In order to understand the relationship between money creation and the price level, we first need to get some definitions straight.To Austrians the terms inflation and deflation refer to money and not prices. There is no doubt that money has experienced unprecedented inflation. In February of 2010 base money was $2.1 trillion. Four years later it was $3.8 trillion. In the same time frame, M1 has increased from $1.7 trillion to $2.9 trillion. M2 has gone from $8.5 trillion to $11.7 trillion. Excess reserves have doubled from $1.2 trillion to $2.4 trillion. (Please keep in mind that prior to 2008 excess reserves seldom were more than a few BILLION dollars, which is effectively zero and represented mostly the aggregate of excess reserve cash in thousands of community bank vaults.) To Austrians changes to the price level, what the public incorrectly calls inflation and deflation, are the result of changes to the aggregate demand for consumers’ goods and the aggregate supply of consumers’ goods. Think of a simple ratio with the numerator representing demand and the denominator representing supply. Notice that an increase in supply will cause the price level to fall. Aren’t we all happy with this? I am. Or a decrease in demand will cause the price level to fall. There can be many causes of a decrease in demand–a fall in the money supply due to bank failures, a change in subjective time preference to save more, or a rational desire to hold more cash during times of uncertainty. None of these are bad for the economy per se. Whatever the cause, the antidote to a fall in demand is falling prices. The relationship between supply and demand must be re-established. The point I am trying to make is that it is fruitless to attempt to prop up prices with more money creation, as the unprecedented increase in all categories of money in recent years has shown. In fact, excess reserves represent the potential for a massive increase in the money supply. The ratio of mandatory reserves to M1 is around 3%. The ratio of mandatory reserves to M2 is around 1%. Just do the math to find out the mathematical potential increase in the money supply should the banks eventually be able to convert excess reserves into mandatory reserves via the lending process. Keep in mind that this is exactly what the government WANTS banks to do; i.e., make more loans to supposedly stimulate the economy. An increase in the demand for goods of this magnitude, the numerator of our simple equation, would cause the price level to skyrocket perhaps to hyperinflation levels. Therefore,digging even deeper into our problem, one finds that legal tolerance for fractional reserve banking is at the heart of the problem. Fractional reserves allow banks to create money out of thin via the lending process. Instead of funding an increase in loans by an increase in real savings, loans are “funded” by…well…nothing. This triggers the Austrian business cycle. Production, the denominator in our simple equation, falls. When supply falls, prices rise. Creating even more money will not help the situation, only exacerbate it. Hyperinflation is a cancer that lurks in our monetary structure. Time to surgically remove it before it metastasizes.
As Athens prepares to try and convince eurozone creditors that its latest set of proposed reforms represents a credible attempt to address Greece’s fiscal crisis, and as Greek depositors face the very real possibility that they will soon be Cyprus’d, a leverage-less Alexis Tsipras faces a rather unpalatable choice: bow to the Troika which “wants real reforms… meaning that Greece finally has to implement some/any of the long ago promised and never delivered redundancies in the government sector,” or to quote Credit Suisse, be “digitally bombed back to barter status.” Unfortunately for the Greek populace, the latter seems to be far more likely than the former. Here’s WSJ:
Greek proposals for a revised bailout program don’t have enough detail to satisfy the government’s international creditors, eurozone officials said, making it more likely that Athens will need to go several more weeks without a new infusion of desperately-needed cash…
“The proposals were piecemeal, vague and the Greek colleagues could not explain technically what some of them actually implied,” a eurozone official said. “So, let’s hope that they present something more competent next week.”
Senior eurozone finance officials will hold a teleconference on Wednesday to discuss the situation, officials said. But they said it is highly unlikely eurozone ministers will meet before mid-April to release more money for Greece. That means Athens will have to scrape together cash to pay salaries and pensions at the end of the month and make a €460 million debt repayment to the IMF on April 9.
As a reminder, here are two charts which demonstrate the urgency of the situation:
Despite what is unquestionably a rather dire outlook, Athens does have one card it has yet to play, because as we noted last week, “once the first week of April comes and goes and Greece officially runs out of money, it will go to anyone who can provide it with the funds needed to avoid civil war, even if that means switching its allegiance from Europe to the Eurasian Economic Union, something Russia is eagerly looking forward to, and something we predicted would be the endgame months ago.” With the Tsipras/Putin meeting now just a little over a week away, you can bet that Moscow will not squander an opportunity to procure a bit of leverage over Europe in the face of an increasingly contentious situation in Eastern Ukraine. In fact, Moscow is calling Tsipras’ visit a “big event” and has indicated that any request for financial assistance would be “examined.” Here’s more via ekathimerini:
“We are certain that the Greek prime minister’s working visit to Moscow will be a big event for our bilateral relations,” said Russian ambassador Andrey Maslov. “The possibility of further cooperation in trade, energy, technical military issues, education and culture will be examined.”
Maslov said that any request from Athens for a loan would have to be “examined very carefully” because of Greece’s euro membership. “If the Greek government submits a request for a loan, it will be examined – as Foreign Minister Sergey Lavrov said after meeting his counterpart Nikos Kotzias and as Russian Finance Minister Anton Siluanov has said,” the Russian ambassador told Kathimerini.
Maslov played down the possibility of Moscow lifting the embargo on food imports from Greece or other European Union countries as long as the EU keeps its sanctions on Russia in place. However, the ambassador praised Athens for helping prevent a rift in the EU’s relations with Russia.
“We are grateful for Greece’s efforts in helping ease the tension in relations between Russia and the EU, which is mainly due to the sanctions,” he said. “The stance of our Greek partners and other EU member-states during the council of foreign ministers in January and at the EU leaders’ summit in February prevented the hawks... from creating a permanent rift in Russia-EU relations.”
This may indeed represent an opportunity for Moscow to conduct a quasi-annexation-by-loan (as opposed to by force) and besides, any money funneled to Greece will ultimately end up back in Moscow anyway because any cash Athens manages to scrape together to pay the IMF is essentially diverted straight to Kiev which as we’ve said before, “is just as broke as Greece, and needs to pay Gazprom yesterday to keep gas deliveries coming, with Gazprom promptly remitting the funds into Putin's personal money vault.”
We’ll leave you with the following from ekathimerini:
“Pressures on Greek bank deposits have continued in March, with sector officials estimating that households and enterprises have withdrawn a net 3 billion euros in the first weeks of this month.”
A Green Beret’s Guide To Low-Budget Home-Defense Techniques 101: “Early-Warning Systems and Fortifications”
Jeremiah Johnson is a retired Green Beret of the United States Army Special Forces (Airborne) and a graduate of the U.S. Army’s SERE school (Survival Evasion Resistance Escape).
This article is the first in a series that covers hardening your home and some easy, low-budget alternatives for early-warning systems and fortifications. For all the prior service members (especially 11-Bravos), parts of this will be basic: this info is especially for those who haven’t been in the military to introduce them to some fundamentals. Please bear with me and do not feel insulted.
We need to define a few terms that I hope you’ll come to use: cover, concealment, and camouflage.
Cover provides you with just that: a certain amount of protection (depending on materials used) from small-arms fire up to the dam-dam (artillery). Cover places that material between you and the aggressor to protect you from bullets, spears, etc. Examples are walls, foxholes with sandbags, or log piles.
Concealment, on the other hand, shields you from view, but doesn’t necessarily provide you with physical protection from attackers. Examples here are thick hedges, bushes, or screens (such as for a duck blind). You can have both: a sandbagged fighting position (FP) with a hedge having its top running the length of the front parapet and slightly above it, obscuring the FP from view. The hedge could also serve as camouflage of its own physical merit.
Camouflage is the art of blending men or materials with the surroundings: a disguise. The camouflage should be dictated by season, terrain, climate, and whether an urban or rural environment. Obviously if you’re in downtown Chicago, you may be noticed wearing BDU’s and a drive-on rag, camo’d up and bedecked with small cut tree branches akin to the Swamp Thing. You may also wish to reconsider walking around as a one-man forest with artificial leaves in the dead of winter. The object is to blend into your surroundings as called upon by the moment/time of the year.
All three factors can complement and mutually support one another: a protective masonry retaining wall (cover) behind some thick bushes (concealment) with happy flowerbeds in between the bushes (Better Homes and Gardens Suburban Camouflage). You’ll have to take time to carefully spec out what features your property has and what you’ll need to add or detract. Remember this rule: do not permit your attacker to be able to use the FP against you in such fashion.
Now let’s cover windows. Tiny Tim may wish to tiptoe through the window with a Molotov. You can put a stop to this by covering the exterior of the windows with wire mesh. I strongly recommend 2”x 3” rectangular wire-mesh/re-wire; either galvanized or coated, the heavier the gauge the better. The wire doesn’t obscure any view and can accommodate your muzzle for a firing port (on movable windows that open). The wire will help deflect rocks, grenades, and Molotov’s, the latter, I must say from experience being very bad. A marauder can throw a log through it to pave the way for the Molotov, but the wire can buy you the time to deal with him first.
Wire that doesn’t match your house can be painted with all-weather paint for metal using a brush or roller. You can pre-measure your pieces and then attach them to the casing or the house with those U-shaped nails that electricians use. The more the merrier, at the farthest edges all around to negate a pry-bar. I strongly recommend this way, as screws can be unscrewed. Very important: make sure there’s space between the window and the wire, to allow some give for the marauder’s projectile. You may have to build it up on all sides with 2”x 4”’s to provide that space, but it beats a barbeque.
Walk your property. Note down and commit to memory every critical distance and feature: front door to front gate, length and breadth of ground, dead space, and possible places for attacker cover and concealment. Have your whole family participate and make it a group endeavor, taking special care to teach the kids the “why” part. Assign each family member/cohabitant an area of responsibility to defend. The Eighty-Deuce [I was in B Co. 2nd BN, 504th PIR (ABN) before I went SF] was great with repetition. Our First Sergeant’s favorite sayings were “Repetition promotes a good follow-through,” and “How you train is how you’ll fight.” Sound and true advice.
Training and emergency drills for your family will cut down on the confusion should anything occur; repetition could be the deciding, winning factor for your family’s engagement. I also highly recommend Motorola’s, one for each family member. Teach them good commo and radio discipline and how to keep it short and sweet (KISS principle in effect). Vox’s free your hands but they don’t have great range and solid objects such as walls can interfere with them. Motorola’s are simple. Keep it simple.
If you’re in an area and State that you can do it, fence off your property and put a securable gate on it. The fence can be supported/strengthened by blending natural and man-made defenses that will prevent or slow vehicles from entering a point other than the gate. The gate is exactly where I want them. Channel your attacker. Funnel him into the areas he will be vulnerable to you. Make sure to post signs inside of your fence about 10’ back and visible everywhere: No Trespassing/Keep Out/Private Property.
If you can swing it, run the aforementioned rewire all around the fence on the outside (if it’s split-rail and post). Cut stumps with their roots still attached make excellent “buffers” for the outside of your fence. Space these about 10’ outward. When snowfall comes, they won’t be able to be used as “Evel Knievel” ramps.
With electronic sensors and surveillance you’ll have to tailor your system to fit your needs also taking budget, geographic location, and climate into account. Here in Montana IR sensors aren’t too effective with steady temperatures of -20º F, not to mention if an EMP ever occurs. If you have such a system, I recommend hooking them to an internal chime in your bedroom and not into lights. If the intruder enters the property, the lights will let him know you’re alerted and light his way for him. He’s already trespassing on posted property with dubious intentions; hopefully the “Castle Doctrine” applies to your state. Better to localize him to the sensor he tripped, alert your family quietly, grab your NVG’s, and deal with him.
I’m sure many of you have my mindset: preferring the Lensatic Tritium compass to the GPS-gadget.
Here’s a low-budget “Uncle Caveman” alert system for you: 15-20lb-test nylon line, eye hooks, and cup hooks for a tripwire perimeter. Secure one end stationary, and the free-running end tie to a bunch of aluminum cans with pebbles in them. You can cover the whole perimeter of the house. Just make sure you shield the cans from moisture and wind as much as possible. Know where they are: you should practice walking around your house in the dark and knowing by feel how to avoid tripping them.
Mirror, mirror, on the wall: show those trolls who crouch and crawl! Mirrors (4” to 6” round or square, convex are preferable) can be positioned on the corners of your porch and outside your windows. You can also set long dressing-type mirrors outward from the corners of your home. Is Tiny Tim squatting next to that front porch wall, with a baseball bat? The mirror can show you. Remember, they’re light dependent, and they also work both ways. You must practice with them and train your eyes to use them regularly so that it becomes habitual.
Remember with all of this, training for each and every member of your household is vital; with this training will come good feelings of confidence that will help quell fear and panic if an emergency arises. It is good to train as a team. Success brings family bonding and will help each of you develop confidence in one another, as well. May it never have to be put into action, I wish for you. In the next article we’ll cover tactics and defenses in depth for the home, and go deeper into the fortifications. Finally (CYA-policy), be sure to check out all laws and regulations prior to taking any actions or utilizing the information in this article. Have a great day!
Jeremiah Johnson is the Nom de plume of a retired Green Beret of the United States Army Special Forces (Airborne). Mr. Johnson is also a Gunsmith, a Certified Master Herbalist, a Montana Master Food Preserver, and a graduate of the U.S. Army’s SERE school (Survival Evasion Resistance Escape). He lives in a cabin in the mountains of Western Montana with his wife and three cats. You can follow Jeremiah’s regular writings at SHTFplan.com.
This article may be republished or excerpted with proper attribution to the author and a link to www.SHTFplan.com.
This past Friday saw what many like myself can only describe as a blatant example of just what’s wrong with both the economy – as well as the markets.
At precisely 15 minutes before the closing bell on Wall Street the now Chair of the Federal Reserve, Janet Yellen gave a press conference detailing further insights into upcoming monetary policy. I guess two days worth of FOMC discussions, along with a press conference detailing all that was discussed immediately after, followed by a question and answer session about all those “insights and decisions” wasn’t enough. For the markets remained red for the week while losing all its post FOMC pop which in itself is an ominous sign.
At first blush some might contend, “Well, that’s a good thing they decided to communicate even more. Best to have any and all the information available as soon as possible. After all: more information is always better for the markets – no?”
Yes it is, however, when it exposes just how cozy (as well as frightened) monetary policy setting has moved from the appearance of setting beneficial policies that help ensure a free and open capitalistic system – to one hell-bent on serving a newer more dominant form of crony styled capitalism rampant within our markets. Where winners and losers are decided solely on their ability to manipulate their bottom line earnings “beat” via access to resources made possible only via the Fed.’s current zero bound stance. (i.e., ZIRP) I don’t believe that was their original intent.
If you were one of the few (i.e., not one of the Wall Street “In crowd”) that watched and listened to that presser on Friday. You were left dumbfounded on just how illogical, as well as contradictory nearly every example given was as to what one should now infer about what the Fed. is going to do next – and when.
So convoluted was both the rationale as well as examples given, I concluded: there was no other intent for this presser other than to signal the “In Crowd” – You better get the heck out of Dodge because we’ve painted ourselves so deep into a corner this is probably the last time you’ll have a chance as to “paint the tape” in any upcoming quarters. For we might actually have to do what we implied (e.g., raise rates) regardless – just to keep up the appearance that we’ll do what we say. Even if so doing means – creating turmoil. So don’t say “we didn’t warn you.” (i.e., We’ve changed the meaning of “data” so many times now even we can’t figure out what it means or, what we should do any longer!)
Certainly total conjecture on my part. However, if you listened to the rational and explanations given about “data” and “the economy” – nothing made sense. Everything was conflicting not only in the examples but also the tenor and tone. Here are a few examples of what I mean: (I’m paraphrasing)
“The economy has improved considerably, that’s why we need to continue the extraordinary measures we’ve been implementing.” Huh?
Or better yet: “We see continuing improvement in the labor force and expect even further improvement.” (as they seemingly disregard the only sector that provided all that month over month, year over year boost in honest job formations, e.g., oil related sectors in States which has now dramatically fallen off a cliff with massive layoffs already announced, as well as the possibly of accelerating further as the price of oil drops ever more.)
And last but surely not least, “We see continued growth in upcoming quarters of GDP.” (As long as you don’t pay any attention to the latest Atlanta Fed.’s report that’s downgraded its GDP forecast from just over 2% which by itself was pitiful, to now just 0.2% faster than one can say “everything was is awesome!”)
The timing of this reprise in conjunction with the latest FOMC’s conference just a week ago was quite instructive in my opinion. I mean, think about it: Fifteen minutes before the closing of the markets on the very day of the quarter ending? Isn’t it just funny how the timing of this presser coincided with allowing for the opportunity as to “paint the tape” if needed? Along with the additional 15 minutes of the later closing futures market as to hedge for Monday’s opening? Again, “if needed” as in – just in case what you heard went against your current positions. The serendipity of that coincidence is an amazingly funny thing – no? I firmly believe this presser was nothing more than a contorted effort by the Fed. to signal what many like myself have been anticipating since the ending of QE just a few months ago: They’ve lost control.
I theorize the Fed. was trying to accomplish two things.
One: State for the record publicly as many C.Y.A. statements as possible regardless of how contradictory.
And two: Warn (i.e., signal “The In Crowd”) that because they’ve painted themselves into such a tight corner that messaging and more is now a useless exercise. The only way they’re going to be able to adjust going forward or, further intervene within the markets is: If and when a calamity is upon us. Or better said – If, and when the markets fall apart. And “when” just might be a whole lot closer to reality – than “if.”
All one has to do is be willing to look at the “true” data with eyes open and a rational open mind to see what’s taking place. Everything (and I do mean everything) as to what the Fed. said should be taking place via their intervention 6 years ago not only is not. Rather: it’s coming unglued, as well as beginning to run off the rails. Nearly every report released since the ending of QE that was previously always indicating “awesomeness” is now indicating borderline if not outright pathetic-ness.
We are entering our first (yes 1st!) earnings period since QE was halted just a few months ago and what are we beginning to see and hear? All those projections and assurances made by the so-called “smart crowd” that “this time is different” are suddenly changing their tune to “Well you know we’ve had so much improvement surely a pause is warranted.” Sure it is. And they call us “idiots.”
The unemployment rate is and has been an absolute joke having more in common with fairy-tales than anything factual. GDP has gone from poor to worse. And remember when you were told that 5% GDP print wasn’t an outlier but “indicative of the recovery” by the so-called “smart crowd?” How’s that meme working out?
The Dollar is still screaming higher making imports cheaper, and our exports non-competitive. Remember we were told by this very same crowd “we were going to export our way to prosperity soon?” I know, I can barely type as I chuckle also.
Reduction in oil prices were going to put “more money in consumers pockets to spend helping to boost the economy.” Problem is all that “free” healthcare now costs far more than the potential “gas savings.” But hey, don’t complain. For without having to now spend more on healthcare – retail spending would be far, far worse. And this is just a handful of the boatloads of fundamentally flawed data reports we were besieged with by the so-called “smart crowd” ad nauseam as to continue their narrative of “everything is awesome!”
However for the rest of us that have questioned such reports over the years we’ve been branded as: uninformed – data deniers. Personally I just might go out and get a t-shirt made stating just that. On the front I’ll have: “I’m a data denier – and proud of it!” And on the back it’ll read: “I believe in critical thinking – That’s why you wont see me on CNBC™.”
It’s not just here in the U.S. where the once burgeoning commodity sectors like oil and gas, as well as others such as steel, and more are now getting bludgeoned. The entire shale industry for one is beginning to buckle under the weight of falling prices. Canada is now beginning too feel the effects. And these ripples are far from over – they’re just beginning. Remember oil and such helped insulate Canada from a downturn in housing such as we had here. By the most recent reports that all seems to have now changed. And the implications for our friends to the north could be dramatic.
How about China? That once rejoiced “savior” of the economic world is itself having a harder, and harder time trying to dismiss (as well as cover up) clearly visible signs of economic weakness. Here’s where I’d also like to bring attention to one economic fact squarely staring the world down with implications just as far-reaching as the latest oil carnage. And: with possibility the same effect to the repricing of everything everywhere. This ominous scenario alone seems lost across the financial media.
How can one not derive the implications on the market forces associated with the decision of the Saudi’s to continue pumping at record levels and at lower prices as to help preserve their market share with the added benefit of simultaneously crushing as many as possible competitors: and not see that pretty soon China is going to do, in effect – the very same thing with everything it exports? Once it begins just like with oil – It will crush pricing power (on everything from trinkets to commodities) globally in my opinion.
This is the world the Fed. has wrought with leaving the punchbowl out far too long after everyone at the party was clearly inebriated. Instead of wisely pulling the bowl back and away (at the least in 2012 or there about) while everyone was passed out. They decided it would not only be better to remain – but continued refilling it as the one’s with an affinity for risk gulped more and more down their gullet acquiring shares in any sector they thought provided yield.
And if you’re in Asia? Sectors be damned! It’s a straight Kamikaze spree into the Nikkei™ or better yet, Shanghai Composite™. There you don’t discern. You just buy, buy, buy in way that would make Cramer envious. All while using multiples of margin never before seen in the history of that market. What could possibly go wrong? And I haven’t even mentioned Greece, or The EU.
Again this is what I believe the Fed. has finally come to terms with. The realization that control is no longer an option. It’s been a mirage that’s held up far longer than originally anticipated. The monster has now grown far too big and dangerous while possibly exposing to their dismay – the only way they might have a shot of regaining some stability for future control is to let it fall apart: as they stand by and watch hoping to “thread the needle” for further intervention just in time. Along with trying to have some C.Y.A. assurance to the “In Crowd” that “Hey – we tried to warn you!” if it indeed does exactly that.
At issue is, even if I’m only partly correct. What should scare the heck out of any critical thinking person is: With everything we’ve witnessed over the last 6 years, along with what is now transpiring which is scarier?
A Fed. that may be signalling they’ve lost control? Or, a Fed. that still believes “Don’t worry – we’ve got this!”
Greece was brought to her knees at the hands of its corrupt political class elites with the full support of an avaricious int'l banking cabal. Please don't put the blame on the little old lady pushing her Gyro cart up the steep streets of Kolonaki. She was perfectly within her rights to assume that the political leadership of her country knew what the hell they were doing managing her distinguished nation's finances.
Yet today, she has taken the full brunt of the fiscal pain, while those most responsible for this massive over leveraged abomination, namely the Greek political family dynasties and their complicit int'l banksters, continue to bask in the sun off of Mykonos on their luxury yachts.
Along with the privilege of leadership comes responsibility, too easy to blame the little people for all of this mess.
The first mandate SYRIZA obtained from the sovereign electorate, who rightly rejected the corrupt old-guard Greek political establishment, was to offer to negotiate a more rational, realistic and productive debt repayment schedule / structure with the TROIKA. That is what Alexis Tsipras & Yanis Varoufakis have tried diligently to accomplish thus far, if they fail because Brussels insists on sucking blood from a rock, then the next mandate is to leave the Eurozone, and for that they will require a national referendum from the Greek people themselves. Tsipras is much smarter than many give him credit for, he knows that he must progress conservatively and as constructively as possible, in order not to be pigeon hold as an extreme radical, which the EU establishment is so desperately trying to paint him as.... Make no mistake, the international banking cartel of today's world are on a mission to dismantle the sovereignty of all people. Greece is the first nation to fully recognize and realize this craven conniving cataclysm. This Multilateral Central Banking Cabal and it's high finance agents are planning to transition to a new international monetary order by devaluing the USD, as they fold it into the SDR world reserve currency, backed by a basket of the existing currencies of the major trading block nations. This will serve to both ease the burden of the most indebted nation in history, the U.S., by permitting its outstanding debt denominated USDs to be debased, as well as appease the creditor nations, who will agree to have their US dollar denominated debt holdings devalued, because they now require a true stake in the globe's future monetary system moving forward. The only question remaining is will the global economy be in tatters before we get there........ It's a monumental trade, the U.S. gives up exclusive world reserve currency status, and in return its outstanding debt, largely held by the creditor Nations of the East, gets devalued along with its currency.. Worst of all, the Multilateral Central Banking Cabal doesn't miss a beat, and actually further consolidates its firm grip on the global monetary order, as National Sovereignty takes a back seat to a Global Corporate/Banking Autocracy, otherwise known as Fascism or Pimpocracy! I may not agree with all of SYRIZA's politics, but I wholeheartedly back anyone who exposes the veritable and ugly truth about those who mendaciously manipulate our monetary order for themselves, on the backs and at the expense of the rest of us.
Depending on which side of the story you believe, the crisis in Ukraine represents either an attempt by the Kremlin to realize territorial ambition and reassert Russian dominance in the Baltics by violating other countries’ sovereignty or it represents yet another attempt by Washington to prop up puppet governments with financial and military support in order to advance US foreign policy aims even if that means risking armed conflict. As is usually the case, the truth likely lies somewhere in the middle, although one has to admit that recent events seem to validate the Russian security council’s claims that “the armed forces are considered as the basis of US national security and military superiority is considered a major factor in the American world leadership.” NATO war games along the Russian border and the recent House vote to provide Kiev with lethal aid seem to support Moscow’s assessment, and the dramatic collapse of the Yemeni government is a vivid example of how things can go horribly awry when Washington hijacks the political process in order to install “friendly” leaders in countries The White House deems “strategic” for whatever reason.
That said, it’s in Russia’s best interest to keep geopolitical tensions just high enough to support oil prices (which works right up until other powerful nations decide to use energy prices as leverage in a bid to bring about regime change in Syria) and Moscow is itself famous for sabre rattling. Whatever the case, the conflict in Ukraine has made an impact on the lives of everyday Russians as Western sanctions squeeze the Russian economy. To let Soc Gen tell it however, the Russian people remain, for the most part, resolute in their support not only for President Putin, but for Russia’s position vis-a-vis the rebels in Ukraine.
Here’s Soc Gen on why economic sanctions may become a fixture of Russian life:
Western sanctions have exerted a broad-based negative impact on Russian businesses. The cost of borrowing has climbed considerably not just for sanctioned institutions, but also for other Russian entities. Risk management departments across global enterprises are likely to continue erring on the side of caution, continually assessing the risk of sanctions materializing for counterparties in Russia. Normalization of business practices may only reemerge long after the removal of sanctions. Although this does not mean completely avoiding interactions with Russian entities, businesses and investors are increasingly cautious and selective in their participation…
Western sanctions against Russia may persist indefinitely. Some locals believe in the likelihood of de-escalation later this year, pointing to the lack of political cohesion and unanimity among Europe’s political leaders, and increasing calls for easing of sanctions. Russian businesses believe that escalation of sanctions may be hard to implement, given that they will also hurt European counterparties. Some local asset managers are optimistic on the performance of Russian assets later this year, based on a perceived high likelihood of improvement in geopolitics. Although locals differ in their assessment of the timeline when sanctions may be lifted, they appear united in their support and admiration of President Putin. Few care to speculate on President Putin’s ultimate game plan, or whether one exists, citing the opacity of the situation. With that said, locals broadly concur that Russia would never (again) relinquish Crimea. In this light, Western sanctions against Russia based on its annexation of Crimea may persist indefinitely…
Unsurprisingly, Russians view the conflict in Ukraine in an entirely different light than observers in the West:
The local population’s interpretation of events unfolding in Ukraine and of Russia’s role in the current geopolitical turmoil differs incomprehensibly from the Western or US perspective, with virtually no middle ground. In the hotel where we stayed, over the three days of our visit, Russian state television played a continuous loop of repeated UK- and US negative stories, and those that reflected poorly on the Ukrainian administration. The vast majority of the Russian population believes the official state-sponsored story – that President Putin is pursuing the best possible course of action in defending the rights of Russian speakers everywhere, that the President is not an aggressor and has no territorial ambitions, that the US impinged upon Russia’s national security – and furthermore, that personal financial sacrifices during these difficult times are a source of honour in defence of the country’s national interests. Many locals express conviction that Europe and Russia’s interests are aligned, asserting that both sides desire de-escalation of injurious economic sanctions. Locals further highlight that the US and Ukraine are the sole parties insistent on aggravating the situation – the US by nature of its fundamental antipathy toward Russia, and Ukraine by virtue of its desperate reliance on funding from the international community. The logic goes that Ukrainians need to perpetuate havoc and chaos on the situation, as absent a crisis, funding will dry up for Ukraine.
Chances for a diplomatic solution to current geopolitical tensions appear slim. The irreconcilable characterizations inside and outside of Russia of current geopolitical stress lead us to believe that it is unlikely that understanding / compromise between political parties involved can be achieved via diplomacy. Too much has been invested in shaping the public’s perspective. In turn, this suggests that notwithstanding the lack of political unanimity / cohesion among squabbling European leaders, there is a risk that Western economic sanctions on Russia may remain in place for the foreseeable future.
And the President’s iron grip on the country isn’t likely to loosen any time soon:
President Putin personifies power in Russia. Notably, there are no clear successors to replace the president, as broadly agreed by local sources, with Russia arguably exposed to an over-concentration of power invested in one single individual. Indeed, President Putin is the personification of power in Russia. Not only is there a glaring deficit in checks and balances to President Putin’s political power, there is furthermore no succession plan. Strikingly, although locals are less than thrilled about President Putin’s personal consolidation of power, they are terrified of the prospect of his disappearance from Russian political life, and fear the worst for the country in such a scenario.
There is no obvious, credible challenger to the president thus far. An uprising of political opposition forces surged following the 2011 Duma (State Assembly) elections, amidst strong sentiment that the election results were heavily manipulated. Procedural irregularities persisted in the subsequent 2012 presidential election, in which Vladimir Putin won a third, non-consecutive term as President. However, since then, opposition forces have failed to gain traction with the public, presenting no credible alternative. Currently, President Putin enjoys a sky-high public approval rating of 88%, according to the latest polls.
* * *
So, far from any "de-escalation," it appears a diplomatic solution is becoming increasingly unlikely as both Russia and the West are now pot committed in terms of the enormous effort expended to demonize the other side.
The Financial Crisis of 2007 was the nearest thing to a “Near Death Experience” that the Federal Reserve could have had. One ordinarily expects someone who has such an experience—exuberance behind the wheel that causes an almost fatal crash, a binge drinking escapade that ends up in the intensive care ward—to learn from it, and change their behaviour in some profound way that makes a repeat event impossible.
Not so the Federal Reserve. Though the event itself gets some mention in Yellen’s speech yesterday (“Normalizing Monetary Policy: Prospects and Perspectives”, San Francisco March 27, 2015), the analysis in that speech shows that the Fed has learnt nothing of substance from the crisis. If anything, the thinking has gone backwards. The Fed is the speed driver who will floor the accelerator before the next bend, just as he did before the crash; it is the binge drinker who will empty the bottle of whiskey at next year’s New Year’s Eve, just as she did before she woke up in intensive care on New Year’s Day.
So why hasn’t The Fed learnt? Largely because of a lack of intellectual courage. As it prepares to manage the post-crisis economy, The Fed has made no acknowledgement of the fact that it didn’t see the crisis itself coming. Of course, the cause of a financial crisis is far less obvious than the cause of a crash or a hangover: there are no skidmarks, no empty bottle to link effect to cause. But the fact that The Fed was caught completely unawares by the crisis should have led to some recognition that maybe, just maybe, its model of the economy was at fault.
Far from it. Instead, if anything is more visible in Yellen’s technical speech than it was in Bernanke’s before the crisis, it’s the inappropriate model that blinded The Fed—and the economics profession in general—to the dangers before 2007. In fact, that model is so visible that its key word—“equilibrium”—turns up in a word cloud of Yellen’s speech—see Figure 1. “Equilibrium” is the 17th most frequent word in the document, and the only significant words that appear more frequently are “Inflation” and “Monetary”.
In contrast, “Crisis” gets a mere 6 mentions, and household debt gets only one.
Figure 1: Word cloud (courtesy of tagul.com) of Yellen’s speech “Normalizing Monetary Policy”
What’s evident, when one compares Yellen’s speech to one to a similar audience by Bernanke in July 2007—the month before the crisis began—is that The Fed is just as much in the grip of conventional economic thinking as it was before the crisis. The only difference is that Bernanke’s speech focused on the “inflation expectations” aspect of The Fed’s model—which would be rather hard for Yellen to focus on, given that inflation is running at zero (versus 4% when Bernanke spoke). So Yellen has fallen back on the core concept—that a market economy reaches “equilibrium”—rather than part of the fantasy mechanism by which The Fed believes equilibrium is achieved.
Figure 2: Bernanke’s July 2007 speech “Inflation Expectations and Inflation Forecasting”
Equilibrium. What nonsense! But the belief that the economy reaches equilibrium—that it can be modelled as if it is in equilibrium—is a core delusion of mainstream economics. There was some excuse for looking at the world prior to the crisis and seeing equilibrium—though the more sensible people saw “Bubble”. But after it? How can one look back on that carnage and see equilibrium?
The epiphany that the real world is not in equilibrium is what enabled Irving Fisher to escape from the shackles of conventional thinking after the Great Depression. Prior to the crisis, he achieved fame amongst mainstream economists for extending the conventional “supply and demand” theory to cover finance markets. As part of that theory, he had to assume that the market for loans was in equilibrium at all times—and as a conventional economist, he had no problem in making the necessary assumptions:
(A) The market must be cleared – and cleared with respect to every interval of time. (B) The debts must be paid. (Fisher, The Theory of Interest, 1930)
After his economic theory had led him to personal ruin (Fisher lost over $100 million in current dollar terms during the Crash of 1929) Fisher realised that this false belief in equilibrium was the key delusion that led him astray. His new approach, which he called the “Debt Deflation Theory of Great Depressions”, was predicated on the principle that the economy must be modelled in disequilibrium:
the exact equilibrium thus sought is seldom reached and never long maintained. New disturbances are, humanly speaking, sure to occur, so that, in actual fact, any variable is almost always above or below the ideal equilibrium. (Fisher, “The Debt-Deflation Theory of Great Depressions”, 1933)
This led him to focus on two disequilibrium factors as key to explaining a crisis like the Great Depression—and like the one we have just been through—were “over-indebtedness to start with and deflation following soon after”.
So where do we stand today on Fisher’s disequilibrium markers of debt and deflation? In a phrase, on the precipice. As Figure 3 shows, private debt has only been reduced by 25% of GDP, whereas the decline in debt from its peak in 1932 to the end of WWII was almost 100% of GDP (this graph combined Federal Reserve data since 1945 with Census data from 1916 to 1970, and rescales the Census data to match The Fed’s data in 1945). And though we haven’t had deflation as severe as in the Great Depression—when prices fell by more 10% a year—we are back in deflation territory once more.
Figure 3: Private debt and inflation
In this environment, Yellen is hoping that the economy is going to return to “equilibrium”—where this can also be interpreted as “behaving like the economy did from 1993 until all hell broke loose in 2007”. Fat chance.
A cottage in 9 Steps
A glimpse at how to build a cob cottage from the foundation to the roof.
As reported yesterday, the Hillary emailgate scandal took a turn for the worse and far more dramatic yesterday, when it was reported that not only did the former Secretary of State delete selected emails which in her opinion were "personal", but that she then decided to wipe her home-server clean, a server which it is still unknown why she used when the US government itself was perfectly happy to host her email communication on far more secure, if FOIA-accessible, servers.
But what's far worse than Clinton arbitrarily wiping any trace of her actions and demanding that the people take her word, is when she did it. This is what we said:
The key question is when said server formatting took place. This appears to have taken place after the first production request had come in, which means that Clinton may well be guilty of destruction of evidence. He said while it’s “not clear precisely when Secretary Clinton decided to permanently delete all emails from her server, it appears she made the decision after October 28, 2014, when the Department of State for the first time asked the Secretary to return her public record to the Department.”
Today the answer was revealed, when it became clear that Clinton indeed is guilty of Contempt of Congress (not to mention the American people), after Clinton's lawyer, David Kendall, reportedly told House investigators that after aides determined which emails were private and which were government-related, an account setting was changed to only save emails sent in the past 60 days, adding the setting was changed after she responded to the records request.
Said simply, Clinton deleted everything after she was expressly told to not only preserve the data but hand it over.
And, as expected, the GOP is about to have a field day thanks to Hillary herself, whose actions have made her an easy comp to none other than than the most disgraced US president in recent history, Richard Nixon himself. From the Hill:
Republican National Committee Chairman Reince Priebus blasted Hillary Clinton on Saturday for wiping her server and permanently deleting all emails.
"Even Nixon didn't destroy the tapes," Priebus said in a statement.
Rep. Trey Gowdy (R-S.C.), the chairman of the committee, said in a statement Friday that "Clinton unilaterally decided to wipe her server clean and permanently delete all emails from her personal server." Gowdy, whose committee had subpoenaed the server earlier this month, charged that Clinton apparently decided to delete her emails after Oct. 28, 2014, when the State Department first asked her to turn over public records.
Clinton's lawyer explained it very simply: "it's all gone."
“Thus, there are no firstname.lastname@example.org emails from Secretary Clinton’s tenure as secretary of State on the server for any review, even if such review were appropriate or legally authorized,” Kendall said in a letter to Gowdy's committee, according to The New York Times.
However, the GOP has smelled blood and itsn't going to give up easily: "Republicans are likely to keep up their attacks on Clinton over the emails heading into her official declaration of a 2016 presidential campaign, which is expected in weeks. Priebus on Saturday echoed calls from Republican lawmakers for Clinton to turn over her server.
"It's imperative an independent third party review the server immediately. Unless Mrs. Clinton went to extreme lengths to wipe this server, there are ways to recover this data," Priebus said.
Of course Clitnton went to "extreme lengths"... but it was in the spirit of transparency and accountability. Just like with Lois Lerner's emails.
Incidentally, those wondering what the next steps are, a reminder that non-compliance with a Congressional subpoena falls under the "Contempt of Congress" umbrella, an act which since the passage of an 1857 law has made it a criminal offense against the United States.
Some more details from Wikipedia:
Following a contempt citation, the presiding officer of the chamber is instructed to refer the matter to the U.S. Attorney for the District of Columbia; according to the law it is the "duty" of the U.S. Attorney to refer the matter to a grand jury for action.
The criminal offense of "contempt of Congress" sets the penalty at not less than one month nor more than twelve months in jail and a fine of not less than $100 nor more than $1,000.
It gets even more complicated:
While the law pronounces the duty of the U.S. Attorney is to impanel a grand jury for its action on the matter, some proponents of the unitary executive theory believe that the Congress cannot properly compel the U.S. Attorney to take this action against the Executive Branch, asserting that the U.S. Attorney is a member of the Executive Branch who ultimately reports only to the President and that compelling the U.S. Attorney amounts to compelling the President himself. They believe that to allow Congress to force the President to take action against a subordinate following his directives would be a violation of the separation of powers and infringe on the power of the Executive branch. The legal basis for this belief, they contend, can be found in Federalist 49, in which James Madison wrote “The several departments being perfectly co-ordinate by the terms of their common commission, none of them, it is evident, can pretend to an exclusive or superior right of settling the boundaries between their respective powers.” This approach to government is commonly known as "departmentalism” or “coordinate construction.”
In the end, it may be an executive decision by Obama himself that will be needed to avoid a humiliating and lengthy legal process into Clinton's actions. Which, considering the unprecedented animosity between the Obama and Clinton camps in recent months - recall that it was Valerie Jarrett who leaked the emails in the first place - is hardly a given, and Valerie Jarrett may just end up having the final laugh.
But the best summary bar none of the farce that is modern day US politics is the following:
Nixon resigned the presidency over 18.5 minutes of erased tape. Hillary could become president because of the hard drive she wiped clean.
— WH PRESS SECRETARY (@weknowwhatsbest) March 29, 2015
Despite all the talk of a "positive climate" Greek talks with their creditors have ended badly for the desperately cash-strapped nation. As WSJ reports, Greek proposals for a revised bailout program don’t have enough detail - are "piecemeal and vague" - to satisfy the government’s international creditors, eurozone officials said. Furthermore, as Dow Jones reports, EU finance ministers are unlikley to meet again until mid-April (and in the meantime, Greece has to pay salaries, pensions, and most critically IMF debts due on April 9th).
Greek proposals for a revised bailout program don’t have enough detail to satisfy the government’s international creditors, eurozone officials said, making it more likely that Athens will need to go several more weeks without a new infusion of desperately-needed cash.
The Greek government is facing a dire shortage of cash: It must pay salaries and pensions at the end of the month and repay debts to the IMF on April 9. While talks over the weekend were friendly, officials said, mistrust at a political level continues to stew between the outspoken government in Athens and the rest of the eurozone.
...officials say crucial details were again missing from the Greek proposals after talks that started Friday night, lasted all day Saturday and continued on Sunday.
“The proposals were piecemeal, vague and the Greek colleagues could not explain technically what some of them actually implied,” a eurozone official said. “So, let’s hope that they present something more competent next week.”
Senior eurozone finance officials will hold a teleconference on Wednesday to discuss the situation, officials said. But they said it is highly unlikely eurozone ministers will meet before mid-April to release more money for Greece. That means Athens will have to scrape together cash to pay salaries and pensions at the end of the month and make a €460 million debt repayment to the IMF on April 9.
* * *
It appears clear that the EU is prepared to let Greece entirely run out of money in an effort to squeeze Tspiras as much as possible (though that action will likely further force a pivot to Putin).
Just a week after Jean-Claude 'I am not a hawkish warmonger' Juncker pressed for the creation of a Unified European Army to combat the 'looming' threat of their massive trade partner Russia; RT reports Arab leaders have agreed to form a joint military force from roughly 40,000 elite troops and backed by warplanes, warships and light armor at a Sharm el-Sheikh summit. Egyptian President Abdel Sisi has announced a high-level panel will work out the structure and mechanism of the future force. The work is expected to take four months.
The president of the European Commission Jean-Claude Juncker, who leads the EU’s executive arm, said an EU army would let the continent “react credibly to threats to peace in a member state or a neighbour of the EU”.
And now, as RT reports, The Gulf is getting one too...
Arab leaders have agreed to form a joint military force at a Sharm el-Sheikh summit, hosting Egyptian President Abdel Sisi has announced. The meeting was dominated by the situation in Yemen, where Saudi Arabia leads a bombing campaign against rebels.
"The Arab leaders have decided to agree on the principle of a joint Arab military force," Sisi said Sunday as the summit wrapped up. The summit final communique called for "coordination, efforts and steps to establish an unified Arab force" to intervene in countries such as Yemen.
The Egyptian leader said a high-level panel will work out the structure and mechanism of the future force. The work is expected to take four months.
Earlier reports said the joint Arab military may be formed from roughly 40,000 elite troops and backed by warplanes, warships and light armor. There are however doubts that all 22 members of the Arab League would significantly contribute to it; the formations of the force could take months.
In a communique signed in the Egyptian resort city, the Arab countries also called on the West to form a new more comprehensive response to militancy, which is a thinly veiled reference to the desire by some Arab nations to see a new Western military intervention in Libya.
The country that was devastated after civil war and a NATO bombing campaign, which helped to oust strongman Muammar Gaddafi in 2011, became a hotbed for Islamist radicals, including the terrorist organization Islamic State.
Not everyone is buying it as a possibility...
James Dorsey, a Middle East analyst with the Singapore-based S. Rajaratnam School of International Studies, said that despite support for a joint-Arab force, "it would still take months to create and then operate on an ad-hoc basis.
"I don't think we will get an integrated command anytime soon, as no Arab leader would cede control of any part of their army anytime soon," he said.
"Today we will have a formal declaration that would be negotiated every time during action."
* * *
It appears The Endgame of this global game of Risk is fast approaching as one-by-one, geographically proximate nations join forces for whetever comes next.
Submitted by Bill Bonner via Acting-Man blog,Infection
Today, we look at the face of our government. It is older… with more worry lines and wrinkles. But whence cometh that pale and stupid look?
That is also the result of the same advanced diabetic epizootic that has infected American society.
Moonshine production facility in the 1920s …Soft and Mushy
After real money and real savings left the economy circa 1971, GDP growth rates fell. Wages atrophied. And now, for the first time in 35 years, American business deaths outnumber business births. The body economic grew soft and mushy – unable to hold itself erect or to stand on its own two feet. Thenceforth, it needed the crutch of increasing credit.
The new credit-based monetary system meant that Americans had less real wealth. But until 2007, they could still get what they wanted by borrowing. Few noticed that they were borrowing from the company store and becoming slaves to their credit masters.
No one ever figured out how to create gold. So, Washington insiders changed the money system in two steps. In 1968, LBJ asked Congress to end the requirement for the dollar to be backed by gold. And in 1971, “Tricky Dicky” ended the direct convertibility of dollars to gold.
With the new dollar, unbacked by gold, they could create all the money they wanted. After the 1970s, instead of earning more money, or borrowing from the savings of his neighbors, the typical American had to grovel to the elite who controlled the credit machine.
The number of new business starts has been in a downtrend throughout the fiat money era – but in 2008, the birth rate crossed below the death rate for the first time ever, and has remained there ever since – click to enlarge.
The Making of a Modern Debt Serf
Government and its cronies in the banking sector created money ex nihilo. This money cost them nothing. Still, they lent it out just as though it were real savings. The typical American took the bait. He bought a house. He bought a car. He had a nice steak dinner and paid with a credit card.
Now, he was no longer a free man, in a free economy with real money in his pocket. He was a slave to the credit system. And he needed to work hard to keep up with it. The feds got the money for nothing. But he had to pay for it. Most often, he couldn’t pay off his debt. So, he became a debt serf – beholden to his masters for his home, his transportation, his education, his health care… and even his food.
If he wants a house, doesn’t he depend on Washington-backed Fannie Mae and Freddie Mac to help him get it? If he wants a car, doesn’t he need the Fed’s ultra-low interest rates to help him buy it? If he needs a job, doesn’t he need the Fed’s stimulus? Or failing that, at least Washington’s unemployment insurance, food stamps and disability payments?
Just look at the food-stamp program. From zero in 1970, the scheme now costs $75 billion a year – every penny of it to people who used to be capable of feeding themselves. The elegance of this scam is staggering. The banks get money at zero cost. They give the homebuyer a mortgage. Now, effectively, the bank owns the house and the “homeowner” pays it rent every month. The poor schmuck never realizes what has happened. He kisses the hand of the lender and practically begs him to sleep with his daughter.
When elections come he is ready to play his role – a proud citizen and homeowner, voting for more lashes.
In the 6th year of the “recovery” that was bought with an inflation of the money supply by more than 100% (money TMS-2 from $5.3 trn. in 2008 to $10.8 trn. in early 2015) and a similarly large increase in the federal debt, a near record 46.5 million Americans continued to receive food stamps – click to enlarge.
Flabby Income Numbers
More and more Americans vote for “something for nothing.” Because nothing is all they have to bargain with. Here are the numbers from the Social Security Administration:
- 39% of American workers make less than $20,000 a year
- 52% of American workers make less than $30,000 a year
- 63% of American workers make less than $40,000 a year
- 72% of American workers make less than $50,000 a year
These flabby income numbers are also the result of the regulatory policies and artificial money that has been drip-fed to the American people over the last 44 years. By one estimate, had the economy remained on the track it was on in the 1950s and 1960s – before the new money and crippling restrictions took hold – the average American would earn $125,000 more a year today.
Instead, since the turn of the new millennium, the average household income has fallen to $52,000 from $57,000.
Real median household income (blue line) has recovered somewhat from its trough (note that the inflation adjustment is performed by using official CPI data, which are dubious, to say the least). Nevertheless, current levels were first seen about 25 years ago – click to enlarge.
The Delusion of Democracy
But we are still talking about money, aren’t we? Let us take another look at the face of our new government and draw a measure of its character. The skull may be the same as it was in 1970 – the Constitution hasn’t changed – but gone is the smooth, youthful, open visage. Over the years, the sour creases have multiplied. They tell an ugly story. What happened?
When a group of people can control an economy’s money, they tend to direct the spoils to themselves, their cronies and their pet projects. The rich, special interests, the well connected and the elites figure out how to play the game. And how to make it pay. They throw some bones to the plain people and take the meat for themselves.
The financial sector, for example, watched as its profits went from only about 15% of total corporate profits in the 1970s to 40% in the 2003-to-2007 period. How did that happen? Easy: They were lending money they never had to earn.
The corruption of the American system of government has taken place over more than half a century. But it is only in the last few decades that the body politic has begun to curl into a grotesque new shape. In a credit-based money system, the people who control the credit are like guards at a gulag. Pretty soon, they start acting like them. They decide who eats and who goes hungry.
They are not bad people or good people. They are just like all of us – eager to take advantage of opportunities as they present themselves. Gone is the delusion of democracy. Out the window is the hope of a free market. Forget the American dream. It is all fraud, scam and the old false shuffle.
Stay tuned …
The history of the financial industry’s share of total non-farm corporate profits. It is not difficult to tell who the biggest beneficiaries of the fiat money system are.
Two weeks ago, before Yellen for the first time cautioned about the strength of the dollar and its impact on US "exports" (ironically, "strong" entirely as a result of the Fed's insistence that a rate hike is coming, ignoring the stall-speed Q1 GDP that may be as low as 0.2%), Goldman asked its clients what they thought was the biggest concern on their minds. The answer: the strong dollar.
They were right, and yet with the Fed boxed in a corner where it now has to hike rates or lose what little credibility it has left, the USD is likely to keep rising even more until the Fed has no choice but to admit defeat in its latest annual attempt to declare the start of renormalization, and perhaps to even go NIRP or do a QE4 trial balloon.
Of course, if and when the Fed pivots, it will box itself even more, this time as asset values soar beyond the merely "ridiculous" levels currently, and even further into uncharted bubble territory.
Which brings us to today's poll, courtesy of Bank of America which asked its bond clients what they are most concerned about. The answer, by a wide margin, "Bubbles in credit."
From Bank of America:
We asked high-grade investors what their biggest concern was for credit going forward (chart 1):
- “Bubbles in credit” has jumped as the biggest concern (30%), having been third on the list in January’s survey,
- Likewise “supply” has risen to be the second biggest concern (19%),
- “Geopolitical conflict” is the third biggest concern (14%), but this is down from being the top concern in January’s survey,
- Note deflation in Europe (the second biggest concern two months ago), is now down in 7th place (just 3%).
Not sure why of the master categories listed above "liquidity" is in, but if isn't, it will be soon. And if it is "supply" at just 19%, expect this number to soar in the coming months as a true market test reveals there is absolutely no depth behind razor thin bid/ask "markets."
Which is why the Fed is truly in a lose-lose situation, because on one hand the soaring USD will cripple what's left of the US economic recovery story, and on the other everyone is now admitting 7 years of unprecedented liquidity injections have led to the world's biggest, and truly global, asset bubble.
Damned if you do, Janet, and damned if you don't. Is it clear now why Ben Bernanke couldn't wait to get the hell out of dodge and leave the mess he left in the hands of someone else?
The calendar impacts the investment climate. March 31 ends the month, quarter, and for several countries and companies, the fiscal year. The Easter holiday is typically among the quietest in the capital markets, with many financial centers closed. After April 1, full liquidity will not return until April 7.
At the same time, the dollar, bonds, stocks, oil, and commodity prices more broadly, appear to have morphed from trending to consolildative/corrective markets. There also has been an increase in uncertainty. The consensus for the timing of the Fed's lift-off has fragmented. The ability of the ECB to buy 60 bln euros of assets a month is questioned; even that ECB's Draghi has played down concerns about a shortage of willing sellers.
After nearly a decade of negotiations, an agreement with Iran on its nuclear program appears to have been reached. It is not clear whether it will be sufficient to appease the skeptics in the US Congress. Speculation of a deal may have contributed to the sell-off in oil prices ahead of the weekend. At the same time, Russia appears to be fanning simmering Argentinian animosity toward Britain over the Falkland/Malvinas. Saudi Arabia is leading a coalition to defend Yemen.
Despite the BOJ's aggressive policy, inflation, excluding food (core) last year's sales tax increase has drifted lower to zero. The economy is not contracting as in did between April and September 2014, but the pace of activity is not very inspiring. The UK election is a little month a way, and while many recognize the era of single-party rule may be over, their is heightened fears that social divisions (e.g., Scotland, UKIP) will make it more difficult to have a stable coalition government.
Whether Greece remains in the monetary union remains an open question. Recently, Soros suggested the risk was 50/50. Recall in 2010 when the Greek debt crisis emerged, indicative prices at book makers put the odds as high as 70% that Greece would leave. Although Greek Finance Minister Varoufakis is reputed to be an expert in game theory, it seems that the Greek government knows only one game, and it is brinkmanship. A brink is approaching as the Greek government runs out of cash. Reports already indicate that it is conducting swaps with other government institutions to raise cash as a payment to creditors loom at the same time as the wage bill for civil servants, and pensions are coming due.
Varoufakis has failed to get other debtor countries, like Spain, Italy and France to defect from the consensus. His tactics have failed to isolate Germany. His proposal to have tourists an/or students report on tax evasion insults the intelligence of his counterparts, which Varoufakis has also done. No wonder, he appears to have been sidelined as the brink draws nears. Rumors circulated before the weekend the Varoufakis, who is not a member of Syriza, resigned, were officially denied (though we would not be surprised if this were to happen in the coming months) It may be too late to suggest Dale Carnegie's classic work, "How to Win Friends and Influence People".
The bar to freeing up aid money is not very high. All the Greek government has to do is submit a list of a few reforms it will implement. After a couple of false starts, the Tspiras government appears to have down this before the weekend and is being reviewed. Fitch grew impatient and cut the country's rating from B to CCC just before the reforms were submitted.
The list of reforms reportedly includes higher "sin taxes" on alcohol and tobacco. The tax on high incomes may be increased. There will be a greater effort to clamp down on tax evasion. Reducing the associated penalty is reportedly generating some positive results. News reports also indicate that Tspiras will also a primary budget surplus half of the 3% that the EU demanded.
On Monday, Greece and Spain will also report flash CPI readings for March followed by the flash estimate for the entire eurozone the following day. A small uptick in prices is expected. This will not change the ECB's commitment to its recent announced asset purchase plan which is less than a month old. Insight into the debate about some of the purchases particulars will likely be generated by the account (minutes?) of the ECB March 5 meeting, which will be published on April 2.
Recognizing the more constructive string of economic data, Draghi indicated that this was a cyclical recovery, not structural. Tuesday's unemployment figures will likely bear this out. Despite the modest increase in the euro area economic activity, unemployment in the region is expected to be unchanged at 11.2%. The depreciation of the euro, the decline in interest rates and oil will stimulate activity even without structural reforms. These economic conditions benefit Germany the most, and after a soft patch, the economy re-accelerated at the end of last year and into this start of this year.
The IMF's authoritative report on currency reserves (COFER) will be published at the end of the month. It will be for Q4 14. We expect to see a continued decline in the euro's share of reserves. This trend should continue into this year as central banks and sovereign wealth funds are thought to be likely candidates to pare some of their euro bond holdings by selling them to the ECB.
The UK has been stronger than the eurozone's but with no increase in consumer prices over the past year, the Bank of England is in no hurry to raise rates. The implied yield on the December 2016 short sterling futures contract has fallen 50 bp over the past three weeks. Growth in Q4 14 is expected to be confirmed at 0.5%, and the January index of services and the three sectoral PMIs will likely underpin expectations for similar growth in the current quarter.
With the BOE clearly on hold for some time, the focus turns increasingly to the May 7 election. The one television debate that Prime Minister Cameron has agreed to will be held with six challengers int the evening on April 2. The uncertainty of the election outcome is particularly acute, and this may deter participation. We note that the latest Commitment of Traders report for the week ending March 24 showed a sharp pullback by both bullish and bearish speculators.
Japan will report February industrial output figures to start the week. A 1.5% decline is expected, which would be the largest decline in six months. The year-over-year contraction may slow from -2.8% in January to -0.6%. The report will illustrate the struggle Japan is having to return to a consistent growth path after last year's sales tax increase. Despite the weakness of the yen, Japanese exports (less than 15% of GDP) were only up 2.4% in February from a year ago.
Japan reports the March Tankan on April 1. While there may be incremental change in sentiment, investors will be more focused on capital expenditure plans. They are likely to be considerably weaker than the 8.9% pace of the December report.
US personal consumption and income data, including the PCE deflator, will be reported on Monday. A modest increase in income is expected, and after falling (0.2%) in December and January, spending is expected to have increased in February. Separately, on April 1, the US auto sales figures will be published. Industry estimates suggest that the three month declining trend ended. The consensus calls for a 16.9 mln unit annual pace, which would be the strongest since last November and better than all but three months last year.
The core PCE deflator is expected to be flat at 1.3%. If there is a surprise, it may come to the upside. Core CPI has surprised two consecutive months to the upside, and gasoline prices firmed.
On April 2, the US reports the February trade figures. Given the comments about how the dollar's strength is eating into net exports, the trade balance will draw greater attention than is usually the case. The US trade deficit averaged $42.3 bln in the 12-months through January 2015. The monthly average for twelve months through January 2014 was $39.4 bln. Given the drop in oil prices, the data indicates a significant deterioration in the non-oil trade balance.
The US reports the March employment data at the end the week. This is arguably the most important monthly economic report. The market accepts that the Federal Reserve is looking at the labor market more broadly than just the unemployment rate, for which there is risk of a slippage to 5.4%. Earnings are very much in focus, though Yellen was clear about this in here pre-weekend speech: Wage growth is not necessary for her to be reasonably confident that the Fed's mandates will be approached, but weakness could stay her hand.
"I have argued that a pickup in neither wage nor price inflation is indispensable for me to achieve reasonable confidence that inflation will move back to 2 percent over time. That said, I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken, if market-based measures of inflation compensation were to fall appreciably further, or if survey-based measures were to begin to decline noticeably."
The ADP estimate on April 1 may steal some of the official reports thunder. We note that the 20 mln or so employees for which ADP has data are experiencing greater wage growth than employees are nationwide. However, with an April hike ruled out, the March jobs data may not spark a swing back in the pendulum of market expectations.
Submitted by Charles Hugh Smith from Of Two Minds
Complacency Reigns Supreme--Nothing Can Possibly Go Wrong, Right?
One of the more remarkable features of the Bull market in stocks is the ascendancy of complacency and the banishing of fear. Take a look at this chart of the "fear index," the VIX--more properly, a measure of volatility:
The VIX popping up to 17 from 12 now qualifies as an extreme of fear which gives the Bulls the go-ahead to buy the dip once again.
Even more striking is the daily chart of VXX, a short-term VIX-based etn: A tiny blip up from 24 to 26 now qualifies as an extreme of panic.
Equally remarkable is the steady decline in both VIX and VXX: complacency now reigns supreme.
The complacency is the result of stocks' steady rise for over two years--9 quarters of advances with only one spike down in october 2014--a spot of bother that was quickly reversed by a Federal Reserve flunky talking up QE4 (another round of quantitative easing to boost stocks).
No wonder complacency reigns supreme: any time the stock market tumbles by more than 3%, a Federal Reserve flack runs to a microphone and starts talking about how the Fed stands ready to launch QE4 or "whatever it takes" to push stocks back into rally mode.
For context, recall that both VIX and VXX tend to reach 40 in real moments of panic/fear. That the VXX "soaring" 2 points from 24 to 26 now qualifies as an extreme of fear is absurd.
Yet this is the logical result of central banks constantly "saving" equities every time they swoon the slightest bit: traders and punters know that the Fed making reassuring sounds is all that's needed to reverse any decline and restart the Bull advance.
But a couple of things have changed recently. The QE baton has been passed from the Fed to the European Central Bank (ECB), famously ready to do "whatever it takes," but the ECB's QE bond-buying hasn't triggered the global rally that many expected.
Secondly, China is rolling over the first time in six years. The engines that pulled the global economy out of the hole in 2009--the Federal Reserve and China--have stopped, and there are no equivalent engines warming up.
So by all means, buy the dip now that the VIX soared in full-blown panic from 12 to 17. Nothing can possibly go wrong as long as a Fed flack stands ready to spew the same old assurances of "whatever it takes" into a microphone.