Friday, September 23, 2016

Declining Global Money Supply Taking World Economy With It

Jeffrey Snider at Alhambra Partners is far smarter than any of the over-educated PhDs at the Federal Reserve. He's been writing for a long time saying correctly that the world's central bankers "don't know what they are doing."  Borrowing heavily from Jeff, I wrote a blog post of the same name here.

He's sounding the alarm that now we're really in more of an economic depression, especially in comparison to the deviation and duration of economic trends that existed up to the financial crisis in 2008.  It's gotten worse in the past 2 years. Economic growth across the world is in noticeably fading with no end in sight. US and EU growth is down to 1% or so and still decaying. Nearly all of the commodity producing countries are in recession as oil and commodity prices collapse. World trade is now declining. Chinese imports and exports are down double digits in the past two years and no end in sight.  No one except Jeffrey Snider has a plausible explanation.

In a brief video below (found here), he explains as concisely as possible what he means:

video

Here's his graphical evidence of a "long period of economic stagnation" in the US only -- from his blog posts at Alhambra Partners. Stagnation has turned into decline in most emerging markets.

Serious and Long-Lasting Deviation In GDP From Previous Trends.  Even after $9T in New Debt Spending (With Nothing To Show For It.) 
The "Eurodollar,"including all of it's derivatives; swaps, forwards, etc.; the real money supply to the world, has been in decay since about 2011 to the present day. Parentheses around "eurodollar" means it's the aggregate of credit default swaps, interest rate swaps, currency forwards/swaps and other derivatives. Janet Yellen, Bernanke, Allen Greenspan, and the minions of US Federal Reserve PhDs have been oblivious to this financial phenomenon for the entire rise and fall of the "eurodollar." Why else has Yellen been so obviously confused by her forecasts and failures?  The problem is that economists are not trained in world wholesale finance.

Here's the 20 year history of the rise and fall of the REAL money supply to the world -- especially to China and the emerging markets. In recent years the world's real money supply is decaying rapidly and taking the world's economy with it.

The "Eurodollar" is unregulated liquidity that exists on (and off) the large bank balance sheets in Europe and the US. There are nearly no dollars backing these instruments. It's nearly pure leverage and very unstable in times of crisis -- as we found out in 2008. That's why the banks are now fleeing these markets in increasing desperation. It's too risky. "Eurodollars" are literally the antithesis of sound money. It's like "internet money." It's pure leverage with no real "backing" except faith in the money center banking system. But faith in the European banking system is dropping like a rock, especially this year. Major EU bank stock prices are plummeting this year, indicating declining faith in these institutions. Fear is rising as shown by rising LIBOR rates.

Here's the effect of both the rise AND decline of the real global money supply:

Shrinking "Eurodollar" Money Supply Causing Worldwide Economic Stagnation. No One Notices
The US labor market and employment "recovery" has been weak and not as strong as the administration has proclaimed. For the first time ever, job gains are not keeping up with population growth. The so-called economic recovery from the 2008 financial crisis is not anything close to a "real recovery" when you consider Labor.  Still think the unemployment rate is really 4.9%?

Labor Participation at 40 Year Lows As Job Gains Fails to Keep Up With Population Growth. Also, Do You See Any Recovery Of Industrial Production? 
Jeff Snider goes on to say:
According to Snider, there is a realistic chance that there is an intractable structural monetary problem that is leading to economic problems that central banks don’t seem to be able to solve or even recognize. When there are problems in liquidity, LIBOR rises. Looking behind the curtain, Snider finds monetary contraction, not monetary expansion.
There are other implications as well, perhaps more important than just investing. If this is indeed a depression, Snider says, “Historically periods of prolonged economic stagnation, lead to some of the worst types of historical events, usually social disorder, political upheaval, all those kinds of things.”
Most of the economic data after the 2008 data is poor, including Industrial Production. The US Federal Reserve's goals of stronger growth and higher inflation through repeated QEs has not worked. They don't know what they're doing!

Two Years of Falling Industrial Production Begins to Resemble Recession or Depression

Bernanke and Yellen's Inflation Targeting A Total Failure Now

US manufacturing's decline in the past two years will eventually be reflected in declines of the larger service sector. It's happening now. Retail sales, still positive, but still hovering near recessionary levels.

US Services PMI is Trending Down and Now Following Industrial Production Declines.  Soon Contracting?
Until this problem in money markets is recognized, the economic damage continues to accumulate for a longer and longer period of time.  Already, the decay of the world economy is now 2 years in duration. Money markets are now in turmoil due to decreasing liquidity and monetary "tightness." LIBOR rates are rising indicating tightness in wholesale money markets for the banks. Falling liquidity is likely to seriously affect stock and bond markets too. There have already been steep stock market liquidation periods like we saw in August 2015.  Expect more economic pain and market turmoil in the very near future.

Wednesday, September 21, 2016

12 Step Program to F*ck-up Your Country

From Burning Platform blog (h/t ZeroHedge)

  1. Take one country built by other people [take the lands from native Americans, I presume?].
  2. Have a central bank debase the currency.
  3. Inflict metric shit-tons of rules, regulations and taxes on the citizenry, personally.
  4. Drive a stake through the beating heart of the economy – small business (See #3). [Small businesses create 70% of the new jobs in our economy.]
  5. Import millions of illiterate, low-IQ mouth breathers from 3rd world shitholes who have no intention of assimilating or producing.
  6. Dump them on the producers – the descendants of those who built the country.
  7. When the citizenry have a problem with the flood of mouth-breathers, guilt them into submission. If you can’t guilt them, hoot them into silence by screaming PC-conflict epithets at them.
  8. When Government can’t meet payroll – literally paying for all the Free Shit they’ve ‘promised’ to everyone – continue to take out loans you “promise” to pay back (See #2).
  9. Play identity politics by pitting racial groups against each other. The winner gets privileged status. (Pro tip: There is no ‘winner’ and will never be one).
  10. Use the distraction created by #9 to loot the treasury.
  11. Use the friction created by #9 as an excuse to disarm the citizenry using the fig leaf of “safety”.
  12. Keep the citizenry distracted by ginning-up useless foreign wars, bread, circuses and a conga-line of retards in the [Leftist Dominated] ‘media’…

Saturday, September 10, 2016

We're Reaching the End of the Road

I'm afraid that we're reaching the end of a very long road.

Unsound money ("fiat" money not backed by gold) has led, in recent decades, to huge and unsustainable global imbalances in trade and debt. But because trade deficits REDUCE our nation's GDP, persistent trade deficits in our country have led to rising debt at every level as we try to maintain the "appearance" of a rising standard of living. This is partly why the US ran $9 Trillion in government deficits in the past 7 years alone. Can you imagine what our economy would have looked like without all that money? It would have been outright Depression. (I'm not even going to mention the $4T bank reserve creation by the Federal Reserve). All of that debt is masking depression. Even so, the number of full-time jobs is barely above 2007 levels (only +3M) and "good jobs" are still lower than the last peak.

Even with our still rising debt (deficit spending) in the last year, China has seen a fall in exports. World trade is declining. Why? Because the US and Western consumers can't afford the imports! Trump is right about trade. Our economy is hollowed-out by the loss of manufacturing jobs and it has killed jobs and hurt our people. Now the US consumer is tapped-out. Furthermore, demographic trends have turned negative in most of the West and China just like Harry Dent predicted and has slowed the economy.

The persistent budget and trade imbalances over the past several decades could never have happened with "sound" money, as the deficit nation would have seen a loss of gold (money) that would have slowed the economy and reduced imports to a balance with exports. And debt creation would have been severely limited since new money would have to be backed by gold-- and gold is limited. Exchange rates would have been very stable too. That is the beauty of the gold standard. The gold standard will eventually make a return out of the ashes of the next financial/economic crisis.

Other reasons why we're reaching (or reached?) the end of the road financially and economically:

1) Rising debt in the West has hid the increasing poverty caused by the wealth transfer from US to China (and Japan before them) for awhile. But debt levels have risen everywhere and it's marginal utility to produce growth is nearly gone, even in China. In fact, with a no-growth economy, the world's debt levels are probably not sustainable. Zero interest rates have prolonged that game for awhile but zero rates are unsustainable. As growth falls off, corporate cash flows decline and debt defaults spike causing corporate interest rates to rise. Even sovereign debt implosions are a risk, first in commodity producing countries and peripheral EU countries like Greece and Italy. Interest rates will rise where there is debt distress/defaults.
2) Trump is right, the US economy is hollowed-out with the loss of manufacturing jobs and the loss of entire industries. The non-elite workers in the US are financially tapped-out with stagnate incomes and burdened with rapidly rising costs of healthcare, healthcare insurance, rents, food, drugs. Our imports are way down. China is feeling this as their exports are way down. World trade is declining. The manufacturing sector in this country has been in recession for 2 years now. General recession is likely just around the corner.
3) The economy is in near-recession despite rising debt bubbles. The US government has racked up $9 Trillion in debt in just 8 years. China racked-up double that amount of debt. A vast expansion of auto loans that some people say is reminiscent of another subprime bubble has propped-up the auto sector. A trillion dollars in student loans have been given to students in the past 8 years and 43% of these loans are now not being payed back.And the US is still making more of these loans! Hillary is expected to put all of that bad debt on the tax payer and the next generation.
4) The real money supply to the world, the "Eurodollar" and it's associated derivatives, has been in decay since the great financial crisis with a partial resurrection to 2011. Since 2012, banks have been exiting these shadow banking markets at an increasing rate. Just look at European bank stocks to see the decline in their trading and profits. Central bankers haven't noticed this most important development as they are willfully blind.
5) QE doesn't work. That's obvious. Even the educated idiots at central banks can see that! They just can't admit it and it's making them look like fools. They are starting to tip-toe away from it.
6) NIRP and the risk of depositor "bail-ins" is killing the EU banking system! And NIRP and ZIRP is killing pension funds, insurance companies and retirees everywhere. The situation is completely unsustainable. Never in history have interest rates been zero or negative. It's absurd and causing more harm than good. EU banks are a systemic risk to the world. What can't be sustained, won't!
7) 30 years of declining interest rates is over. So just steady rates is a trend change. US and world rates are now rising as front-running investors can "smell" that the EU and Japan are about to get out of the QE business. Interest rates are rising now; not falling.
8) EU banks are a royal mess. Chinese debt system is a royal mess. The risk of a sudden and substantial Chinese devaluation is increasing as they will surely nationalize huge amounts of bad corporate debt that they created since 2009. Already the Chinese currency is falling slowly this year and is back to 2010 levels. Even small devaluations have roiled markets.  A sudden and substantial devaluation would set off a world-wide crash. It's possible that civil unrest may lead to social disintegration if not outright revolution at some point in China.
9) The era of cheap energy is over. If the economy tries to recover, oil prices rise so high that it kills the economy/consumers. If we can't afford high oil prices, then we cannot have growth. (because growth causes unaffordably high oil prices!) And the price at which oil is affordable, ie., $30 to $50 per barrel, kills the oil producers and oil producing countries (and kills government revenues). The cost of extraction of a "marginal" barrel is too high now. So, energy production will continue to drop and all the oil and commodity producing countries will remain in recession or depression. What's needed to "save" us is $20 oil for an extended period or a miracle in cheap energy technology.
10) If growth is dead, then the mountain of debt, which continues to accumulate at a rate much higher than nominal GDP growth worldwide, is unsustainable. The end of the road is defaults, crises, recession and depression. Debt defaults by companies and entire countries will cause a new round of banking troubles and trouble in global supply chains. It happened in 2008 after all. Collapse is a real possibility. When it happens is the $64 Trillion question.

So, we really are reaching the end of the road. We're all in for a rude awakening at some point.

Saturday, September 3, 2016

Obama/Hillary's Foreign Policy Legacy: Failures, Destruction and Lies

Obama and Hillary's foreign policy legacy is a near-perfect record of failures, flops and destruction followed by lies, deception and spin. Then those lies and spin are dutifully and faithfully broadcast by a totally Leftist and administration-compliant media.  Hitler and Goebbels would be proud.

Most people can see that Bush made a huge error in deposing Saddam Hussein as it made a bad situation infinitely worse. But the Obama administration, including Hillary, has been at least 3 times worse! They wanted to depose Assad. That was the US stated policy. Then, they quickly got behind the ousters of Qaddafi in Libya and Mubarak in Egypt when unrest gripped the Middle East.

In Egypt, their installation of Obama's "friends," the horrible Muslim Brotherhood, brought down another Islamic iron fist rule to the country turning it once again into a totalitarian state. A year later, more Egyptians died in a 2nd revolution to overthrow Obama's buddies. The entire episode is a catastrophe of massive proportions.

Speaking of catastrophe, Hillary and Obama's "adventures" in Syria are titanic failures of historic proportions. Their red line to no line idiocy ended up giving Russia and Assad a permanent alliance, assured Assad's survival and vastly increased Russian influence in the region. Meanwhile 10s of thousands MORE people are being bombed and decimated by Russia-backed Assad. Good job Hillary/Obama! Putin is much more clever than the intellectually deficient Obama administration.

Hillary and Obama's hasty departure from Iraq, with no residual force, set the stage for the disastrous rise of ISIS in the region. Libya is now a haven for ISIS too thanks to Hillary/Obama. Yes, the administration wasn't really in control of events in the region but America's positions, actions and inactions did nothing but worsen each and every situation.  Obama and Hillary have been lying for years now claiming that they have a strategy in fighting ISIS. But they have no strategy despite constant assurances to the contrary. Their real strategy is to stonewall and lie to get past the next election.

As a result, Russia and Iran control the Middle East with our traditional ally Saudi Arabia somewhat sidelined. The entire balance of power in that region has been overturned by the extreme ignorance and incompetence of Hillary and Obama. America itself is now sidelined in that region since no one can trust us. We're talking about the most misguided foreign policy fiasco in world history.

News this morning details more lies and subterfuge by Hillary and Obama with regard to the "Iran deal." Almost everything in the Iran deal turns out to be dubious and/or deceptive in effect and implementation -- with Obama and Hillary lying about nearly all of it. It appears that the Obama administration was desperate for any agreement, even if it was bad for America. Every objection on the Iranian side was accommodated. Repeated reports, slowly leaked out since it's conclusion have shown that there are secret side deals with Iran that helped Iran and undermined the intent of the "public"deal!  And there have been plenty of factual reports of Iran repeatedly flaunting the terms of the "agreement."The whole episode stinks to high heaven. To even think that you could trust the Mullahs is a delusion on a massive scale. Obama and Hillary are severely deluded and the Iran deal is fraud meant to impersonate some kind, any kind, of policy success. And we were given a false narrative by our propagandist-in-chief that it was either a deal or war with Iran. That's completely false! And the Media spins these lies!

Remember Hillary and Obama trying to kick-off a Palestinian and Israeli negotiation? Obama and Hillary's proposal STARTED with the assumption that Israel will be giving up territory. Enticing Israel to discussions where the end-result was predetermined was an obvious FAIL!  Nothing happened of course.

And Liberals never understand the concept of peace through strength and have seriously degraded our military for 8 years now. This is one more reason why Liberals are unfit to govern. Not only are they unfit, they can only impose their policies by tricks and lies.

Hillary, Obama, Kerry and nearly all the rest are fools and dunces of the highest magnitude. That they occupy the highest offices in the land is astounding and dangerous. If Hillary fools the people and wins the Presidency, it will probably be the ultimate catastrophe for our country. America may never be able to recover.