Blog Archives

After 10 Years of “Recovery,” What Are Central Banks So Afraid Of?

The “recovery”/Bull Market is in its 10th year, and yet central banks are still tiptoeing around as if the tiniest misstep will cause the whole shebang to shatter: what are they so afraid of? The cognitive dissonance / crazy-making is off the charts:

On the one hand, central banks are still pursuing unprecedented stimulus via historically low interest rates, liquidity and easing the creation of credit on a vast scale. Some central banks continue to buy assets such as stocks and bonds to directly prop up the “market.” (If assets don’t actually trade freely, is it even a market?)

On the other hand, we’re being told the global economy is in synchronized growth and this is the greatest economy ever in the U.S. and China.

Wait a minute: so the patient has been on life-support for 10 years and authorities are telling us the patient is now super-healthy? If the patient is so healthy, then why is he still on life support after 10 years of “recovery”? If the global economy is truly healthy, then central banks should end all their stimulus programs and let the market discover the price of credit, risk and assets.

If the economy is truly expanding organically, i.e. under its own power, then it doesn’t need the life-support of manipulated low interest rates, trillions of dollars in central bank asset purchases, trillions of dollars in backstopping, guarantees, credit swaps, etc.

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Interest in Bitcoin Surpasses Interest in Gold as Conservative Investors Join the Fray

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Bitcoin is not slowing down despite the fact that traditional Wall Street analysts and institutional investors tend to be somewhat wary of its long-term prospects. Bitcoin has consistently broken resistance points in its ascent and the cryptocurrency is trading in a range between $11,400 and $12,000 per BTC.

Interestingly, some people seem to believe that Bitcoin is another passing fad akin to the tulip bulb mania of the eighteenth century. In fact, JPMorgan CEO, James Dimon doesn’t miss an opportunity to rile the cryptocurrency – he even went as far as calling Bitcoin a fraud in September.

Yet, the reality is that Bitcoin seems to be waxing stronger with each passing day. In fact, many traditional investors who had previously warned against the speculative nature of Bitcoin are starting to consider the possibilities of profiting from the cryptocurrency.  (more…)

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Stock Market 2018: The Tao vs. Central Banks

I will be the first to admit that invoking the woo-woo of the Tao as the reason to expect a reversal of the stock market in 2018 smacks of Bearish desperation. With everything coming up roses in much of the global economy, there is precious little foundation for calling a tumultuous end to the global Bull Market other than variations of nothing lasts forever.

Invoking the Tao specifically calls for extremes to return or reverse to the opposite polarity: this is expressed in the line from Lao Tzu, The way of the Tao is reversal or Reversal is the movement of Tao.

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We Can Only Afford One, So Choose Wisely: Social Security/Medicare, Cartel Cronyism or Inflation (Central Banking)

It’s easy to quantify the annual cost of Social Security/Medicare, and not so easy to calculate the cost of Cartel Cronyism and Central Bank-created inflation.Cartel cronyism is a hidden tax on the entire economy, as is Central Bank-created inflation.

That makes it easy for the financial-political Oligarchy to continue their skimming operations, because nobody says Cartel Cronyism cost us $1 trillion last year, and central bank skimming (inflation) cost us another $1 trillion.

The stark reality is there are limits on what we as a nation can afford in the long term. Borrowing trillions of dollars annually at low rates of interest creates a magical-thinking illusion that we can just tack on another $10 trillion, or what the hay, make it $100 trillion, and get away with it, because we’ve gotten away with it so far.

This leaves us an equally stark choice: we can only afford one of these three crushing costs:

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Central Banks = Welfare for the Wealthy

The fact that central banks provide welfare for the wealthy is now entering the mainstream. The fact that all central bank policies since 2008 have dramatically increased wealth and income inequality is now grudgingly being accepted as reality by mainstream economists and the financial media.

The central banks’ PR facade of noble omniscience on behalf of the great unwashed masses has cracked wide open. Even The Wall Street Journal is publishing critiques of Federal Reserve policies that suggest the Fed has no idea how the U.S. economy actually works because their policies have failed to help the bottom 95%.

The grudging admission that central bank policies have enriched the rich while failing to benefit the bottom 95% is a breakthrough–the stone wall of denial has finally been pierced.

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Governments Change, the Corporatocracy Endures

One little-remarked consequence of the central banks’ policies of near-zero interest rates and quantitative easing is the unrivaled dominance of mobile global capital, i.e. the Corporatocracy. The source of corporate political power is the ability to borrow essentially unlimited sums for next to nothing: what I have long termed free money for financiers.

Armed with central-bank supplied unlimited credit, global capital can outbid local residents and businesses. Over time, profitable enterprises and assets end up in corporate hands.

Consider the typical family farm, not just in America but in Germany, Australia, etc. It’s hard work squeezing a livelihood from the land in a market dominated by a handful of global corporate giants and their state handmaidens, and so unsurprisingly many in the next generation have opted for corporate-state jobs in urban areas rather than shoulder the financial risks of continuing the family farm.

A neighboring farmer might be interested in buying, be he/she will have to borrow the money at (say) 4%.

The global corporation can sell bonds (i.e. borrow money) at less than 1%. The lower cost of capital enables the corporation to outbid local farmers for the land, and this low cost of borrowing also enables the corporation to fund capital-intensiveeconomies of scale that are beyond the reach of family farms.

The net result is the nation’s farmland, its core productive asset, slides inevitably into corporate ownership. Anyone who resists selling out is crushed by low prices (corporate farms can over-produce and survive low prices, family farms cannot), or they are crushed by the disadvantages of being an “outsider” selling to the corporate supply chain, which favors in-house suppliers or large corporate producers.

The same dynamic–the unparalleled power of cheap credit–leads to corporate ownership which then funds corporate dominance of the political process.Consider building a house for your family. You’ll need construction financing, and since that’s riskier than a conventional mortgage to buy an existing home, that will cost you between 4% and 5%, and requires thousands of dollars in fees.

The corporate homebuilder can borrow at 1%. Guess who’s construction costs are cheaper?

As corporations buy up productive assets, they consolidate these assets into cartels and quasi-monopolies that can be protected from competition by lobbying and campaign contributions. Once you can buy up productive assets with cheap borrowed money, the profits start piling up, and you can use a thin sliver of these profits to hire lobbyists and buy political favors/protection from politicos desperate to cling onto their power.

The net result of unlimited credit for corporations is a Corporatocracy that constantly expands its financial and political power. And the net result of this corporate control of governance is: governments come and go, candidates come and go, and political movements come and go, but the Corporatocracy remains in charge.

If interest rates were 10% for everyone and every entity, individuals and small enterprises that had saved up cash could outbid corporations, which habitually get crushed in downturns by high interest payments. At zero interest rates, corporations can outbid savers, households and small businesses, who don’t get to borrow billions of dollars at near-zero rates from central banks.

Loan me $10 billion at 0.25% annual interest and I’ll assemble some profitable assets, too. Any of us can get obscenely wealthy if we have an unlimited credit line at .25% annual interest (i.e. essentially free money).

Ultimately, the dominance of global capital (the Corporatocracy) is not financial– it’s political. The populace and their elected leadership either allow corporations to dominate (via central bank policies) or they strip the central banks of the power to create a dominant Corporatocracy.

The choice is ours–or it used to be. No wonder voting fraud is the tool-du-jour of the Corporatocracy’s political toadies in the U.S.. It’s far too dangerous to actually let the Great Unwashed taxpayers make political decisions; they might oust the central bankers, and if they did that, the corporatocracy and their political toadies would suffer an inevitable decline as their free-money spigots were turned off.

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If You Want to Limit the Power of the Super-Wealthy, Stop Using their Money

Many well-meaning people want to limit the wealth and power of the super-wealthy, i.e. the Financial Aristocracy/Oligarchy. (For more on the modern class structure, please see America’s Nine Classes: The New Class Hierarchy.)

Reformers have suggested everything from a global tax on wealth (Piketty) to publicly owned banks to limiting the pay to play circus of campaign contributions.

None of these will change the power structure or limit the super-wealthy. as I explained last week, If We Don’t Change the Way Money Is Created and Distributed, We Change Nothing. The super-wealthy will either move their capital elsewhere, derail the reforms, or have their political lackeys water the reforms down to the point they are nothing but a politically useful illusion of “change.”

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Plunge Protection Teams of the World, Unite!

Central bankers are watching Marx’s dictum all that is solid melts into air play out in global stock markets with a terror informed by the scalding memories of 2008’s global financial meltdown.

Once the trap-door opens, there is no bottom without prompt action by the world’s Plunge Protection Teams–the plausible-deniability action heroes of the hyper-speculative status quo who leap into action when global stock markets threaten to melt down.

After half a decade of ceaseless saves, we all know the mechanics of Plunge Protection.

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Russia Buys 18.6 Tonnes Of Gold In June – Currency Wars Intensify

Aggressive buying of gold and particularly silver by Russia will likely lead to defaults on the COMEX gold and silver futures exchanges and potentially an international monetary crisis. As sanctions, economic war and currency wars intensify we expect Russian and Russian ally buying of gold reserves and selling of dollars to intensify … (more…)

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The Essential Role of Volatility, Stress and Dissent

The individual or system that never experiences dissent, volatility or stress is systemically unhealthy and increasingly prone to sudden “gosh, I didn’t see this coming” collapse.

To say that volatility, stress, dissent are not just healthy, but essential for maintaining health sounds counter-intuitive. On an individual level, we try to avoid exertion, stress and crisis, and on a larger systemic level, our institutions devote enormous resources to minimizing systemic volatility and suppressing dissent.

In other words, the notion that stress and dissent are to be avoided is scale-invariant: it works the same for individuals, households, enterprises, economies, governments and empires.

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Germany’s Central Bank Proposes “Wealth Tax” On Depositors

The Bundesbank said that the levy would have to be a one-off “imposed in conditions of extraordinary national crisis”, in order to limit negative consequences for investment, and potential capital outflows.

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[KR549] Keiser Report: Shrinkflation

We discuss the moral sink estate that is the City of London where dealers sell debt crack on street corners and many old ladies have their pensions stolen. They also discuss the corruption of the leveraged buyout whereby now whole nations are stolen using the nation’s own assets and resources as collateral and now, with the TPP deal, the globe is about to be taken for cheap. In the second half, Max interviews investment adviser, Pippa Malmgren, a politics and policy expert who used to be Special Assistant to the President of the United States for Economic Policy on the National Economic Council and former member of the US President’s Working Group on Financial Markets. They discuss ‘shrinkflation,’ inflation and the Plunge Protection team.

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