central banks

Straws In The Wind

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By Alasdair Macleod – Re-Blogged From Gold Eagle

Life is full of mysteries. Each mystery is like a straw in the wind, which individually means little, but tempting us to speculate there’s a greater meaning behind it all. Yes, there is a far greater game in play, taking Kipling’s aphorism to a higher level.

One of those straws is Russia’s continuing accumulation of gold reserves. Financial pundits tell us that this is to avoid being beholden to the US dollar, and undoubtedly there is truth in it. But why gold? Here, the pundits are silent. There is an answer, and that is Russia understands in principal the virtues of sound money relative to possession of another country’s paper promises. Hence, they sell dollars and buy gold.

But Russia is now going a step further. Izvestia reported the Russian Finance Ministry is considering abolition of VAT on private purchases of gold bullion. We read that this could generate private Russian annual demand of between fifty and a hundred tonnes. More importantly, it paves the way for gold to circulate in Russia as money.

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Keynes Was A Vicious Bastard

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By Keith Weiner – Re-Blogged From Gold Eagle

My goal is to make you mad. Not at me (though I expect to ruffle a few feathers with this one). At the evil being wrought in the name of fighting inflation and maximizing employment. And at the aggressive indifference to this evil, exhibited by the capitalists, the gold bugs, and the otherwise-free-marketers.

So, today I am going to do something I have never done. I am going to rant! I am even going to use vulgar language (which is totally justified).

In researching several recent articles, I re-read old passages from Keynes. Consider these snippets:

“For a little reflection will show what enormous social changes would result from a gradual disappearance of a rate of return on accumulated wealth.”

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The Dollar – King Rat Of Failing Currencies

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BY Alasdair Macleod – Re-Blogged From Gold Eagle

The explanation for the sudden halt in global economic growth is found in the coincidence of peak credit combining with trade protectionism. The history of economic downturns points to a rerun of the 1929-32 period, but with fiat currencies substituted for a gold standard. Government finances are in far worse shape today, and markets have yet to appreciate the consequences of just a moderate contraction in global trade. Between new issues and liquidation by foreigners, domestic buyers will need to absorb $2 trillion of US Treasuries in the coming year, so QE is bound to return with a vengeance, the last hurrah for fiat currencies. However, China and Russia have the means to escape this fate, assuming they have the gumption to do so.

Introduction

It may be too early to say the world is entering a significant economic downturn, but even ardent bulls must admit to it as an increasing possibility. Financial analysts, both bovine and ursine, face a complex matrix of factors when judging the future effect of any downturn on currencies, and of the prospects for the dollar in particular.

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Extraordinary Changes Coming

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By Mike Gleason – Re-Blogged From Gold Eagle

Mike Gleason: It is my privilege now to welcome in Dr. Chris Martenson of PeakProsperity.com, and author of the book Prosper! How to Prepare for the Future and Create a World Worth Inheriting. Chris is a commentator and a range of important topics such as global economics, financial markets, governmental policies, precious metals, and the importance of preparedness, among other things, and it’s always great to have him on with us.

Chris, welcome back, and thanks for joining us again.

Chris Martenson: Thank you. It’s a real pleasure to be back with you and all your listeners.

Mike Gleason: Well, Chris, when we spoke last in early November, we talked about the Fed printing money and expanding credit to prevent markets from correcting. The central planners there are always ready to intervene. At the time, equity markets were correcting and stock prices fell through the end of December. Officials must have then decided that enough was enough with all the selling because the Fed has very publicly signaled a change in course and instead of more rate hikes and more selling from the hordes of bonds accumulated during QE, the Fed is putting the brakes on tightening and looking to return to stimulus. Now the equity markets are off to their best start in something like 30 years. What do you make of the most recent intervention? Are they likely to get away with yet another round of bubble blowing here, Chris?

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Wall Street is Chasing Ghosts

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By Michael Pento – Re-Blogged From Pento Portfolio Strategies

Wall Street’s absolute obsession with the soon to be announced most wonderful trade deal with China is mind-boggling. The cheerleaders that haunt main stream financial media don’t even care what kind of deal gets done. They don’t care if it hurts the already faltering condition of China’s economy or even if it does little to improve the chronically massive US trade deficits—just as long as both sides can spin it as a victory and return to the status quo all will be fine.

But let’s look at some facts that contradict this assumption. The problems with China are structural and have very little if anything to do with a trade war. To prove this let’s first look at the main stock market in China called the Shanghai Composite Index. This index peaked at over 5,100 in the summer of 2015. It began last year at 3,550. But today is trading at just 2,720. From its peak in 2015 to the day the trade war began on July 6th of 2018, the index fell by 47%. Therefore, it is silly to blame China’s issues on trade alone. The real issue with China is debt. In 2007 its debt was $7 trillion, and it has skyrocketed to $40 trillion today. It is the most unbalanced and unproductive pile of debt dung the world has ever seen, and it was built in record time by an edict from the communist state.

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Currencies Threatened By A Credit Crisis

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By Alasdair Macleod – Re-Blogged From Gold Money

In this article I draw attention to the similarities between the current economic situation and that of 1929, and the threat to today’s unbacked currencies. There is the coincidence of trade protectionism with the top of the credit cycle, and there are the inflationary events that preceded it. The principal difference today is in modern macroeconomic delusions, which hold that regulating inflation of money and credit is the solution to all ills. I conclude that economic salvation can only come from ditching today’s macroeconomic theories and by returning to monetary stability through credible gold exchange standards.

Introduction

There is an assumption in economic circles that when the general level of prices changes, it is always due to changes in supply and demand for goods and services. Prices change all the time, but without a change in the public’s preference for or against holding money and with all else being equal, the general level of prices simply cannot change. Changes in the general level of prices are due to changes in the purchasing power of the money, which stems from the public’s preferences for or against it and do not emanate from goods and services.

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Fed Chair Powell’s Rate Pause Won’t Save Stocks

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By Michael Pento – Re-Blogged From Pento Portfolio Strategies

Jerome Powell threw Wall Street a lifeline recently when he decided to temporarily take a pause with the Fed’s rate hiking campaign. The Fed Head also indicated that the process of credit destruction, known as Quantitative Tightening, may soon be brought to an end.  This move towards donning a dovish plume caused the total value of equities to soar back to a level that is now 137% of GDP. For some context, that valuation is over 30 percentage points higher than it was at the start of Great Recession and over 90 percentage points greater than 1985. So, the salient question for investors is: will a slightly dovish FOMC be enough to support the massively overvalued market?

The S&P 500 is now trading at over 16x forward earnings. But the growth rate of that earnings will plunge from over 20% last year to a minus 0.8% in Q1 of this year, according to FACTSET. It might have made sense to pay 19x earnings back in 2018 because it was justified by a commensurate rate of earnings growth. But only a fool would pay 16x or 17x earnings if growth is actually negative?

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