central banks

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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Why Monetary Easing Will Fail

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By Alasdair Macleod – Re-Blogged From Gold Eagle

The major economies have slowed suddenly in the last two or three months, prompting a change of tack in the monetary policies of central banks. The same old tired, failing inflationist responses are being lined up, despite the evidence that monetary easing has never stopped a credit crisis developing. This article demonstrates why monetary policy is doomed by citing three reasons. There is the empirical evidence of money and credit continuing to grow regardless of interest rate changes, the evidence of Gibson’s paradox, and widespread ignorance in macroeconomic circles of the role of time preference.

The current state of play

The Fed’s rowing back on monetary tightening has rescued the world economy from the next credit crisis, or at least that’s the bullish message being churned out by brokers’ analysts and the media hacks that feed off them. It brings to mind Dr Johnson’s cynical observation about an acquaintance’s second marriage being the triumph of hope over experience.

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President Trump’s Trade Tantrum Triggers Slump

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By Alasdair Macleod – Re-Blogged From Silver Phoenix

For decades, Western governments have been pursuing a policy of transferring wealth from the public to themselves, their licensed banks and the banks’ favoured customers by means of interest rate suppression and monetary inflation. Consequently, inflation of financial asset prices has benefited the financial sector to the detriment of those employed in the productive economy. Over time, this has badly weakened productive capacity and the long-term ability of the market economy to fund future government spending.

It is a situation which seems bound to eventually lead to major economic and monetary problems. Additionally, global economic prospects have worsened considerably as a result of President Trump’s tariff wars against China and others. Empirical evidence from the 1930s as well as economic analysis illustrate how trade tariffs have a devastating effect on domestic economic activity, a prospect wholly unexpected by today’s economists.

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Federal Reserve Confesses Sole Responsibility for All Recessions

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By David Haggith – Re-Blogged From Great Recession Blog

In a surprisingly candid admission, two former Federal Reserve chairs have stated that the Federal Reserve alone is responsible for creating all recessions in the United States.

First, former Fed Chair Ben Bernanke said that

Expansions don’t die of old age. They get murdered.

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Rising Interest And Prices

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By Keith Weiner – Re-Blogged From Gold Eagle

For years, people blamed the global financial crisis on greed. Doesn’t this make you want to scream out, “what, were people not greedy in 2007 or 1997??” Greed utterly fails to explain the phenomenon. It merely serves to reinforce a previously-held belief. Far be it from us to challenge previously-held beliefs (OK, OK, we may engage in some sacred-ox-goring from time to time), but this is not a scientific approach to explaining observed events. To properly understand a crisis, you have to look for the root cause. And if the crisis did not occur previously, your theory needs to explain why not then, and why only now.

Suppose an old company, XYZ, goes out of business. “Times change,” people say, to explain an economic phenomenon. Or, perhaps slightly less imprecisely, “the market changed.” Sometimes they’ll get even closer to saying something. They say, “Company XYZ did not adapt to changes.”

These statements are copouts.

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Liquidity, Money Supply And Insolvency

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By Andy Sutton – Re-Blogged From Silver Phoenix

Liquidity is becoming of central importance once again. It is frequently mentioned in mainstream media articles, interviews, and ‘educational’ programs.  It was a central point of discussion during the financial market blowout in 2008.

The killing off of a little-known (until it was dead!) data series earlier this year by the not-so-USFed has gotten the beehive buzzing once again about a liquidity crisis – or the possible aversion of one in the short term. It has also gotten things buzzing about the longer term as well.

What Happened

Late in 2017, the St. Louis Fed stopped publishing interbank loan data. Period. Just prior to that, the amount of interbank loans on a weekly basis dropped to zero:

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