive. Incidentally, you can expect other nations worldwide to copy the Saudi lead of short-term expediency.
We are sure China and the US are watching the Middle East with great trepidation. It could only be a matter of time before they and many other nations experience the same dilemma. There should be monetary tightening, but there won’t be. The Fed certainly doesn’t care about inflation. Their concept is to keep the economy rolling along. In fact we expect easing and inflation to accelerate, assisting the rise in gold and silver prices. Further monetization is on the way and you can plan on that. There is no other way to keep the system going. Batten down the hatches there are violent storms ahead.
SATURDAY, MARCH 2, 2011
by Inflation Trader, SA
Like all traders who have done it for long enough, I have several habits that I have developed over the years to cope with winning and losing streaks. For example, if I look at a chart and I really think it looks bullish, I will sometimes turn around and look at it upside-down; if in that position I think it really looks bullish too, then I know that what I’m seeing is actually what I want to see. Sometimes, when trading doesn’t seem to be playing out quite like I expect it to – not merely losing money; losing sometimes is a part of trading, but losing in ways that are surprising me – I push my chair back and, as New Age-y as this might sound, I try to listen to my feelings. Really good traders (of which I am not one) can tell when their subconscious is urging a change of action. I have been around some good traders like that, but the classic example is probably George Soros. His son explained in Soros: The Life and Times of a Messianic Billionaire that:
My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking…at least half of this is bull—-. I mean, you know the reason he changes his position in the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and it’s this early warning sign.
So maybe there’s something to this.
When I lean back now, I feel an uneasiness – a disquiet. This isn’t because the market has been going up and I’m not on board. I am on board, and maybe some of what I feel is that I’m far closer to my neutral policy mix than I should be given valuations. But there is something spooky in the way the rally is unfolding. I don’t feel comfortable in my chair. To be sure, I have felt for a while that the rally didn’t make a lot of sense, but it never made me feel like my posture was off.
Incidentally, I suspect that one reason the market has been doing what it has been doing – a slow, extremely steady march higher on light volumes – may be because one of the more popular trades over the last couple of years has been the covered-call gambit in which calls are written against a portfolio position for a little “extra carry.” It is generally sold as something to do in range-bound markets, which is what many people expected out of 2010 (of course, put-call parity tells us that selling a covered call is functionally equivalent to selling an in-the-money naked put, but I’m not here to harsh on this popular strategy). The problem with it is that if the market rallies through your strike, your stock is called away and you are forced to buy it again, or to buy the option back before expiry, if you want to remain long.
If lots of people were pursuing such a strategy, you would see declining implied volatility despite dicey economic and geopolitical risks. The VIX currently is as low as it has been since July 2007, around the time of the first serious mortgage rumblings. (In the summer of 2007, most people thought the “subprime problem” was contained, and not many people were particularly concerned about it. The market was just about to set a new (nominal) high.) So this fits. It also fits the character of trading, which seems lackadaisical and as has been well-documented, low-volume. People aren’t running to “put money to work” and adding to their positions aggressively. They seem to be buying…reluctantly.
I am not saying that the market is exhibiting a sense of disquiet, though. I am saying that I am feeling uncomfortable in some way. That being said, there are some odd incongruities out there. The headline on Risk.net “ECB overnight lending rockets to 19-month high” (incidentally, if you don’t subscribe to Risk.net a little trick is that you can just put the headline into Google and a link will take you to the full article) caught my attention. It is expensive to borrow from the ECB. It could just be a one-week glitch for some reason, but it is curious. The 3-month Euribor rate hasn’t done anything interesting in the last week, but it is trading above where it was in the middle of Q4 when there was a turn premium included. Maybe someone else is feeling the vague sense of unease that I have.
The behavior of oil, given the striking wave of political unrest in the Middle East, is strange but seems less strange if you look at Brent Crude (over $102 and near a post-2008 high) than if you look at West Texas Intermediate (WTI), which is around $86 and seven bucks off the highs. But that discrepancy in itself is odd. Brent crude oil is deliverable into the NYMEX contract, but not vice-versa, so pure arbitrage isn’t possible, but the ICE Brent contract is cash-settled based on local commercial-size market trades so if Canadian oil is gushing into Cushing, it is surprising that a $15/bbl discrepancy isn’t enough to persuade someone to fill up a tanker and deliver it into that market. In any event, there has been a lot of ink spilled on the difference between the contracts but it doesn’t seem obvious to me that there is a definitive answer. In any event, even the Brent contract hasn’t responded in the usual, spiky fashion to the widening circles of unrest in the Middle East – the rally has been slow and steady. Is there no risk aversion? What is going on here?
I have trouble believing that all of the crosscurrents are simply canceling: gradually-building economic strength in the U.S., widening violence in the Middle East, China’s efforts to slow its economy (on Friday China raised reserve requirements slightly, but unlike when the CCB hiked interest rates a couple of weeks ago the market seemed to ignore it), signs that inflation is starting to rise, continuing debt problems in a number of European countries and uninspiring leadership on our own debt problems in the U.S.. Could it be that everyone is just confused?
Well, count me in that group. I don’t feel right, so one thing I am going to do is to cut my equity positions down. If that doesn’t make me feel less disquieted, maybe I’ll try increasing them.
I’m not happy with this article.
The following are some snippets from the most recent issue of the International Forecaster.
The Fed tells us there is no inflation. Somewhere down the road we are told interest rates will be allowed to rise. After nine months of monetary injections employment is yet to really improve. The concept of an exit strategy seems to have been lost in the shuffle. It isn’t mentioned anymore. As a result of these failures QE2 continues and talk of QE3 is heard on Wall Street. After three years of QE1, QE2 and stimulus all that has been accomplished is the bailout in the financial sectors of the US and Europe and the purchase of Treasury and Agency securities.
As we have just seen some monetary experts do not like what the see and as a result they are leaving. Bundesbank President Axel Weber and Ken Worsh, a regional Fed President, do not like what they see and its affect on the future and they have resigned their posts. They obviously don’t want to be part of the fiasco they see in the future. We are sure the lack of reform and change figured in their resignations, as well.
It was eight years ago that we wrote about the insolvency of Fannie Mae and Freddie Mac. We said it was only a matter of time before the government would have to take them and their mounting debt over. We also predicted that it was the design of government to nationalize housing, being forced to do so due to the failure of lenders. Whether that will happen we leave to the future. Today the domination of the housing market by Fannie, Freddie, Ginnie and the FHA is a sad reality. A white paper on the GSE’s and reform has been presented, but when will it happen, 10 or 20 years from now? A paper and oversight but nothing with teeth in it as all of these entities, still in spite of object failure, are still making subprime and ALT-A loans, which they know full well will have a 50% failure rate in the future. The chicanery continues, and as we said eight years ago, everyone in the beltway knows it. The complicity among politicians and bureaucrats just shows you that there really is no exit strategy, just as the Fed’s vaunted exit strategy really doesn’t exist. The GSE losses are in the trillions as are the losses at the Fed and the taxpayer gets to pay that debt. That is why the current administration is proposing massive tax increases, as wages lay stagnant, inflation begins to rage and purchasing power falls. In this process both political parties hear, see, and speak no evil. The platform is continuing resolution and compromise so that no one can get blamed for radical changes, which are needed to solve these problems. Like at the Fed, this is all about stalling, to throw the problems into the future. What all of these people probably recognize is that there are no easy solutions and fixing the system is impossible without purging it, and that means deflationary depression. The system will be put on autopilot and when it crashes, it crashes. In fact at the Fed they have simply abandoned an exit strategy and won’t talk about it – like it never was discussed and never existed. This is the world of banking, Wall Street and Washington – just ignore it and it will go away. We have the major media covering for them. The continuation of the creation of money and credit, no interest rates and ongoing stimulus has got to continue or the system collapses. There is nothing on the horizon that gives us an inkling that anything is going to be done to deal with a worsening mortgage problem and the outrageous conduct of the Fed. That is because those behind the scenes own just about everyone in Washington and they do not want anything done. That is because they are getting richer and richer in the current system and could care less how much the people suffer. All they are interested in are money and power and the evolution of world government. A $1.6 trillion fiscal deficit to these characters is just another number the public will have to deal with.
The numbers are all there. The economy is again faltering as the $862 billion stimulus pork package wears off and the Fed services the Treasury and Agencies. By June rumors of QE3 will emerge to be implemented in late 2011 or early 2012. The economy and the country cannot survive without almost $1 trillion in stimulus a year and zero interest rates. In just the past 14 weeks Fed credit has expanded by just under $200 billion. Do not forget they started QE2 unbeknownst to you, last June. Did you also notice as well that there is no talk of exit strategy – it is all hush-hush? There is little Wall Street or official talk about the monetizing of staggering quantities of federal debt. The binge continues, and commodities and gold and silver relentlessly move higher.
Builders continue to build 530,000 to 600,000 houses a year. What can they be thinking of with the biggest unsold inventory of homes in history? When JPMorgan’s CEO James Dimon refers to Fannie Mae and Freddie Mac as “the biggest disasters of all time” we believe him. The players all knew about it, they all worried about it, but no one did anything about it. Now we hear about the GSE exit strategy, but on whose watch and when? Perhaps ten years from now.
The effect of mortgage credit risk for 20 years has been horrible and it has as well had a very negative affect on this structure of the global economy. We have seen the nationalization of $10 trillion of US mortgage debt, which we believe will be followed by the nationalization of housing as part of the corporatist fascist structure. The excuse is they or it are too big to fail just like banking, Wall Street and insurance. The bottom line is this legacy from the 1930s and 1950s should have never been created in the first place. It is obvious that residential housing cannot stand on its own and has to be subsidized by government, otherwise the cost of home ownership rises and the ability to buy falls. Mortgages are at 5.17%. Where would they be without zero interest rates, at 10%? As real interest rates and empty inventory rises you can bet millions of homes will lie vacant for years to come. That means the owners, the government, will become the world’s largest renter and landlord. Do not forget the taxpayer pays the bill. Once QE and stimulus ends the bottom will further fall out of the housing market and from lack of funding alone from a bankrupt government the sector will disintegrate. This problem will persist for years. There cannot be meaningful reform under the present circumstances and government and Wall Street hopes the debt will be inflated away.
We have been in an inflationary depression for two years as a result of the collapse of the real estate bubble created by the Fed. We have faced strong deflationary forces since the collapse of the dotcom stock market collapse of April 2000. The Fed, in order to keep the system from collapsing created the real estate bubble, which failed and created an even stronger deflationary pull. For 12 years different methods have been used to offset this strong deflation, particularly the creation of monetized money and credit. The struggle is now manifest in higher real inflation, some 7%. Not the sanitized official version of 1.5%. Soon inflation will strongly move higher and by the end of the year it will officially be 5-1/2% and in reality 14%. Look at England; it officially says inflation is 4.5% when in reality it is about 12%.
Globalization and free trade have brought many negative results and one of them is the export of part of US inflation to those who depreciate their currencies and export to the US. As an example, as China prints yuan to buy dollars to suppress its currency’s value it floods China with inflationary dollars. We have seen two recent increases in Chinese interest rates and several instances of increases in reserve requirements, but that doesn’t solve the dollar inflation problem. That can only be stopped by ceasing suppressing the value of the yuan. A higher yuan is a natural occurrence under the circumstances and it must rise or domestic and dollar borne inflation will worsen. The average Chinese have this figured out and are taking their yuan and dollars and buying gold and silver. The government has been telling them for two years to do this and they are doing it. Incidentally, all of Asia and many other areas are suffering from the same problem.
The time lag for heavy inflation from QE1 is starting to show up with a vengeance. It has been two years in the coming, but it is here and it will continue from QE2 aided by government stimulus. That means three years of high inflation is in the pipeline for 2011, 2012 and 2013. If we have a QE3 and fiscal stimulus you can add another year of hyperinflation. That is when there is a loss of faith in currencies similar to an inflationary environment, except under hyperinflation people want to escape their currency, because the longer they hold it the less it is worth. They immediately, upon being paid buy food, clothing, goods and gold and silver. Gold and silver assets are the only long-term depositories for excess funds. As currencies fall gold and silver rise. We have shown you what has happened over the past ten years against nine major currencies, annually gold has risen on average by 15-1/4% and versus silver by 20-3/8%. What will hyperinflation look like if it comes? At the beginning probably 25%, then 50% and it could go exponential as it did during the Weimer Republic in the early 1920s and in today’s Zimbabwe, where we lived for three years, prior to today’s problems. Will we have hyperinflation? We probably will and the outcome is a collapse and a deflationary depression. In such circumstances the only thing that can save your assets are gold and silver shares, coins and bullion. It is as simple as that.
Stronger economies revalue their currencies and weaker economies devalue against the weaker currencies, and that is usually accompanied by partial or total default. The problems of the US are shared in varying degrees by many other countries, which have followed the same path. That is shy using the dollar index, the USD, can be very misleading. If all countries are making the same errors then comparison is deceiving. You have to compare the currency’s value versus gold and silver, even though the US government and the Fed and other central banks have suppressed their values versus currencies for the past 22 years. Their prices are presently like a coiled spring. Sooner or later the pressure on the spring will be released and prices will go exponential revealing just how damaged currencies are. Essentially what we have seen in gold and silver are price controls, which always ultimately fail. In the wings China realizes that they cannot do what they are doing forever. They certainly will have to revalue the yuan. Once that happens they send less exports to the US and they will be more expensive causing another source of inflation. They will also be buying and making via exports far less than before. Eventually they’ll be developing their domestic economy, because the US will be forced to erect trade tariffs on goods and services. This is where this is all headed, so prepare for it. Price inflation is coming with a vengeance. The Fed cannot hold back the tide of deflation forever. The CFTC and Comex cannot hold back higher gold and silver prices by raising margin requirements forever either. It just shows you how rigged our markets are.
Bernard L. Madoff said he never thought the collapse of his Ponzi scheme would cause the sort of destruction that has befallen his family.In his first interview for publication since his arrest in December 2008, Madoff thinner and rumpled in khaki prison garb maintained family members knew nothing about his crimes.
But he said unidentified banks and hedge funds were “complicit’’ in his fraud, an about-face from earlier claims he was the only one involved. Madoff, who is serving a 150-year sentence, seemed frail and a bit agitated, perhaps burdened by sadness over the suicide of his son Mark in December. He spoke with great intensity. In asserting the complicity of others, Madoff pointed to the “willful blindness’’ of many banks and hedge funds who dealt with his investment advisory business and their failure to examine discrepancies between his regulatory filings and other information available to them.
“They had to know,’’ Madoff said. “But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.’ ’’ While he acknowledged his guilt and said nothing could excuse his crimes, he focused his comments on the big investors and giant institutions he dealt with, not on the financial pain he caused thousands of his more modest investors. In an e-mail, he observed many long-term clients made more in legitimate profits from him in the years before the fraud than they could have elsewhere. “I would have loved for them to not lose anything but that was a risk they were well aware of by investing in the market,’’ he wrote.
Madoff said he was startled to learn of some of the e-mails and messages raising doubts about his results now emerging in lawsuits that bankers were passing around before his scheme collapsed. “I’m reading more now about how suspicious they were than I ever realized at the time,’’ he said.
He did not assert that any specific bank or fund knew about or was an accomplice in his Ponzi scheme, which lasted at least 16 years and consumed about $20 billion in lost cash and almost $65 billion in paper wealth. Rather, he cited a failure to conduct normal scrutiny. He also claimed he was helping the court-appointed trustee who is seeking to recover lost billions on behalf of his swindled clients. In e-mails, Madoff said repeatedly that he provided useful information to Irving H. Picard, the trustee.
In an e-mail message, he was explicit about what he told the trustee: “I am saying that the banks and funds were complicit in one form or another and my information to Picard when he was here established this.’’
Madoff acknowledged he had not shared his information with federal criminal prosecutors. Picard declined to comment on whether his team had interviewed Madoff. Picard has recovered $10 billion through asset sales and settlements with foreign banks and Madoff clients, including the estate of a private investor, Jeffry Picower, and the family of Carl Shapiro, a Boston philanthropist.
The settlements with the Shapiro family and a Swiss bank came after Picard’s trip to the prison in Butner. It is unclear if information from Madoff was a factor. Neither Shapiro nor the bank has been accused of complicity in a crime.
JPMorgan Chase & Co. yesterday announced new programs geared toward military customers and veterans, and apologized for overcharging active-duty service members on mortgages, and improperly foreclosing on more than a dozen. The steps include a program making certain military personnel eligible for reduced-rate mortgages; enhancing a mortgage modification program for those who are having trouble making payments; and a pledge not to foreclose on any active personnel while they’re deployed.
JPMorgan Chase chairman and chief executive Jamie Dimon said those programs and other initiatives “are a start, but in no way a finish’’ to address the bank’s recent missteps involving military clients. The bank admitted the mistakes last month, including breaking a law that limits fees and interest charged to active-duty service members.
JPMorgan Chase & Co. has granted chief executive Jamie Dimon stock and options worth $17 million, just a month after one of Wall Street’s largest banks posted a big jump in quarterly earnings. Dimon’s bonus follows huge compensation boosts earlier this month for the heads of Goldman Sachs Group and Citigroup, as many big banks and their stocks have rebounded from the financial crisis.
The New York bank said in a regulatory filing yesterday that it granted Dimon 251,415 restricted stock units, of which half vest in January 2013 and the rest the following year. Based on the stock’s closing price Wednesday, the day the units were granted, the award is worth $12.1 million.
Dimon, 54, also received 367,377 stock appreciation rights, which have a 10-year term and become exercisable in five installments staring next January. The rights are valued at about $5 million. Dimon’s salary and other compensation weren’t disclosed in yesterday’s filing. JPMorgan Chase pleased investors in January with news that it will raise its dividend soon, pending approval from the Federal Reserve.
Last month, Goldman Sachs more than tripled the salary of chief executive Lloyd Blankfein to $2 million, not including stock awards. Citigroup gave its top executive, Vikram Pandit, a salary raise to $1.75 million, from just $1 the previous year. Bank of America Corp., however, has said it won’t give its top executive a raise for 2011. Chief executive Brian Moynihan’s salary will remain $950,000 for 2011, though he could get up to $9.05 million in stock awards if the nation’s largest bank by assets hits performance targets.
Bank of America is assessing a new $59 annual fee on select credit card holders. The bank began mailing out notices of the new fee last week. The fee will be assessed on May statements and will affect about 5 percent of the bank’s credit card customers, said Betty Riess, a company spokeswoman.
The fee isn’t tied to a specific type of card and is based strictly on the customer’s risk profile. For example, the selected customers may carry balances close to their credit limits, have lower-than-average FICO scores, or regularly make late payments. They likely don’t have any other relationship such as a checking account or mortgage with the bank, Riess said.
On average, the customers who are being assessed the fee are being charged a 14 percent interest rate. Bank of America said these customers generally would not be approved for a no-fee new account today at their current rates. Under regulations that went into effect last year, credit card issuers must give a customer 45 days notice before changing any terms on an account. Card issuers are also now prohibited from raising rates in the first year after an account is opened, or on existing balances. Late fees and other penalty charges are capped at $25 per violation.
THE INTERNATIONAL FORECASTER