04/07/2017 - The Roundtable Insight (Full Version) – Yra Harris, Peter Boockvar and Uli Kortsch On Central Bank Distortions

FRA is joined by Yra Harris, Peter Boockvar, and Uli Kortsch in discussing central bank distortions, global currency trends, along with protectionism and infrastructure spending in the US.

Yra Harris is a recognized Trader with over 40 years of experience in all areas of commodity trading, with broad expertise in cash currency markets. He has a proven track record of successful trading through a combination of technical work and fundamental analysis of global trends; historically based analysis on global hot money flows. He is recognized by peers as an authority on foreign currency. In addition to this he has specific measurable achievements as a member of the Board of the Chicago Mercantile Exchange (CME). Yra Harris is a Registered Commodity Trading Advisor, Registered Floor Broker and a Registered Pool Operator. He is a regular guest analysis on Currency & Global Interest Markets on Bloomberg and CNBC.

Yra highly recommends reading The Rotten Heart of Europe – send an email to rottenheartofeurope@gmail.com to order


Prior to joining The Lindsey Group, Peter spent a brief time at Omega Advisors, a New York based hedge fund, as a macro analyst and portfolio manager. Before this, he was an employee and partner at Miller Tabak + Co for 18 years where he was recently the equity strategist and a portfolio manager with Miller Tabak Advisors. He joined Donaldson, Lufkin and Jenrette in 1992 in their corporate bond research department as a junior analyst. He is also president of OCLI, LLC and OCLI2, LLC, farmland real estate investment funds. He is a CNBC contributor and appears regularly on their network. Peter graduated Magna Cum Laude with a B.B.A. in Finance from George Washington University. Check out Peter’s new newsletter service at www.boockreport.com.

Uli Kortsch is the Founder of both the Monetary Trust Initiative (MTI) and Global Partners Investments (GPI).  Currently most of his time is spent on MTI whose mission is to bring transparency and authentic principles to our monetary system. As President of Global Partners Investments and other ventures, he has worked in over 50 countries, written a bill for Congress, and conferred with approximately 15 national presidents, ministers of finance, and ministers of commerce.  He has served on numerous corporate boards with both for-profit and not-for-profit organizations.


The Swiss National Bank (SNB) has been printing money to buy equities for years now. They have interest rates that are deeply negative, all because they’re afraid of the negative economic impact of a stronger Swiss Franc against the Euro. But the SNB is about to get lucky because the ECB has decided it’s time to take a step back from their policies. Maybe it’ll be a time out with respect to the Swiss and what they’ve done fighting tooth and nail to prevent a rally in the Swiss Franc. They have become one of the largest shareholders of a lot of companies, what with all the money they’ve printed trying to find a home somewhere. They’ve essentially become their own S&P500 fund and are behaving like a hedge fund overall .. like a sovereign wealth fund, but unlike Norway or Singapore, the only thing the Swiss mine is a printing press.

If you look at what the world is doing – basically trying to weaken their own currencies – we’re taking the wealth of the country and moving it to exporters. Everyone loses since the currency that we hold has a certain value with respect to the rest of the world when it comes to imports. The exporters aren’t just corporations, they’re also workers. What is the gain verses the loss on a national average?

The concept of weakening one’s currency is tremendously mistaken. We only have to look at Japan and see their experiment of weakening their currency since 2013. The ideal currency is a stable one.

If you drive your currency lower, your consumers are going to be losers, especially if you’re buying a lot of imports, because the prices of your imports are going to go up. This is a discussion that’s also plaguing Germany. It’s an established policy that they promote exports and keep a low currency, which burdens the purchase of imported goods around the world.

If China were to move to a consumer based economy, they would do better with a stronger currency. That’s why the Yuan is such an important denominator in what China wants to do. If they’re making the shift to a much more domestically oriented economy to soak up all that excess capacity, they should promote a stronger currency as that would be better for their consumers.


Trade flows are only a small percentage of the daily moves in currencies. The foreign currency market is $5T in debt, so what’s $500B of a trade deficit in the US? Nothing. What’s going to drive the dollar is real interest rates, not nominal interest rates. The Fed started raising rates in Dec 2015, and the 5yr real rate is +50 basis points. Here we are, three hikes later, and it’s -19 basis points. Anyone who looks at nominal rates is not really looking under the hood, and it’s the steep decline in real rates that’s what’s kept a lid on the Dollar, which is at a level that’s no different than where it was a couple of years ago. Look at everything that’s been thrown at other currencies. These currencies have stop going down. It says a lot about the flaws of the Dollar and the impact that negative real interest rates have, notwithstanding the rise in the Fed funds rate. Real rates in the US are negative, and that will bear on the currency.

If you’ve been a saver-investor for the last five years, it’s very difficult to find a way to protect yourself in this environment. If you put your money into two year US Treasuries, with negative nominal real rates, you’re losing money. And that’s where their safety zone is. There is about $11-12T sitting in zero interest rate bearing savings accounts. At a 1% yield, that’s $100B extra of interest income. Multiply that by 8 years of zero interest rates, and you’re talking savers that have been deprived of almost $1T through this monetary policy the Fed said would promote growth.

It’s always a policy where someone gets paid and someone suffers. In the world we live in, savers have been punished and borrowers have been rewarded. With QE it’s the ultra-rich that gained tremendously from the rise in asset prices.  The political left which complains about capitalism is the source of the problem. They’re driving asset prices through the roof.


We’re up to the point where the Fed funds rate was historically 200-300 basis points above the rate of inflation. If inflation was at 2% right now, historically the Fed funds rate would be 4-5%. The problem is that with the enormous amount of leverage built up in the financial system, getting to that Fed funds rate would literally blow up the system. So the question now is, where should the Fed funds rate be in light of that? Let’s just get it to a 0 real interest rate, so we have a 2% Fed funds rate. Right now they’re at 0.875%. One of the rules of the central banks is that you don’t wait until after you get to your supposed mandate targets to then start normalizing interest rates, you should be at normalized interest rates when you get to your target. So it’s clear the Fed is well behind the curve. It’s only in the halls of academia that “neutral interest rates” exist, and it’s their way of rationalizing this very slow growth in interest rates. They waited for the perfect world to end QE and raise interest rates, but none of that exists so now they’re playing catch up.

They want to slowly raise interest rates and keep everyone calm, but that means they are getting behind the curve. Then they want to shrink their balance sheets to not be disruptive, and normalize interest rates at the same time they created another credit bubble. If the Fed announced that they were going to actively shrink their balance sheet, and think the market won’t punish them, they don’t know how the market works.

Let’s say we start unwinding the balance sheet. That curve ought to straighten out quite a bit on paper, with one large buyer exiting the market on top of foreigners who are net sellers of US Treasuries. If people start worrying about what this will do to the stock market, do we then get an actual flattening of the curve instead because everyone is freaked out about growth? If this curve does not steepen, it’ll be a signal that there are many other things afoot here.


The auto sector was a main driver of growth post-recession, and it’s interest rate credit sensitive, second only to housing. Look what’s happening in the auto sector. This is another sequel called boom and bust, and it’s written and directed by easy money. We now have the Fed who may continue to shrink their balance sheet – at the same time a major driver of growth is now rolling over. The auto sector itself can’t necessarily put us into recession, but the ripple effects could be extraordinary. 45% of all jobs touch the auto sector in some way, and this is a big canary in the coal mine.

We’re not only at high auto sales but also record repossession of autos. It’s a classic case of intertemporal misallocation. Through the use of credit, they keep borrowing all this demand from the future and the future is now.


Especially now, when labour is especially tight, who are you going to find to build that bridge? All those construction workers are building other things, so it’s just a transfer of resources. The infrastructure will ultimately create more productivity.

Our reliance on U3 numbers is really inappropriate in today’s economy. The appropriate number is U6, which includes people who would like to get a job who have not actively looked for a job over the last four weeks and the people with part time jobs. Thirty years ago we lived in a U3 economy where people had steady, stable jobs and you were employed by someone full time. We don’t live in that world anymore.

Since 2007, U6 has not dropped. It’s been around 10%. Things are better than they were a few years ago, but there’s still a huge percentage who are not participating for one reason or another. Right now it’s about 9.2%. The average since the 90s is over 10%, so even though the U6 is very high, it’s not out of the ordinary.


Uli’s proposal .. create US Notes for infrastructure spending .. They are not part of the debt limitation legislation and create no real debt. They are no interest bearing, non-repayable, and are created by Treasury and transferred into the Treasury account at the Fed, which creates no inflation whatsoever as long as it stays at the Fed. Once they’re in circulation they’re no different from any other US Dollar, it’s just the way they’re created is radically different. Our Fed notes are created through debt where US notes are driven by value.

Most of the spending is on the state level. The point is to use federal US Notes to fund states and municipalities on a debt free interest free basis. The $300B Obama infrastructure bill is all debt based money. All of that money increases the $20T total output in Treasuries, whether they’re owed internally or not.

There’s nothing sustainable in terms of growth when there’s money spent on infrastructure. It’s short term in nature. Once the job is done, the workers still have to find something else to do. Hopefully the focus on infrastructure spending doesn’t distract us from creating more sustainable long term growth and that gets through to tax and regulatory policy.

Trump has talked about mimicking the German method of really training people so they’re going into apprentice programs. When you look at the outcome from education, for the most part it’s hyperinflation. In the general American population, if you go into an apprenticeship program you tend to be seen as a loser, which is terrible. That’s what Germany does well. They train tradespeople, and there’s a lot of pride to it. Here, we push college at everybody and all it does is multiply the debt levels exorbitantly.


They talk about protectionism because Trump and some of his administration don’t understand trade. They see deficits as a negative, but consumers in the US who can buy things cheaper overseas have their standard of living improved. There are some things that we should make and some things that other countries should make, and what we have to do is make ourselves as competitive as possible and let the chips fall where they may. Trump is taking this mentality of deficit = bad, surplus = good and then goes into a meeting with the Chinese with that mentality.
We should be embracing the second largest economy in the world because they are our partner in a sense of creating healthy, sustainable, quicker growth. But to battle with them over a trade deficit number is just a misunderstanding of the benefits of trade. The “curse” of being a global reserve currency is that you have to export Dollars. It’s impossible to do anything else, especially as other countries build up their USD reserves. If some other currency becomes strong from a global currency perspective, which makes it easier for the US to not run a deficit. The emerging markets have built up their dollar reserves to an astronomical level over the last few years because they’ve been afraid from a stability perspective.

When you’re the reserve currency of the world, you have a different role to play and you’re not just like everyone else. That’s the basis of Pax Americana. Instead of gold, the global currency became the Dollar. The world is in this situation, and if you rip that bandage off and say, no, we’re not supplying Dollars to the world, we will embark on a global depression of huge magnitude. Trump wants to roll back Pax Americana and the cost of being imperial America, but that better be done in a timely way. The Americans filled the void when the Brits abdicated their empire and the role of the British pound, but who’s going to fill that void now?

The Chinese will bring all sorts of gifts to placate Trump, but that pushes the stock market higher in the hopes of there being some rational discussion.

Abstract by: Annie Zhou <a2zhou@ryerson.ca>

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