Try to remember the kind of September,
When life was slow and oh so mellow.
Try to remember the kind of September
When grass was green and grain was yellow.
Try to remember the kind of September
When you were a tender and callow fellow….
–Tom Jones
Less than 24 hours after beating the apparently wimpiest case of covid-19 ever, Donald Trump decided that his subjects’ lives aren’t exciting enough. So he called off Congressional talks on the latest stimulus bill.
Never a dull moment in pre-apocalypse America.
The Fed has now officially changed its inflation target from 2%, to one that averages above 2% in order to compensate for the years where inflation was below its target. First off, the Fed has a horrific track record with meeting its first and primary mandate of stable prices. Then, in the wake of the Great Recession, it redefined stable prices as 2% inflation—even though that means the dollar’s purchasing power gets cut in half in 36 years. Now, following his latest Jackson Hole speech, Chair Powell has adopted a new definition of stable prices; one where its new mandate will be to bring inflation above 2% with the same degree and duration in which it has fallen short of its 2% target.
We can all be very confident that there will be no change to monetary policy for a very, very long time. But there is a fiscal cliff coming—and indeed has already begun.
It is clear that Mr. Powell is all-in on his unlimited QE and ZIRP. And, that he is “not even thinking about thinking about raising interest rates.” Therefore, the stock market does not have to worry about a contraction in the rate of money printing any time soon. However, equities could soon plunge due to the crash in the amount of fiscal support offered to the economy.
The coronavirus pandemic inflicted a “swift and massive shock” that has caused the broadest collapse of the global economy since 1870 despite unprecedented government support, the World Bank said.…
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions Ceyla Pazarbasioglu….
The depth of the crisis will drive 70 to 100 million people into extreme poverty.
So far, the current economic situation, together with the response by major governments, compares with the run-in to the depression of the 1930s. Yet to come in the repetitious credit cycle is the collapse in financial asset values and a banking crisis.
When the scale of the banking crisis is known the scale of monetary inflation involved will become more obvious. But in the politics of it, Trump is being set up as the equivalent of Herbert Hoover, and presumably Joe Biden, if he is well advised, will soon campaign as a latter-day Roosevelt. In Britain, Boris Johnson has already called for a modern “new deal”, and in his “Hundred Days” his Chancellor is delivering it.
The US has its share of problems right now (see One Crisis Is Manageable. Five Might Not Be).
But China is right up there in the “when it rains it pours” sweepstakes. As the apparent source of the covid-19 pandemic, it’s still battling new cases and may yet be blamed for not just spawning the virus but consciously designing and then releasing it. It’s also battling unrest in Hong Kong, saber-rattling with Taiwan, and navigating a complex trade war with the US.
But those things might pale next what’s happening with the massive Three Gorges dam. Rain has been falling almost non-stop for weeks in Southern China, and floods – much worse than usual for this time of year – have inundated cities and towns (including covid-19 epicenter Wuhan) along the Yangtze River. The New York Times describes this combination of pandemic and flooding as “surreal and difficult”.
Look at the plethora of problems in my list of 2020 economic predictions, which are so severe and so likely to get even worse that it’s more difficult to imagine they won’t get worse than to believe they will. Some are so bad that just a few of them would plunge us into an abyss of social and financial catastrophes.
This list of economic predictions is not hard to come up with. It is, however, the fact that it is so easy to predict these things this year that makes this year’s list so important.
There are lies, damned lies, and economists. Whether these economists work for the government or a bank, they spend all their time on the computer extrapolating current trends with minor adjustments.
If you want to understand the future, don’t spend your life preparing and constantly revising an Excel sheet with masses of economic data. Collective human behaviour is extremely predictable. But not by spreadsheet analysis but by studying history.
I’ve missed a few predictions along the way, but usually only in part. When I missed, it was because I took the bad too far. The bad has almost always happened exactly when I said it would but hasn’t always been as bad as I said it would be. Now, it has all arrived and is turning out to be fully as bad as I said it would be.
It took the kick of a virus to set everything in place, but all the parts are now falling where I said they would once the next recession began.
Conspiracy surrounding the Federal Reserve is a subject of much debate. A controversial topic, yes; one which stirs the imagination of some, fires the suspicion of others, and provokes the declamation of not too few detractors.
From G. Edward Griffin/The Creature From Jekyll Island…
“Back in 1910, Jekyll Island was completely privately owned by a small group of millionaires from New York. We’re talking about people such as J. P. Morgan, William Rockefeller and their associates. This was a social club and it was called “The Jekyll Island Club.”
By Andrew Glen, Ph.D. and James D. Agresti – Re-Blogged From WUWT
[There is a lot of good but somewhat dry material here, so I’ve skipped right to the Summary. –Bob]
One of the most important principles of epidemiology is weighing benefits and harms. A failure to do this can make virtually any medical treatment seem helpful or destructive. In the words of Ronald C. Kessler of the Harvard Medical School and healthcare economist Paul E. Greenberg, “medical interventions are appropriate only if their expected benefits clearly exceed the sum of their direct costs and their expected risks.”
Likewise, a 2020 paper about quarantines published in The Lancet states: “Separation from loved ones, the loss of freedom, uncertainty over disease status, and boredom can, on occasion, create dramatic effects. Suicide has been reported, substantial anger generated, and lawsuits brought following the imposition of quarantine in previous outbreaks. The potential benefits of mandatory mass quarantine need to be weighed carefully against the possible psychological costs.”
Yesterday was the greatest crash in Wall Street history by one measure, and took down many other milestones. The Dow plunged 2,012 points in its largest single-session drop on record! Percentage-wise it was down 7.8%, which still knocked out decades of lows, leading to “Black Monday” being the hot search term on Google today as people sought a comparison worthy of this Monday crash.
For comparison, the 1929 event looked like this:
The stock market crash of 1929 – considered the worst economic event in world history – began on Thursday, October 24, 1929, with skittish investors trading a record 12.9 million shares. On October 28, dubbed “Black Monday,” the Dow Jones Industrial Average plunged nearly 13 percent. The market fell another 12 percent the next day, “Black Tuesday.” While the crisis send shock waves across the financial world, there were numerous signs that a stock market crash was coming.
By Tim Benson – Re-Blogged From WUWT
A new study from the American Petroleum Institute (API), with modeling data provided by the consulting firm OnLocation, details how a nationwide ban on hydraulic fracturing (colloquially known as “fracking”) could trigger a recession, would seriously damage U.S. economic and industrial output, considerably increase household energy costs, and make life much harder and costlier for American farmers.
In America’s Progress at Risk: An Economic Analysis of a Ban on Fracking and Federal Leasing for Natural Gas and Oil Development, API argues that a fracking ban would lead to a cumulative loss in gross domestic product (GDP) of $7.1 trillion by 2030, including $1.2 trillion in 2022 alone. Per capita GDP would also decline by $3,500 in 2022, with an annual average decline of $1,950 through 2030. Annual household income would also decline by $5,040.
Psychiatric disorders affect 25 percent of the population in any given year. But despite their prevalence, researchers still don’t know what causes many mental health issues, and that can make treating them incredibly difficult.
But now, a new study has identified more than a hundred gene variants that can affect a person’s risk of developing multiple psychiatric disorders — a biological clue that could lead to more effective treatments for the disorders in the future.
Last week’s failure in the US repo market might have had something to do with Deutsche Bank’s disposal of its prime brokerage to BNP, bringing an unwelcome spotlight to the troubled bank and other foreign banks with prime brokerages in America. There are also worrying similarities between Germany’s Deutsche Bank today and Austria’s Credit-Anstalt in 1931, only the scale is far larger and additionally includes derivatives with a gross value of $50 trillion.
If the repo problem spreads, it could also raise questions over the synthetic ETF industry, whose cash and deposits may face escalating counterparty risks in some of the large banks and their prime brokerages. Managers of synthetic ETFs should be urgently re-evaluating their contractual relationships.
The global economic outlook is deteriorating. Government borrowing in the deficit countries will therefore escalate. US Treasury TIC data confirms foreigners have already begun to liquidate dollar assets, adding to the US Government’s future funding difficulties. The next wave of monetary inflation, required to fund budget deficits and keep banks solvent, will not prevent financial assets suffering a severe bear market, because the scale of monetary dilution will be so large that the purchasing power of the dollar and other currencies will be undermined. Failing fiat currencies suggest the dollar-based financial order is coming to an end. But with few exceptions, investors own nothing but fiat-currency dependent investments. The only portfolio protection from these potential dangers is to embrace sound money – gold.
The global economy is at a cross-road, with international trade stalling and undermining domestic economies. Some central banks, notably the European Central Bank, the Bank of Japan and the Bank of England were still reflating their economies by supressing interest rates, and the ECB had only stopped quantitative easing in December. The Fed and the Peoples’ Bank of China had been tightening in 2018. The PBOC quickly went into stimulation mode in November, and the Fed has put monetary tightening and interest rates on hold, pending further developments.
By Associated Press – Re-Blogged From Newsmax Health
Memory and thinking skills naturally slow with age but now scientists are peeking inside living brains to tell if depression might worsen that decline — and finding some worrisome clues.
Depression has long been linked to certain cognitive problems, and depression late in life even may be a risk factor for the development of Alzheimer’s. Yet how depression might harm cognition isn’t clear.
One possibility: Brain cells communicate by firing messages across connections called synapses. Generally, good cognition is linked to more and stronger synapses. With cognitive impairment, those junctions gradually shrink and die off. But until recently, scientists could count synapses only in brain tissue collected after death.
By Gary Christenson -Re-Blogged From Gold Eagle
Peter Schiff explained “What Happens Next.” This article takes his “likely sequence of events” and expands the discussion.
His sequence:
By Bill Hoffmann – Re-Blogged From Newsmax Health
If you’ve been feeling down and out more than usual, cheer up, you are not alone.
A new report compiled by insurance giant Blue Cross Blue Shield (BCBS) says major depression diagnoses surged in the United States from 2013 through 2016, especially among adolescents and millennials.
And the study, which was based on medical claims filed to Blue Cross Blue Shield by 41 million customers, also links major depression to health issues such as other chronic conditions and substance abuse.
By David Chapman – Re-Blogged From http://www.Silver-Phoenix500.com
“I don’t believe we will see another financial crisis in our lifetime.”
Oh, Janet. We hope you are right. One should never say never—that has a nasty habit of coming back to bite you.
Texas and Houston are currently going through their crash. No, not a stock market crash but a hurricane and flooding crash. Hurricane Harvey has been called a “once in 500 years’ event.” Except in the past twelve years, we have also had Hurricane Katrina and Sandy. They were called “once in 100 years events.” The 400-year difference seems moot. It is becoming a little flippant to call them “once in a lifetime” events when three “lifetime” events have occurred in twelve short years. Yet, for all of them the experts did not see the devastation that was coming.
By Brian Maher – Re-Blogged From The Daily Reckoning
The year is 1921…
America is less than three years removed from triumph on the Western Front. It’s the dawn of the Roaring Twenties… and the Jazz Age.
Warren Gamaliel Harding is America’s czar.
And the nation is sunk in depression…
U.S. industrial production plunged 31% between 1920 and 1921. Stock prices plummeted 46%… and corporate profits a crushing 92%.
Unemployment ran as high as 19%. Storefronts everywhere gaped empty.
By David Chapman – Re-Blogged From http://www.Gold-Eagle.com
Every time we pick up some article on the stock market of late, all we read is the stock market is on the verge of a devastating wipeout, or that the next collapse is just around the corner. One of the best headlines we saw recently was from a famed market guru with a headline of “2017 Is Going to Be Worse than the Great Depression!” It is enough to make you run home, pour a long hot bath, slit your wrists, and climb in to the tub.
Okay, maybe that is extreme. Naturally, there are many reasons writers give to back up their case. Those range from the election of Donald Trump, Brexit, rising interest rates in the US, and of course the best one—that the bull market is now into its ninth year from the major low of March 2009 without a correction exceeding 20% and is in the mother of all bubbles. All of that is true. But none of that makes for a final top just because the stock market has been rising for eight years plus.
By Joe Scudder – Re-Blogged From Eagle Rising
Due to desperation caused by starvation, there are now Venezuelan vigilante mobs lynching accused thieves.
The story was published today at Yahoo News, but here’s another story about Venezuelan vigilante mobs posted by a French news program eight months ago.
By John Williams – Re-Blogged From http://www.ShadowStats.com
Counting All Discouraged/Displaced Workers, May 2016 Unemployment Rose to About 23.0%. Discussed frequently in the regular ShadowStats Commentaries on monthly unemployment conditions, what removes headline-unemployment reporting from common experience and broad, underlying economic reality, simply is definitional. To be counted among the U.S. government’s headline unemployed (U.3), an individual has to have looked actively for work within the four weeks prior to the unemployment survey conducted for the Bureau of Labor Statistic (BLS). If the active search for work was in the last year, but not in the last four weeks, the individual is considered a “discouraged worker” by the BLS, and not counted in the headline labor force.
ShadowStats defines that group as “short-term discouraged workers,” as opposed to those who, after one year, no longer are counted as “discouraged” by the government. Instead, they enter the realm of “long– term discouraged workers,” those displaced by extraordinary economic conditions, including regional/local businesses activity affected negatively by trade agreements or by other factors shifting U.S. productive assets offshore, as defined and counted by ShadowStats (see the extended comments in the ShadowStats Alternate Unemployment Measure).
By Michael Pento – Re-Blogged From PentoPort
The bounce in Treasury yields witnessed after the election of Donald Trump is now decaying in the D.C. swamp. If the Fed continues to ignore this slow growth and deflationary signal from the bond market and continues along its current rate hiking path, the yield curve will invert by the end of this year and an equity market plunge and a recession is sure to follow.
An inverted yield curve, which has correctly predicted the last seven recessions going back to the late 1960’s, occurs when short-term interest rates yield more than longer-term rates. Why is an inverted yield curve so crucial in determining the direction of markets and the economy? Because when bank assets (longer-duration loans) generate less income than bank liabilities (short-term deposits), the incentive to make new loans dries up along with the money supply. And when asset bubbles are starved of that monetary fuel they burst. The severity of the recession depends on the intensity of the asset bubbles in existence prior to the inversion.
By Gary Christenson – Re-Blogged From The Deviant Investor
The United States suffered through a deflationary depression in the 1930s. Stock prices crashed, currency in circulation declined, commodity and real estate prices fell hard and human misery prevailed.
President Roosevelt revalued gold from $20.67 to $35.00 per ounce in 1934 – a substantial devaluation of the dollar. Make-work and government spending programs were implemented. War followed the depression. ( https://en.wikipedia.org/wiki/Gold_Reserve_Act )
By http://www.BizarroWorldUSA.com – Re-Blogged From iPatriot
For just shy of eight years now the United States has been economically hindered by the distorted interpretation of economist John Maynard Keynes’ twentieth century economic theory.
Application of Keynesian economics extended the Great Depression longer than necessary as it has for the recent recession.
Classic economic theory suggests that world and national economies experience rises and falls. Periods of stagnation can be moderated with reasoned spending and by controlling variable expenses. Keynesian economic theory, on the other hand, advocates that increased government spending in times of downturn spurs the economy resulting in shorter downswings. The flawed theory doesn’t work in a personal or household situation and it most certainly doesn’t work for individual states or nations. In fact, the larger the entity and economic platform the more in-congruent the premise becomes.
By Michael Snyder – Re-Blogged From http://www.EndOfTheAmericanDream.com
Barack Obama is about to become the 20 trillion dollar man. With less than two months to go in his second term, the U.S. national debt stands less than 150 billion dollars away from the 20 trillion dollar mark. And at the pace that the debt is increasing, it seems almost certain that we will cross 20 trillion dollars before Inauguration Day. After promising us that “deficits are under control”, the federal debt jumped by more than 1.3 trillion dollars last fiscal year, and so far this year it is on pace to rise by a record-shattering 2.4 trillion dollars. This is a recipe for national suicide, and yet it wasn’t even a major issue during the recently concluded presidential campaign.
It is really, really hard to spend a trillion dollars. For example, if you were alive when Jesus was born and you had spent a million dollars every single day since that time, you still would not have spent a trillion dollars by now.
By Andy Sutton & Graham Mehl – Re-Blogged From http://www.Silver-Phoenix500.com
Despite the arrogance, hubris, and lying (obviously – its election season!), we have never seen a cycle that has be more absent in terms of policy details worthy of analysis. Outrageous claims about job creation, making America strong, and so forth are issued, but there is no substance. We have tried on numerous occasions to find enough specifics to even perform cursory analysis and it is just not there. It is very reminiscent of Nancy Pelosi telling America in 2010 that if they wanted to read the healthcare bill they had to pass it first. This is what passes for economic jurisprudence in the Republic the founders gave us all those years ago.
Rest easy good friends, this is not an article about the election. Andy said he’d rather watch goat races in Antarctica and frankly we think many people might be inclined to join us rather than hear another word about the election. We have long stated that this country will not rise from the ashes by the presence of a single person at the top, but rather from the millions below. That’s where the power is.
By Steven H Hanke – Re-Blogged From http://www.Silver-Phoenix500.com
Secular stagnation is said to be present when economic growth is negligible or nonexistent over a considerable span of time. Today, secular stagnation has become a popular mantra of the chattering classes, particularly in the United States. The idea is not new, however.
Alvin Hansen, an early and prominent Keynesian economist at Harvard University, popularized the notion of secular stagnation in the 1930s. In his presidential address to the American Economic Association in 1938, he asserted that the U.S. was a mature economy that was stuck in a rut. Hansen reasoned that technological innovations had come to an end; that the great American frontier (read: natural resources) was closed; and that population growth was stagnating. So, according to Hansen, investment opportunities would be scarce, and there would be nothing ahead except secular economic stagnation. The only way out was more government spending. It would be used to boost investment via public works projects. For Hansen and the Keynesians of that era, stagnation was a symptom of market failure, and the antidote was government largesse.
By Chris Vermeulen – Re-Blogged From http://www.Silver-Phoenix500.com
Nature functions in cycles: Each 24-hour period can be divided into smaller cycles of morning, afternoon, evening and night. The whole year can be divided into seasonal cycles. Similarly, one’s life can also be divided into cycles. Cycles are abundant in nature, we just have to spot them, understand them and be prepared for them because they happen whether we like it or not. Likewise, economic experts have noticed that the world also follows different cycles. An important pioneer in this field was the Russian social economist, Nikolai Kondratiev, also called Nikolai Kondratieff, a relatively unknown genius.
By Michael Pento – Re-Blogged From http://www.Gold-Eagle.com
The Fed traditionally embarks on an interest rate tightening cycle when inflation has started to run hot. This decline in the purchasing power of the dollar will nearly always manifest itself in: above trend nominal GDP, rising long-term interest rates and a positively sloping yield curve. These prevailing conditions are all indications of a market that is battling inflation; and thus prompts the Fed to start playing catch up with the inflation curve.
For example, the last time the Fed began a rate tightening cycle was back on June 30, 2004, when the Fed moved the Overnight Funds rate from 1% to 1 ¼%. At the time, the Ten-year Note yield was 4.62%, and the Two-year Note was 2.7%, creating a 1.92% spread between the Two and the Ten-year Note. To illustrate the fact that the long end of the yield curve was pricing in future inflation, the Ten-year yield climbed to 5.14% two years into the Fed’s rate hiking cycle. And perhaps more importantly, real GDP was 3% and rising, while nominal GDP posted an impressive 6.6% in the second quarter of June 2004.
By Michael Snyder – Re-Blogged From Economic Collapse
We continue to get more evidence that the U.S. economy has entered a major downturn. Just last week, I wrote about how U.S. GDP growth numbers have been declining for three quarters in a row, and previously I wrote about how corporate defaults have surged to their highest level since the last financial crisis. Well, now we are getting some very depressing numbers from the rail industry. As you will see below, U.S. rail traffic was down more than 11 percent from a year ago in April. That is an absolutely catastrophic number, and the U.S. rail industry is feeling an enormous amount of pain right now. This also tells us that “the real economy” is really slowing down, because less stuff is being shipped by rail all over the nation.
One of the economic commentators that I have really come to respect is Wolf Richter of WolfStreet.com. He has a really sharp eye for what is really going on in the economy and in the financial world, and I find myself quoting him more and more as time goes by. If you have not checked out his site yet, I very much encourage you to do so.
On Wednesday, he posted a very alarming article about what is happening to our rail industry. The kinds of numbers that we have been seeing recently are the kinds of numbers that we would expect if an economic depression was starting. The following is an excerpt from that article…
By Mac Slavo – Re-Blogged From http://www.freedomoutpost.com
While Americans still enjoy easy access to basic necessities like food and medicine
When the country of Greece collapsed in 2012 we highlighted the desperate situation faced by its millions of residents:
With untold billions in private and public sector debt, the situation in Greece (and other debt laden European countries like Spain and Italy) has devolved to such an extent that some EU member nations are mobilizing their military personnel in preparation for full spectrum meltdown across the entire region.
Jobs are so scarce that many have been forced into underground barter economies and family farming to make ends meet. From massive austerity spending cuts that have torn to shreds the government social safety net, to shortages in critical life saving medicines and the near breakdown of the nation’s power grid, Greece is experiencing all of the overt signs of a nation on its last leg.
By Peter Schiff – Re-Blogged From http://www.Gold-Eagle.com
Operating under the mistaken belief that a modest dose of inflation is either a prerequisite for, or a by-product of, economic growth, the nation’s top economists have been assuring us for quite some time that inflation will stay very low until the currently mediocre economy finally catches fire. As a result, they believe that the low inflation of the past few months has frustrated Federal Reserve policy makers, who have been supposedly chomping at the bit to keep hiking rates in order to restore confidence in the present and to build the ability to cut rates in the future if the nation were to ever, god forbid, enter another recession.
In the weeks leading up to the Fed’s December 16 decision to raise rates by 25 basis points (their first increase in nearly a decade) the consensus expectations on Wall Street was that the Fed would deliver three or four additional interest rate hikes in 2016. But with the global markets now in turmoil, GDP slowing, and the stock market off to one of its worst starts in memory, a consensus began to emerge that the Fed is reluctantly out of the rate hiking business for the rest of the year.
With such thoughts firmly entrenched, many were largely caught off guard by the arrival last Friday (February 19th) of new inflation data from the Labor Department that showed that the core consumer price index (CPI) rose in January at a 2.2 % annualized rate, the highest in more than 4 years, well past the 2.0% benchmark that the Fed has supposedly been so desperately trying to reach. It was received as welcome news.
A Reuter’s story that provided immediate reaction to the inflation data summed up the good feeling with a quote by Chris Rupkey, chief economist at MUFG Union Bank in New York, “It is a policymaker’s dream come true. They wanted more inflation and they got it.” The widely respected Jim Paulsen of Wells Capital Management said that the stronger inflation, combined with upticks in consumer spending and jobs data would force the Fed to get on with more rate hikes.
But higher inflation is not “a dream come true”. In reality it is the Fed’s worst possible nightmare. It will expose the error of their eight-year stimulus experiment and the Fed’s impotence in restoring health to an economy that it has turned into a walking zombie addicted to cheap money.
While most economists still want to believe that the recent slowdown in economic growth (.7% annualized in the 4th quarter of 2015, which could be revised lower on Friday) was either caused by the weather, confined to manufacturing, oil related, or just some kind of statistical fluke that will likely reverse in the current quarter, and that the stock market declines of 2016 have resulted from distress imported from abroad, a much more likely trigger for all these developments can be found in the Fed’s own policy.
The Chinese economic deceleration and market turmoil made little impact on U.S markets prior to the Fed’s rate hike. And although U.S. markets rallied slightly in the days around the historic December rate hike, they began falling hard just a few days later. Stocks remained on the downward path until a recent rally inspired by dovish comments from various Fed officials which led many to conclude that future rate hikes may be fewer and farther between then was originally believed.
In truth, the markets and the economy have been walloped not just by December’s quarter point increase, but from the hangover from the withdrawal of QE3, and the anticipation of higher rates in 2016, all of which contributed to a general tightening of monetary policy.
The correlation between monetary tightening and economic deceleration is not accidental. As it had been in Japan before us, the unprecedented stimulus that has been delivered by central banks, in the form of zero percent interest and trillions of dollars in quantitative easing bond purchases, failed to create a robust and healthy economy that could survive in its absence. Our stimulus, which was launched in the wake of the 2008 crash, may have prevented a deeper contraction in the short term, but it also prevented the economy from purging the excesses of artificial boom that preceded the crash. As a result, we are now carrying far more debt, and the nation is far more levered than it was prior to the Crisis of 2008. We have been able to muddle through with all this extra debt only because interest rates remained at zero and the Fed purchased so much of the longer-term debt.
In the past I argued that even a tiny, symbolic, quarter point increase would be sufficient to prick the enormous bubble that eight years of stimulus had inflated. Early results show that I was likely right on that point. The truth is that the economy may be entering a period of “stagflation” in which very low (or even negative) growth is accompanied by rising prices. This creates terrible conditions for consumers whereby prices rise but incomes don’t. This leads to diminished living standards.
The recent uptick in inflation does not somehow invalidate all the other signs that have pointed to a rapidly decelerating economy. Just because inflation picks up does not mean that things are getting better. It actually means they are about to get a whole lot worse. Stagflation is in fact THE nightmare scenario for the Fed. If inflation catches fire now, the Fed will be completely incapable of controlling it. If a measly 25 basis point increase could inflict the kind of damage already experienced, imagine what would happen if the Fed made a real attempt to raise rates to get out in front of rising inflation? With growth already close to zero, a monetary shock of 1% or 2% rates could send us into a recession that could end up putting Donald Trump into the White House. The Fed would prefer that fantasy never become reality.
But the real nightmare for the Fed is not the extra body blow higher prices will deliver to already bruised consumer, but the knockout punch that will be delivered to its own credibility. The markets believe the Fed has a duel mandate, to promote employment and to maintain price stability. But it is currently operating like it has just a single unspoken mandate: to continue to shower markets with easy money until asset prices and incomes rise high enough to reduce the real value of our debts to the point where they can actually be serviced with higher rates, regardless of what happens to employment or consumer prices along the way.
If you recall back in 2009 and 2010, when unemployment was in the 8% to 10% range, former Fed Chair Ben Bernanke initially indicated that the fed would raise rates from zero once unemployment fell to 6.5%. At the time I wrote that it was a bluff, and that if those goalposts were ever reached, they would be moved. That is exactly what happened. But when 5% unemployment finally backed the Fed into a credibility corner it had to do something symbolic. This resulted in the 25 basis points we got in December. Yet even as official unemployment is now 4.9%, the Fed can postpone future, more damaging rate hikes, so long as low-inflation provides the cover.
But can the Fed get away with moving its inflation goal post as easily as it had for unemployment? In fact, the Fed has already done so, with little backlash at all. When created by Congress the Federal Reserve was tasked with maintaining “price stability”. The meaning of “stability” should be clear to anyone with a rudimentary grasp of the English language: it means not moving. In economic terms, this should mean a state where prices neither rise nor fall. Yet the Fed has been able to redefine price stability to mean prices that rise at a minimum of 2% per year. Nowhere does such a target appear in the founding documents of the Federal Reserve. But it seems as if Janet Yellen has borrowed a page from activist Supreme Court justices (unlike the late Antonin Scalia) who do not look to the original intent of the framers of the Constitution, but their own “interpretation” based on the changing political zeitgeist.
The Fed’s new Orwellian mandate is to prevent price stability by forcing price to rise 2% per year. What has historically been seen as a ceiling on price stability, that would have forced tighter policy, is now generally accepted as being a floor to perpetuate ultra-loose monetary policy. The Fed has accomplished this self-serving goal with the help of naïve economists who have convinced most that 2% inflation is a necessary component of economic growth.
But as officially measured consumer prices surpass the 2% threshold by an ever-wider margin, (which could occur in earnest once oil prices find a bottom) how far up will the Fed be able to move that goal post before the markets question their resolve? Will the Fed allow 3% or 4% inflation to go unchallenged? President Nixon imposed wage and price controls when inflation reached 4%. It’s amazing that 2% inflation is now considered perfection, yet 4% was so horrific that such a draconian approach was politically acceptable to rein it in.
Once markets figure out that the Fed is all hat and no cattle when it comes to fighting inflation, the bottom should drop out of the dollar, consumer price increases could accelerate even faster, and the biggest bubble of them all, the one in U.S. Treasuries may finally be pricked. That is when the Fed’s nightmare scenario finally becomes everyone’s reality.
By Axel Merk – Re-Blogged From http://www.merkinvestments.com
“The Fed doesn’t have a clue!” – I allege that not only because the Fed appears to admit as much (more on that in a bit), but also because my own analysis leads to no other conclusion. With Fed communication in what we believe is disarray, we expect the market to continue to cascade lower – think what happened in 2000. What are investors to do, and when will we reach bottom?
By Bill Holter – Re-Blogged From http://www.Gold-Eagle.com
After my last article we received two logical questions from readers. The first one pertaining to “gaps” and the Deutsche Bank derivative exposure; the second pertaining to Japan’s strong currency with negative yields while the debt to GDP levels are astronomical. Below is the first question.
“In the past you have warned about derivative exposure and now gapping.
One of my worst fears as a day trader on a derivatives platform is gapping. That is why I will never have an open position when the market is closed. Even then, that is not guaranteed.
A lot of trading platforms got hammered when the Swiss franc was revalued.
Could you put out a letter for your readers explaining why for example the Deutsche Bank derivatives exposure is so dangerous in terms of gapping.”
By David Stockman – Re-Blogged From http://davidstockmanscontracorner.com
The fast money and robo-machines keep trying to ignite stock rallies, but they all fizzle because bad karma is beginning to infect the casino. That is, apprehension is growing among whatever adults are left on Wall Street that 84 months of ZIRP and $3.5 trillion of Fed balance sheet expansion, aka money printing, didn’t do the trick.
Not only is the specter of recession growing more visible, but it is also attached to a truth that cannot be gainsaid. Namely, having stranded itself at the zero bound for an entire business cycle, the Fed is bereft of dry powder. Its only available tools are a massive new round of QE and negative interest rates.
But these are absolutely non-starters. The former would provoke riots in the financial markets because it would be an admission of total failure; and the latter would provoke a riot in the American body politic because the Fed’s seven year war on savers and retirees has already generated electoral revulsion. Bernie and The Donald are not expressions of public confidence in the economic status quo.
So the dip buying brigades have been reduced to reading the tea leaves for signs that the Fed’s four in store for 2016 are no more. Yet even if the prospect of delayed rate hikes is good for a 50-handle face ripping rally on the S&P 500 index from time to time, here’s what it can’t do. The Fed’s last card—-deferring one or more of the tiny interest rate increases scheduled for this year——cannot stop the on-coming recession.
By Bill Holter – Re-Blogged From http://www.Gold-Eagle.com
A reader recently sent me these charts. I do not know who put this collection together to give credit to but I do want to say these charts pretty much tell the WHOLE STORY! Please note each graph has grey shaded areas which identify recessions. What we need to focus on is what has happened since the last “official” recession of 2008/2009. I put the word official in quotation marks because it is clear something has gone very wrong since 2009, have we really recovered?
By Graham Summers – Re-Blogged From http://www.Gold-Eagle.com
The world has yet to fully digest what is currently happening in Japan.
Japan is the global leader for Keynesian Central Banking insanity. The ECB and US Federal Reserve began implementing ZIRP and QE after 2008. The Bank of Japan has been employing both ZIRP and QE since 2001.
Put simply, by the time the Great Crisis of 2008 rolled around, the Bank of Japan had nearly a decade’s experience seeing what QE, ZIRP, and the like could accomplish.
On top of this, the Bank of Japan has been the single most aggressive Central Bank post-2008. In 2013, it launched a single QE program equal to roughly 25% of Japan’s GDP (the Fed’s largest program was less than 10% of GDP).
By Steven H Hanke – Re-Blogged From http://www.Gold-Eagle.com
Stagnationists have been around for centuries. They have embraced many economic theories about what causes economic stagnation. That’s a situation in which total output, or output per capita, is constant, falling slightly, or rising sluggishly. Stagnation can also be characterized by a situation in which unemployment is chronic and growing.
Before we delve into the secular stagnation debate – a debate that has become a hot topic – a few words about current economic developments in the U.S. are in order. What was recently noticed was the Federal Reserve’s increase, for the first time in nearly a decade, of the fed funds interest rate by 0.25 percent. What went unnoticed, but was perhaps more important, was that the money supply, broadly measured by the Center for Financial Stability’s Divisia M4, jumped to a 4.6 percent year-over-year growth rate. This was the largest increase since May 2013.
Since changes in the money supply, broadly determined, cause changes in nominal GDP, which contain real and inflation components, we can anticipate a pick-up in nominal aggregate demand in the U.S. Indeed, if M4 keeps growing at its current rate, nominal aggregate demand, measured by final sales to domestic purchasers, will probably reach its long-run average annual rate of 4.8 percent by mid-2016 (see the accompanying chart). This rate of nominal aggregate demand growth was last reached in 2006, almost ten years ago. So, the current economic news from the U.S. is encouraging.
But what about the secular stagnation debate? The secular stagnation thesis in a Keynesian form was popularized by Harvard University economist Alvin Hansen. In his presidential address to the American Economic Association in 1938, he asserted that the U.S. was a mature economy that was stuck in a rut that it could not escape from. Hansen reasoned that technological innovations had come to an end; that the great American frontier (read: natural resources) was closed; and that population growth was stagnating. So, according to Hansen, investment opportunities would be scarce, and there would be nothing ahead except secular economic stagnation; unless, fiscal policy was used to boost investment via public works projects.
Hansen’s economics were taken apart and discredited by many non-Keynesian economists. But, the scholarly death blow was dealt by George Terborgh in his 1945 classic The Bogey of Economic Maturity. In the real world, talk of stagnation in the U.S. ended abruptly with the post-World War II boom.
It is worth noting that many Keynesians were caught up, at least temporarily, in the secular stagnation fad. Even Paul Samuelson, a leader of the Keynesians – thanks, in part, to his popular textbook — was temporarily entrapped. But, like Houdini, he miraculously escaped. That said, there were things in Economics that Samuelson probably wished he had thrown overboard, too. My favorite from the 13th edition (1989) is: “The Soviet economy is proof that contrary to what many sceptics had earlier believed, a socialist command economy can function and even thrive.”
Today, another Harvard University economist, Larry Summers, is beating the drums for secular stagnation. And Summers isn’t just any Harvard economist. He was formerly the president of Harvard and a U.S. Treasury Secretary. Summers, like Hansen before him, argues that the government must step up to the plate and invest more to fill the gap left by deficiencies in private investment, so that the economy can be pulled out of its stagnation rut. He is preaching the stagnation gospel beyond the ivy-covered halls at Harvard. And, he is picking up followers. For example, Canada’s new Prime Minister, Justin Trudeau, has latched onto Summers and the stagnation thesis. What better way to justify expanding government investments, or should we say white elephants?
For evidence to support Summers’ secular stagnation argument and his calls for more government investment, he points to the anemic private domestic capital expenditures in the U.S. As the accompanying chart shows, gross private domestic business investment, which does not include residential housing investment, has rebounded modestly since the great recession. But, most of this gross investment has been eaten up in the course of replacing capital that has been used up or became obsolete. Indeed, the private capital consumption allowances shown in the chart are huge. While these capital consumption figures are approximate, they are large enough to suggest that there is little left for net private business investment. This means that the total capital stock, after actually shrinking in 2009, has grown very little since then.
If we take a longer look, one starting in 1960, it appears that net private domestic investment as a percent of GDP has trended downward (see the accompanying chart). This is due to the fact that private capital consumption allowances as a percentage of GDP have trended upward. This shouldn’t surprise us. With the increasingly rapid rate of innovation, obsolescence and, therefore, capital consumption have increased. On the surface, these facts appear to give the stagnationists a reed to lean on. But, it’s a weak one.
To understand the troubling net investment picture, we must ask why businesses are so reluctant to invest. After all, it’s investment that fuels productivity and real economic growth. Are the stagnationists on to something? Have we really run out of attractive investment opportunities that require the government to step in and fill the void?
A recent book by Robert Higgs, Taking a Stand: Reflections on Life, Liberty, and the Economy, helps answer these questions. In 1997, Higgs first introduced the concept of “regime uncertainty” to explain the extraordinary duration of the Great Depression of the 1930s. Higgs’ regime uncertainty is, in short, uncertainty about the course of economic policy – the rules of the game concerning taxes and regulations, for example. These rules of the game affect the net benefits and free cash flows investors derived from their property. Indeed, the rules affect the security of their property rights. So, when the degree of regime uncertainty increases, investors’ risk-adjusted discount rates increase and their appetites for making investments diminish.
Since the Great Recession of 2009, regime uncertainty has been elevated. This has been measured by Scott R. Baker of Northwestern University, Nicholas Bloom of Stanford University and Steven J. Davis of the University of Chicago. Their “Economic Policy Uncertainty Index for the U.S.,” which was published by the Cato Institute in Washington, D.C., measures, in one index number, Higgs’ regime uncertainty. In addition, there is a mountain of other evidence that confirms the ratcheting up of regime uncertainty during the tenure of the George W. Bush and Barack Obama administrations. For example, a recent Pew Research Center survey finds that the percent of the public that trusts Washington, D.C. to do the right thing has fallen to all-time lows of around 20 percent.
So, contrary to the stagnationists’ assertions, the government is the problem, not the solution. Secular stagnation in the U.S. is just what it was when Alvin Hansen popularized it in the 1930s: Its bunk. Nothing more than a phony rationale for more government waste.
By Ron Paul – Re-Blogged From http://www.Silver-Phoenix500.com
Stocks rose Wednesday following the Federal Reserve’s announcement of the first interest rate increase since 2006. However, stocks fell just two days later. One reason the positive reaction to the Fed’s announcement did not last long is that the Fed seems to lack confidence in the economy and is unsure what policies it should adopt in the future.
At her Wednesday press conference, Federal Reserve Chair Janet Yellen acknowledged continuing “cyclical weakness” in the job market. She also suggested that future rate increases are likely to be as small, or even smaller, then Wednesday’s. However, she also expressed concerns over increasing inflation, which suggests the Fed may be open to bigger rate increases.
Many investors and those who rely on interest from savings for a substantial part of their income cheered the increase. However, others expressed concern that even this small rate increase will weaken the already fragile job market.
These critics echo the claims of many economists and economic historians who blame past economic crises, including the Great Depression, on ill-timed money tightening by the Fed. While the Federal Reserve is responsible for our boom-bust economy, recessions and depressions are not caused by tight monetary policy. Instead, the real cause of economic crisis is the loose money policies that precede the Fed’s tightening.
By Peter Schiff – Re-Blogged From http://www.Gold-Eagle.com
On May 1, 2003 on the flight deck of the USS Abraham Lincoln then President George W. Bush, after becoming the first U.S. president to land on an aircraft carrier in a fixed wing aircraft (in a dashing olive drab flight suit), declared underneath an enormous “Mission Accomplished” banner that “major combat operations” in Iraq had been concluded, that regime change had been effected, and that America had prevailed in its mission to transform the Middle East. 13 years later, after years of additional combat operations in Iraq, and a Middle East that is spiraling out of control and increasingly disdainful of America’s influence, we look back at the “Mission Accomplished” event as the epitome of false confidence and premature celebration.
The image of W on the flight deck comes to mind in much of the reaction to this week’s decision by the Federal Reserve to raise interest rates for the first time in nearly a decade. While many in the media and on Wall Street talked of a “concluded experiment” and the “dawning of a new era,” few realize that we are just as firmly caught in the thickets of failed policy as were Bush, Cheney, and Rumsfeld in the misunderstood quagmire of 2003 Iraq.
In its initial story of the day’s events, The Washington Post (12/16/15) declared that by raising the Fed Funds rate to one quarter of a percent The Fed is “ending an era of easy money that helped save the nation from another Great Depression.” Putting aside the fact that 25 basis points is still 175 points below the near 2.0% rate of core inflation that the government has reported over the past 12 months (and should therefore be considered undeniably easy), the more important question to ask is into what environment the Fed is apparently turning this page.
By Michael Pento – Re-Blogged From http://www.PentoPort.com
Wall Street’s proclivity to create serial equity bubbles off the back of cheap credit has once again set up the middle class for disaster. The warning signs of this next correction have now clearly manifested, but are being skillfully obfuscated and trivialized by financial institutions. Nevertheless, here are ten salient warning signs that astute investors should heed as we roll into 2016.
B Peter Schiff – Re-Blogged From Euro Pacific Capital
Over the past year, while the U.S. economy has continually missed expectations, Federal Reserve Chairwoman Janet Yellen has assured all who could stay awake during her press conferences that it was strong enough to withstand tighter monetary policy. In delivering months of mildly tough talk (with nothing in the way of action), Yellen began stressing that WHEN the Fed would finally raise rates (for the first time in almost a decade) was not nearly as important as how fast and how high the increases would be once they started. Not only did this blunt the criticism of those who felt that the delays were unnecessary, and in fact dangerous, but it also began laying the groundwork for the Fed to do nothing over a much longer time period. To the delight of investors, the Fed has telegraphed that it will adopt a “low and slow” trajectory for the foreseeable future and move, in the words of Larry Kudlow, like “an injured snail.”
By Peter Diekmeyer- Re-Blogged From http://www.sprottmoney.com
In a recent survey not a single major central bank could provide an example of an accurate “a priori” recession forecast. The silence from the Federal Reserve, European Central Bank, BOE, BOJ and the Bank of Canada is deafening.
Precious metals investors rely heavily on economic projections when deciding where to put their money. But there’s something fishy in the land of mainstream forecasting. The US economy is now in its seventh year of recovery; however, Fed officials project growth as far ahead as the eye can see.
The Fed isn’t alone. Despite the fact that the US economy contracts for two consecutive quarters every six or seven years and is on schedule to do so again soon, not a single major central bank is forecasting a US recession as its baseline scenario. Why is that?
A miserable forecasting record
The Fed’s lousy forecasting record is well known. The US central bank completely missed predicting the 2008–2009 financial crisis and ensuing recession. Worse, it has consistently issued over-optimistic projections since then. Less well known is the fact that the US central bank appears to have never accurately forecast a recession before the country was already in one.
By Alasdair Macleod – Re-Blogged From http://www.Gold-Eagle.com
“I can prove anything by statistics except the truth” – George Canning
Canning’s aphorism is as valid today as when he was Britain’s Prime Minister in 1817. Unfortunately, his wisdom is ignored completely by mainstream economists. Nowhere is this error more important than in defining economic activity, where the abuse of statistics is taken to levels that would have even surprised Canning.
Today we describe the economy as being in one of two states, growth or recession. We arrive at a judgment of its condition by taking the sum total of the transactions selected by statisticians and then deflating this total by a rate of inflation devised by them under direct or indirect political direction. Nominal gross domestic product is created and thereby adjusted and termed real GDP.
The errors in the method encourage a bias towards a general increase in the GDP trend by under-recording the rate of price inflation. From here it is a short step to associate rising prices only with an increase in economic activity. It also follows, based on these assumptions, that falling prices are to be avoided at all costs.
Assumptions, assumptions, all are assumptions. They lead to a ridiculous conclusion, that falling prices are evidence of falling demand, recession or even depression. Another of Canning’s aphorisms was that there is nothing so sublime as the truth. There’s no sublimity here. If there was, the improvement in everyone’s standard of living through falling prices for communications, access to data, and the technology in our homes and everyday life could not possibly have happened.
