10/02/2017 - Gordon T Long: The Next Financial Crisis Will Be Global And The Federal Reserve Will Not Be Able To Control It

“That is correct, and it won’t be something that is gradual, it will be very abrupt .. The system will break… and the financial markets will freeze up. When they come out of the other end of that freeze, and it may be a number of weeks because the next crisis will be global and much more complex than 2008. We could control that with the Federal Reserve . . . and this one you cannot do because you cannot get agreement with all those countries. Never mind understanding the complexity .. So, when we come out on the other side . . . there will be a massive revaluation in the U.S. dollar .. They will have to put some stability in the monetary system, and the only way they can do it is having something they cannot print. This is what has gotten us into this problem. We have to get back to sound money.”

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

10/01/2017 - The Roundtable Insight – Charles Hugh Smith On Why Wages Are Stagnant In The Developed World

FRA: Hi – Welcome to FRA’s Roundtable Insight. Today we have Charles Hugh Smith. He is America’s philosopher as we have called him in the past. He is the author of 9 books on our economy and society including: A Radically Beneficial World: Automation, Technology and Creating Jobs For All, Resistance, Revolution, Liberation: A Model for Positive Change and The Nearly Free University and the Emerging Economy. His blog, has logged over 55 million page views and is number 7 on CNBC’s top alternative finance sites. Welcome Charles!


C. H. SMITH: Thank you Richard. I always wonder if I can live up to that glowing introduction.


FRA: You always do. You have great insight as always. I thought maybe today we take a look at a topic you have written a lot about and that is on stagnant wages, particularly in the developed world such as the U.S. and Canada, and what the challenges are behind that…Why it’s happening and if there are any solutions to get out of that trend.

C. H. SMITH: Right – Well it’s an excellent topic. It confuses the conventional economic commentators because as of right now we all know in the developed world, at least in North America, the unemployment is quite low – It’s less than 5 percent which is considered full employment. Normally when we have full employment then employers have to start bidding higher wages and benefits to attract the most productive workers. A rising tide raises all ships and in other words wages tend to rise across the board. When you have full employment and a rising gross domestic product, but we have rising GDP and very low unemployment, according to the statistics, and our wages remain stagnant so something has changed. So I think that is the question that we are going to try to explore.


FRA: And as your writings have indicated that there are a lot of explanations that include automation, globalization, offshoring, the high cost of housing, the climb in corporate competition, the failure of the educational complex to keep pace, a global labour arbitrage as a big factor. What do you make of those explanations?

C. H. SMITH: Yeah – I think all elements and part of what we’re proposing here is that there is not just one explanation. If we could just nail it down to one cause then we might be able to change that which policy, but what you’re talking about is these very large structural forces such as globalization and the fact that the economy is changing faster than our higher education systems can change so they are falling behind what employers actually need employees to know. And so these are structural and very difficult to modify or change with just a few policy tweaks here and there. That’s not even mentioning the impact of financialization and financial repression which we all know has kicked into gear in the 21stcentury. That has also changed the distribution of the gains we’ve made from productivity. I have a chart here that the New York Times published in August indicating that virtually all of the income increases over the last few years are now going to the top half of 1%. That’s completely different than it was in the 80’s and 90’s where the distribution of increasing incomes was skewed to the lower end income and middle income sectors. That to me shows the impact of financialization because we know the top 0.5% are generally not people inventing something wonderful, they are not Steve Jobs, they are people that are simply getting nearly free money from central banks then using that cheap money to leverage it into ownership of income streams. They are not creating any income streams they are simply acquiring them with all the evil fruit of financial repression, cheap money, limited liquidity and high leverage.

FRA: For our listeners, Charles has made a collection of charts that provide good insight and we’ll have those charts in the write up of this podcast as well for everybody to look at. If you could go into what is the need for rising wages – the whole system is based on rising wages, could you go a little bit into that and why stagnant wages is a problem?

C. H. SMITH: Yeah – That is a critical point because our whole economy, the advanced post-industrial developed economies, they are all consumer economies – They depend on consumers buying goods and services on a permanent basis. So you have to have higher wages in order to support more consumer spending and more consumer borrowing because if we are going to borrow more than we need to make more net income so we can service that higher debt. So stagnant wages throw a monkey wrench into the whole permanent growth and expansion of consumption that our economies are based on. Now we can question that model and say what we really need is a growth model where we are actually getting more happiness and satisfaction with using less resources are earning less income, but that’s a discussion for another day. The economy we have is one that starts falling apart if wages stagnate or decline. I have a chart here of wages and salary as a percent of GDP and it’s quite interesting because it goes back to 1960. It’s basically a measure of how much of the economic activity or output of the economy is going to wages and salaries. What we find is is that it’s dropped quite a bit. In the 70’s, about 50% of all the GDP went to wages and salaries such as working and self-employed people, now it is hovering around 42% or 43%. That is a significant chunk because the GDP currently is about 18 trillion, so if you’re talking about 7% of that then you’re talking about a trillion dollars that used to be directed to wages and salaries and now is going to corporate profit or financier profits and basically financialization. So that’s a big change, but it’s secular, in order words it started in the 1970’s with the stagflation of the 70’s then it continued to climb in the financial boom in the 80’s and the only counter trend was in the Dot-com era, then the percentage of the GDP growth that went to wages and salaries actually increased, but when that boom ended it went back to a decline.

So we have to look for answers that don’t just start 5-10 years ago, we have to look back and say something has been happening for a decade or two. One possibility is productivity, that if we look at productivity growth – I have a chart here that goes back to 1980. Obviously it’s a volatile metric, it goes up and down depending on if the economy is entering a recession or not, but recently even though we’ve had strong growth in the GDP, the productivity has been very anemic and not just for a year or two but since 2010. That’s another change that’s undermining wages and salaries because all real growth comes from increases in productivity.

FRA: Now in some parts the local governments, which have growing budgets tied to increased collection of property taxes due to rises in housing prices, that could also become problematic in a similar way in the public sector if the housing prices stagnate or decline. How are property taxes going to be maintained or increase based on budgets that are factored in for growth?

C. H. SMITH: That’s right and an excellent point – And especially for municipalities and states where the majority of the local government income is largely based on property taxes rather than sales or income taxes. And of course if wages stagnate then people have less money to spend so sales taxes stagnate, they have less income so income taxes stagnate and then they can’t afford to move up to more expensive housing if they can’t afford the property tax. I think we can see the local governments around the U.S. are feeling a dwindling, a stagnation of their revenues. Another thing is I have a chart here of the annual change in the number of new firms or in other words how many new companies are emerging and succeeding enough to hire employees and pay taxes and all the good stuff that we expect of new business growth – That has been stagnant or declining since the 2009 global financial crisis as well, compared to the previous decades of very strong growth of new small businesses. That’s another element, it’s becoming more difficult to start a new business and to succeed. That also means that there is less opportunity for wage earners because the fast growing small businesses tend to be the engines of employment because they are growing fast and need talent and are willing to outbid existing corporations for the best talent and so they are a big part of higher wages. That is also causing stagnation in wages and salaries.

FRA: So, if we consider the big reason of financialization as the reason that wages have stagnated and that the economy is optimized for financialization, can we focus on that to explain what is financialization, how does it work, what does it mean to the average consumer and so what’s exactly happening behind financialization?

C. H. SMITH: That’s a great question. It’s a word that has various definitions. My personal definition is that it’s the commodification of everything in the economy into something that can be marketed globally. So for instance, home mortgages in North America, back in the ancient days or 20 year ago banks would originate a mortgage and hold it. It was a very slow, steady, low-risk business with a guaranteed return. Once that financial industry got financialized then the mortgages were packaged into financial instruments that can then be marketed globally as investments and then they could be sold as AAA-rated instruments to credulous investors and huge profits could be spun off of this. So that’s an example of how financialization works, is that it’s basically taking what was once a low risk industry and hyperfinancialzing it so it could be sold off and traded for immense profits. The high risk that is generated from that is then passed onto other people. The role of central banks in financialization is that the cheaper you make money, the more speculation that you enable. For example in the housing bubble of 2007-2008, that speculation was fueled on both ends of the spectrum. You had small-time players getting liar loans, which were of course enabled by central bank liquidity. And then you’ve got financiers that were selling F-rated financial instruments as AAA-rated. Nowadays, because of the credit-tightening and the regulations that were finally imposed on the banking sector, the small fry doesn’t really have the same access to liar loans and easy money, and so now it’s congregated up in the very top of the wealth power pyramid that if you’re a financier or a corporation, then you have almost unlimited access to cheap money. You can sell bonds at low rates or borrow money from a money centre bank at rates that no normal employee can possibly match. So the corporations can do thing that would not have been possible without financial repression because if they had to pay 7% or 8% to borrow the money, then it would no longer make sense to buyback so many millions of shares of their company in order to boost their wealth and capital gains. So it’s the cost of money and the availability of money to the apex of the wealth power pyramid and that’s why the chart from the New York Times shows that the vast majority of income gains over the 21thcentury are congregated over that very small part of the population that has access to unlimited liquidity at very low interest rates and then they can buy the income streams and outbid everybody else. I think that is one of the devastating impacts of financial repression, that the benefits are not evenly distributed. If you and I could go borrow a billion dollars at 1%, we could do some amazing things because all I would need to do is buy bonds that pay 3% and I would be skimming 2% for nothing. I would be earning 40 million dollars a year simply because I have access to cheap money. That is one of my favourite examples of how financialization works.


FRA: And you’ve got a great quote from one of your blog writings earlier this month saying, “Financialization funnels the economy’s rewards to those with access to opaque financial processes and information flows, cheap central bank credit and private banking leverage.” Those aspects cover what a lot of what financial repression is about such as cheap central bank credit – The whole money printing and quantitative easing aspects of central bank activities.

C. H. SMITH: Right – And the fact that for the 99.95% of us, we can borrow money to do something specific, modest and limited such as buying a house or getting a small business loan if we jump through a lot of hoops, but we can’t go borrow money with the size and leverage that the big players can – That’s why they’re scooping all the income gains. If we look at the chart here of declining wages for all layers of the educational accomplishment, in other words even the workers with advanced degrees, their wages are stagnating too while those with less education may actually be declining once you adjust for inflation. This is quite amazing that even the highest educated workers are no longer making gains. That shows how pervasive the damage is with financial repression.

FRA: That is an interesting chart. And if we can now ask what is the way out of this – Are there any solutions? Could a repeat of the dot-com bubble, where there was a break in the trend, be repeated through the revolutions we have going on like in blockchain, bio-tech, energy & environment, robotics. There are a whole bunch of revolutions that are happening in different industries. Could any one of those or perhaps collectively altogether duplicate a dot-com effect?

C. H. SMITH: That’s a great question and I think the more we learn about each of these scientific and technological revolutions, the more potential we see. Just as a beginning comment: there is a lot of media coverage of the replacement of human-beings such as the self-driving driving vehicles which are going to get rid of millions of drivers, that is definitely a real possibility, but we have to also make mention of something that is less sexy which is that a lot of technology tends to augment human labour. For instance, an industrial robot on a factory floor, it doesn’t just do it’s thing with no human interaction for months on end, years on end. More and more you need to change your product line very quickly and modify your production and so you actually need skilled humans to reprogram the robot. There is a lot of this kind of technology where the tool increases human productivity, but humans are definitely still the key part of the whole chain of production. So I think there is a definite possibility for higher wages which would basically mean the higher productivity that’s flowing from technological advances would go to those doing the work as opposed to those who own the income streams. But I have to say we are going to have to find some way to limit the predation of financialization in order to press those gains down the wealth power pyramid to those who are actually doing the work and creating the advances. That’s going to require certainly a political change that puts limits on financialization so there is more of the nation’s income left to be shared with the workers.


FRA: Could all of these trends have deflationary effect on the economy in terms of the need to sell assets for generating enough income to service debt and to pay ordinary everyday expenses? Do you see that potential in terms of deflationary effects on the economy in general?

C. H. SMITH: That’s a great question because it calls to my mind Japan, which as we know has been sort of in a deflationary cycle for roughly 25 years. When we look at Japan there are many aspects we can comment on and it’s stagnating too in terms of it’s wage structure and it’s growth. But one thing we might posit is that Japan’s export industry, it’s most productive sectors like automotive and various technology sectors, their productivity is increasing enough that Japan’s national economy has been able to stumble forward in a very low growth and stagnate way, but the very high productivity of the industrious sectors of Japan how allowed that to be modified. In other words, without those high productivity industries, then Japan would be in a real perhaps deathbell of deflationary dynamics. My point here is that if you have these very productive revolutionary technologies, they may be a small sector of the overall economy in terms of a percentage of economic activity, but in terms of the gross and productivity that they create, they have an outsized impact. So we might see something like that and we may be already be seeing something like that in the U.S. where the sectors that are growing fast and creating a lot of value are keeping the U.S. economy from entering a deflationary cycle. And because we know one cause of deflation is technology lowers costs and so things get faster, better, cheaper, or at least that’s the idea. That’s not a very complete answer to your question, which I think is a good one, but my point being is that technological revolutions can lower the cost of goods and services which is deflationary, but their productivity gains can increase the GDP which tends to counter that deflationary impact – In other words the whole economy can be growing even as prices decline.


FRA: That’s interesting and great insight – How can our listeners learn more about your work, Charles?

C. H. SMITH: Please visit me at


FRA: Great – We’ll have you on again. Looking forward to the next discussion.

C. H. SMITH: Thank you so much Richard – It’s been my pleasure.

Transcript by: Daniel Valentin <>

LINK HERE to the podcast in MP3 Format

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

10/01/2017 - The Roundtable Insight – Casey Research’s Nick Giambruno On The War On Cash, The Future Of Cryptocurrencies, And Investing As The U.S. Pension Crisis Unfolds

FRA: Hi – Welcome to FRA’s Roundtable Insight. Today we have Nick Giambruno. Nick is Doug Casey’s globetrotting companion and is the Senior Editor of Casey Research’s International Man. He writes about economics, offshore banking, second passports, surviving a financial collapse, foreign trusts and companies, geopolitics, and value investing in crisis markets, among other topics. He is also the Senior Analyst of the Crisis Investing publication. He’s lived in Europe and worked in the Middle East, including Beirut and Dubai, where he covered regional banks and other companies for an investment house. Nick is a CFA charterholder and holds a bachelor’s degree in finance, summa cum laude. Nick is a frequent speaker at investment conferences around the world. Welcome, Nick!

NICK GIAMBRUNO: Great to be back with you Richard.

FRA: I thought today we would focus on a number of interesting topics that are in the news and public highlight including what’s happening with the pension crisis in the U.S. and the war on cash with the overall theme of central banks intervening in the economy and in the financial markets. Maybe we could begin with your thoughts on the war on cash. Where do you see that trending? Do you see governments getting involved with cryptocurrencies to move away from cash?

NICK GIAMBRUNO: Well, let’s start by looking at the war on cash. And not to mince words, the war on cash is evil – It’s all about restricting peoples’ choices and forcing them into digital systems that can track, monitor and control every penny you earn, save, borrow and spend. It’s really a totalitarian-type control system and there really is no redeeming values of it whatsoever in terms of benefits that are worth the trade-off of basically looking your absolute financial privacy. So first thing is first – It’s just an awful thing, but nonetheless it is a growing trend. It’s not naturally popular in academia and with governments because it’s all about transferring governments more power and control over people. That is uniformly a bad thing, but nonetheless, it is a growing trend not just in the United States, but around the world. Your listeners might remember back decades ago in the United States there used to be $500 bills, $1,000 bills, and even a $10,000 bill. Those have all been gotten rid of, I think, in the 1960’s and 1970’s with the usual excuse of, it’s only being used by drug dealers, terrorists, money launderers and that sort of thing. So, the largest bill we have since then is the $100 bill and the purchasing power of the $100 bill has gone down drastically since the 1960’s and 1970’s. Inflation is an important component on the war on cash because if the governments don’t issue larger denominations of bills to keep up with inflation, it has the de facto effect of forcing more people to use cards and digital payments than they otherwise would because it’s just not convenient to use cash since the largest valued bill has been inflated away. And I see the same sort of demonization that the governments, the media, and their academic cohorts have used in other areas such as the very large denominations of U.S. dollar bills back in the 1960’s and 1970’s. I see the same language used by the same type of people towards private cryptocurrencies and that is a scary thing because it shows that they are gunning for this. It is important to distinguish between a private cryptocurrency and a cryptocurrency which is controlled by the government. In my opinion, I think it’s a wonderful thing to have these private currencies because the ultimate power and control these systems is not with the state or any government – It is distributed and decentralized. That’s why we see governments talking about how it is only used by terrorists, drug dealers, and money launderers. That why we see people who are intimately involved in the current system, banking and central banking system, which is as you are fully aware a fraudulent system, like Jamie Diamond coming out and saying Bitcoin is a fraud, these are signs that they are gearing up towards an assault on this. And we can go into the reasons why, but I think it’s going to be extremely difficult for them to crackdown on these private blockchain and cryptocurrencies, I think the cat’s out of the bag on this. But nonetheless, all of these issues are intertwined.

FRA: Do you think that governments will allow the private-based cryptocurrencies to coexist? I know you said the cat’s out of the bag and they are uncontrolled, but maybe in the future if governments try to control or regulate then do you see the possibly or allowance by the governments for private-based cryptocurrencies?

NICK GIAMBRUNO: Honestly, I don’t think that they have a choice. They can try to control it and regulate it, but I don’t think that they are going to have much more success than say Venezuela does in trying to control currencies that they don’t like which would be the U.S. dollar and other currencies. So, I think the U.S. government is not going to have a whole heck of a lot more success than say Venezuela does or any government does in regulating currencies that they don’t like their people to use, which in itself is a terrible thing. Why should some bureaucrat tell you what kind of currency you would want to use voluntarily? It’s really a terrible thing. Also another thing to point to, a similar technology, is BitTorrent. Now BitTorrent is a decentralized file-sharing technology that allows people to share any kind of file they want whether it’s a Hollywood movie that just came out in theatres, an E-book or anything, you can share anything. Anyways, this technology has been around for over 15 years and despite the U.S. government’s best efforts to shut down BitTorrent, it’s’ still decentralized. It’s like a game of Whack-A-Mole and despite their best efforts it is still easily accessible to anybody on the internet. Bitcoin is similarly decentralized and maybe even more decentralized. So sure, they can say that Bitcoin is illegal and you cannot convert your dollars into Bitcoin. It will just shut down these exchanges, but it’s not like Bitcoin is going to die or that it’s going to be impossible for you to get Bitcoin – It might be a little harder. I think it’s basically impossible for the U.S. government, Chinese government or any government to totally eliminate these private cryptocurrencies other than shutting off the internet and keeping it shutoff, quite frankly.

FRA: Great points. On central banks – Do you see central banks as being favourable to a war on cash to make it easier for bank bail-ins for central banks to implement their policy, for example, negative interest rate policies and those types of things?

NICK GIAMBRUNO: Certainly – The central banks are all on board and on the same wavelength of the folks who are advocating for the abolition of cash. So, the central banks are fully on board for this and I think one of the main reasons for the war on cash is because central banks want to use negative interest rates, which is a bizarre thing in the first place when you actually think about it, it’s like getting paid to borrow money – It makes absolutely no sense. And it wouldn’t happen in a free market. Negative interest rates basically couldn’t exist in a free market. They only can exist in a manipulated and controlled market such as the system that we have with central banks and fiat money. But the thing is, they want to implement negative interest rates because of their wrongheaded belief that instead of losing money from the sting of negative interest rates, people will think: We better go out and spend it quickly before we lose money from it. And that it will somehow stimulate the economy. It is completely wrongheaded in the sense that it will encourage people to save more money because it will be harder for people to save money to spend on their basic necessities. That’s not going to spur people to spend more, it’s going to spur people to save more because they are going to have less money available to spend on rent, food and so forth. It’s not going to make them go out and buy the iPhone 8 or the next ridiculous fad as they would like them to. Anyways, the whole point of the war on cash is to force people into the banking system because cash represents an escape hatch for people who want to avoid negative interest rates. It’s no coincidence that in countries that have the worst cases of negative interest rates, you see people saving more in cash. Look at Japan. Japan has had record sales of safes that people would install in their house to store cash because Japan has negative interest rates and people don’t want to lose money from negative interest rates. So, it’s a completely wrongheaded and destructive policy, again, that has no redeeming values whatsoever that could not exist in a free market where there are voluntary interactions between buyers and sellers – It can only happen via coercion in a government controlled financial system.

FRA: Do you consider cryptocurrencies to be a store of value or investments? Will Bitcoin, for example, retain its current valuation or will it come down a little bit towards what the cost to produce a Bitcoin in terms of electricity and computers, I think it’s around $1,000 now. What are your thoughts on that?

NICK GIAMBRUNO: Yes – I think the real value of cryptocurrencies, in my opinion, have yet to be established that these are reliable stores of value for anything other than the very, very short term. Nonetheless, they are extremely valuable as transfer mechanisms to move a value from point A to point B instantly. You don’t have to keep it in the cryptocurrency, you can convert it into other things such as goods, services, fiat money, gold or whatever you want. In terms of moving it from point A to point B, I think they have a tremendous amount of value, but as a store of value I think it’s going to take some time to establish that. Personally I favour gold and silver as long-term stores of value. But with the cryptocurrencies which is really, really interesting is that you don’t need anybody’s permission to send money to anybody anywhere in the world and it doesn’t need to be backlogged by the bank and have the compliance department check it out to make sure it’s fine, it doesn’t need the approval of SWIFT, it doesn’t need the approval of the U.S. government. You can simply send cryptocurrencies to anyone in the world and there’s pretty much nothing anyone can do about it and that’s a really wonderful thing.

FRA: Great points. Going on that theme of movement internationally of capital – What are your thoughts on globalism? You’ve written a lot about that and the end of globalism on the economy. Will that lead to protectionism or more local freebased markets?

NICK GIAMBRUNO: Well, I think the jury is still out on that, but I think it’s important to also define our terms because these terms are thrown around a lot and I think it’s important that we have a common definition of these terms so we know what we’re talking about. Globalism, in my view, is simply the centralization of power on a global basis, that’s it. That’s all it means. You look at the people who advocate for these things in centralized global power structures, that is globalism. Now whether globalism has reached it’s venus and is now declining – I think there’s a good chance it is. The European Union is a perfect example of globalism because it’s centralization of power of all these nation states into one global, one giant, super-national institution. So, we are talking all about the centralization of power. And it’s interesting because cryptocurrencies tend to go in the opposite direction – They tend to be centralized power and I am 100% for decentralization. Decentralization is always a good thing and centralization is, generally, always a bad thing. What we’re looking at here is what is going to happen if and when globalism and the ideology behind globalism, which is universally ascribed to by the elites in the academic, the political, the financial, the media elites in the U.S. and the greater Western world. In my view, it is a bankrupt philosophy and I think it’s sort of akin to Communism in terms of, this is a bankrupt ideology that is going to be relegated to the dustbin of history sooner or later. So, what is going to replace that? I think that is an open question. Are we going to move towards a more decentralized, voluntary society? I would like that to happen. Or are we going to move towards nationalism and protectionism which is just replacing centralization of power on a global basis for more of this tribalism and nationalistic feeling which isn’t necessarily a good thing either. So, I think the jury is still out on that whether we are going to move towards a more nationalistic, protectionist type of a world or we’re going to move towards a more voluntary decentralized type of world – I think the jury is still out on that.

FRA: You’ve written a lot recently on the U.S. pension crisis. John Mauldin has pointed out that he thinks the bubble in government promises is arguably the biggest bubble in human history. He gives an estimate of 2 trillion, but says that that’s based on an average 7% compound return, of 2 trillion of unfunded liabilities for state and local governments on the pension crisis. But, assuming the market could go down 40%, then you have unfunded liability in the range of 7-8 trillion so it’s enormous. What are your thoughts on the U.S. pension crisis?

NICK GIAMBRUNO: This is a perfect example of the extreme corruption in the U.S. and the extreme corruption in government and financial markets. It’s a total mess and quite frankly the pension crisis is an unsolvable problem. There’s nothing that can be done to solve this problem – It’s simply too big. The issue at hand here is that the government, these local governments: municipalities and state governments, all over the place, they are making extravagant promises on retirement benefits that they simply can’t deliver on that gets them the support of their government employees, unions, police officer unions, teachers unions and these kinds of things. But they’re really promising these people, their own employees, benefits that they can’t deliver on. What’s interesting is that pensions are pretty nice benefits. I mean think about, you basically get or pretty close to get your last year’s salary adjusted for inflation until you die and that’s a pretty nice benefit. Pensions don’t really exist in the private market anymore. About only 4% of private U.S. companies offer pensions anymore just because it’s not possible for them to do, but for a government they can promise these extravagant things. Another thing is is the accounting method of pensions. Governments get to use different accounting standards than private pensions do. And the single most important number in the whole pension crisis is the assumed rate of return on the assets of the pension because that assumed rate of return is used to discount the future liabilities of the pension. If they use an artificially high assumed rate of return, their liabilities are magically shrunk. These pensions are assuming that they’re going to earn a better return in the stock market than Warren Buffet into perpetuity which is ridiculous. They’re not using anything towards realistic assumptions in their accounting – They are using Bernie Madoff accounting; it’s a fraud. If they were in the private sector they would be going to jail for fraud, but nonetheless they are in the government sector and, magically, what is fraud in the private sector becomes acceptable in the public sector, which is totally unreasonable. Be that as it may, what they’ve done is they’ve promised these extravagant retirement benefits to their employees and now we’re really close to the tipping point because these pensions plans are basically bankrupt and that’s at a time of a stock market bubble and a bond market bubble of historic proportions. That should pump up the value of these and it has pumped up the value of these pension plans, but nonetheless they are still paying out all this money in benefits that even with an enormous stock and bond market bubble these things are still insolvent. And even with using unrealistic return to discount the future liability – They’re still insolvent. So, the next time the market has any sort of minor recession or downtown a lot of these pension plans are going to go bust. What does that mean? That means the taxpayers and the states are going to be on the hook to pay for these extravagant benefits. People in the private sector don’t get to use benefits, so they are extravagant benefits. How are they going to pay for them when the whole thing has gone bust? Well, they’re going to increase taxes and what taxes are they going to increase first? – Property taxes. We’ve seen this in Illinois. Recently property taxes are going through the roof in Illinois. Illinois is hardly the only place that has a pension problem, many many jurisdictions do. If your town or your state or your municipality or your city has a pension problem, the likelihood of your property taxes doubling, tripling or even going higher is very likely. It’s not just in the U.S., any jurisdiction that gets into financial problems always turns to higher taxes and property taxes. Greece is a perfect example. I think Greece’s property taxes have gone up 4 or 5-fold in recent years as they’ve looked to squeeze people for any penny they can get out of it. So, really to me this is an illustrative example of just how rotten the political system is, how rotten the financial system is and it’s all wrapped up into one nice crisis. This thing is going to come to a head sooner than later, certainly within the next cyclical recession which we are way overdue for in the U.S.

FRA: And the same thing here in Ontario, up in Canada. The debt per capita is multiple times worse than in Greece so it’s only a matter of time. We already see the property taxes going up and use fees, for example, licenses across the board going up here and there.

NICK GIAMBRUNO: Yeah – It’s frustrating. And really I think we should take a step back to think about property taxes and property rights because how can you say that you own something and that you are the owner of a piece of property and that you have to pay a never-ending and ever-increasing annual fee on? – It’s ridiculous. Think if you had to pay property taxes on your sofa or your T.V. Could you really say you owned your sofa or your T.V. or are you merely renting it from whoever was charging you that fee? I think it’s the same thing and I think property taxes are a terrible thing and hopefully, I’m not holding my breath, but hopefully they’re done away with at some point in the future, but unlikely, they are probably going up.

FRA: And also, you’ve written on the pension crisis where you’ve suggested two asset classes that investors could consider: gold related and cannabis related investments. Can you elaborate on that rationale?

NICK GIAMBRUNO: Sure, okay. Let’s start with gold. I think the pension crisis is going to be terrific for gold because as I mentioned, this is an unsolvable problem in the traditional sense. These state and local government could double, triple, even quadruple taxes and it’s not even going to make a dent in this problem and that’s assuming that the tax revenue they receive after increasing taxes, the collection rate, would stay the same – It wouldn’t though because higher taxes are going to drive people away from these states. We’ve seen this already in Illinois and Chicago in particular. I think 3,000 millionaires have left Chicago because of higher taxes in recent months and there was a study done that this was like one of the single-most outflows of wealthy people in the entire world, not just in the U.S., not just in North America, in the entire world. So, I think you have to take a step back when you see all of these productive people, these wealthy people fleeing the city that there is an issue here. Certainly there is a point of diminishing return that comes with raising taxes that has already been reached in a lot of these places so they can’t raise taxes and they can’t cut benefits either because a lot of these benefits are enshrined in the state constitutions that they can’t cut these pension benefits. Isn’t that a nice thing? You’ve got the government who says they basically guarantee these benefits and it’s against the state constitution to renegotiate or lower these benefits so it’s already bankrupting these places causing local debt crisis. They are going to default on these obligations one way or another. But ultimately, what’s going to happen is that the federal government is not going to just sit back and let all of these states and cities not make good on their promises to their own employees. It’s just politically going to be impossible for the U.S. federal government to step back and do nothing. That’s the whole point of having the central bank. They are the “lender of last resort”, which really sanitizing what they really do. They print money and give it to people so they basically socialize the cost of these things through money printing and higher prices and inflation. So, that’s what is going to ultimately happen, is that the federal government and the federal reserve is going to step in and paper over this pension crisis by printing money. That’s the bottom line of what is going to happen eventually with this pension crisis and that’s going to be good for gold. So that’s the rationale behind gold because simply, there is no other way to solve the pension crisis besides the printing press. That’s what ultimately is going to happen. Number two, the states are so desperate for any penny they can get. They are going to start to look for alternative means of revenue and I think they are going to look at the states who have recently legalized cannabis and they’re going to find the opportunity too good to pass up. There’s 100’s of millions of dollars being flowed in with new tax revenue from the legalization of cannabis in various states such as Colorado. I think it’s estimated that next year when California goes live with legal recreational cannabis, that they could bring in about a billion dollars in cannabis-related tax revenues. Nonetheless, this is not going to solve the pension crisis. A couple billion here, a couple billion there – It’s not going to solve a multi-trillion dollar issue. And I know that you cited earlier that it was a 2 trillion dollar problem, but that’s using the unrealistically rosy rate of return assumption of a 7% which is what most public pensions use. If you use a realistic discount rate, we’re looking at 5 trillion plus problem. So, a couple of billion here, a couple of billion there from legalizing cannabis is not going to solve this problem, but nonetheless because these states are so desperate it’s not going to hurt. They are going to look to get every penny they can get and cannabis is going to be a beneficiary of their desperation. That’s the rationale for the second investment.

FRA: Very interesting. In addition to cannabis, what controls: monetary policies, fiscal policies, government regulations do you see coming in the near future that governments and central banks will employ to deal with the increasing burden of government debt and unsustainable spending and deficits?

NICK GIAMBRUNO: Well, I think we talked about those a little bit earlier. I think we’re definitely going to be seeing negative interest rates spread because negative interest rates, of course, benefits the borrower and who are the biggest borrowers in the world? – Our governments and they’re the largest borrowers, the U.S. government in particular. I think we already have negative interest rates in the United States, not negative nominal interest rates, but certainly negative real interest rates when you consider the nominal interest rate and the rate of inflation. Sure, they give you this phony CPI number of like 1-point-something percent, – It’s much larger than that. Everybody knows that. Just go to a grocery store and look at how much groceries cost, your medical insurance, your tuition, anything, the prices are going up more than 2%. It’s an insult to peoples’ intelligence that that’s the number that they use. Anyway, I think there already are negative real interest rates in the United States. The little measly couple of basis points you get for putting your money in a bank – that doesn’t keep up with inflation. So there already are negative real interest rates in the United States. I think they’re going to get more negative either with higher inflation or lower nominal rates. I think that’s baked into the cake because that’s going to support the U.S.’s ability to manage that debt. Lower interest rates makes it easier to manage that debt and that debt is going nowhere. I mean there is nowhere but north for where the U.S. debt is going. It’s politically impossible. I think it’s a pretty safe assumption is that we’re going to continue to see that. If we’re going to see more and more negative interest rates that means they’re going to need to ramp up the war on cash because negative interest rates really aren’t effective unless you trap peoples’ money in the banking system. Well you can’t really trap peoples’ money in the banking system if you give them the option of having a bunch of cash stashed under their mattress. So, I think we’re going to see negative interest rates ramped up and that necessarily means we’re going to see the war on cash ramped up. And we already are seeing this. I think the head of the Harvard business school or Economics department, Kenneth Rogoff, he’s a huge advocate for the war on cash. And he’s a trendsetter, obviously being a top academic at a top institution, he kind of sets the trends on this stuff and I wonder what motivates this guy because I don’t think he’s stupid, I think he knows what he is doing. He is like the kind of person who wakes up in the morning and looks for ways to try and restrict peoples’ abilities to use cash and I think he’s clearly a sociopath. Unfortunately, this kind of wrongheaded thinking is gaining current so I think we’ll see more of that.

FRA: As the last question here, do you see any political movements within the U.S. to extreme socialism as a backlash, perhaps led by the millennial generation, that could severely affect the economy or the financial markets?

NICK GIAMBRUNO: I think that’s very likely. For better or for worse, probably for worse, these people are the future generation in the U.S. and who is one of the people that they idolize? – Bernie Sanders. And there is a really interesting article that Bernie Sanders wrote about how Venezuela is the success story of socialism. Obviously this was written a few years ago before their hyperinflation and major problems they have right now, so I encourage your listeners to check that out. Bernie Sanders basically wrote a glowing review of Venezuela and said, “Hey, we gotta bring this to the U.S.”. Well, Bernie Sanders represents the economic views of these people so, yes, I think we are going to see a lot more of socialism, collectivism and all the stuff that entails in the future, unfortunately.

FRA: Great. How can our listeners learn more about your work, Nick?

NICK GIAMBRUNO: The easiest place to do that is on the International Man website. That is: We talk about all of these issues and more importantly how you can protect yourself and your family from these terrible things that we’ve been talking about today. The situation is not hopeless. There are things you can do to not only protect yourself, but profit from the distortions that will inevitably be caused by all of these wrongheaded policies.

FRA: Great. Thank you very much for all the great points and insight, Nick – Thank you.

NICK GIAMBRUNO: Thank you Richard – Great to be with you.

Transcript by: Daniel Valentin <>

LINK HERE to get the MP3 File

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/29/2017 - The Roundtable Insight: Yra Harris and John Browne On The End Game For Europe, The Euro And The ECB

FRA: Hi, welcome to FRA’s Roundtable Insight .. Today we have Yra Harris and John Browne. Yra is an independent Floor Trader, successful hedge fund manager, a global macro consultant trading foreign currencies, bonds, commodities, and equities for over 40 years. He was the CME Director from 1997-2003. And John is the Senior Market Strategist for Euro Pacific Capital, he’s a distinguished former member of Britain’s Parliament who served on the Treasury Select Committee as Chairman of the Conservative Small Business Committee. And also as a Principal Advisor to the British government on issues relating to geopolitical matters. He’s worked for Morgan Stanley as an investment banker and he’s also worked for other firms, Barclays Bank and Citigroup. Welcome, gentlemen.

Yra Harris: Thank you, Richard.

John Browne: Thank you, thanks for having me.

FRA: So today I thought we’d discuss the implications of the recent elections in Germany on the EMU, the Euro, ECB policies, financial markets, and the European economy. Your thoughts? I guess we can start with Yra, what you think happened and what are the implications?

Yra Harris: Well you know Richard, we’ve talked about this and you know I’ve written quite a bit about it over longer than I care to think about, but the results were to me a phenomenal loss for Merkel because she not only slipped from the vote totals but it was a very big slap in her face. And like in the Brexit vote, they want to sell it as anti-immigration and I think it’s so much bigger than that. I think this part of the vote .. and if we go back to when the AfD first began, I think in 2013 when it was founded by various economists, the issue is far more financial than anything else. Yeah, the AfD attracted some fringed wackos as we might call them, but most importantly, the Free-Democrats resurrected themselves. I think this is a pretty big statement as to how Germany will face what Macron has been trying to push down, I would say Macron and Draghi have been trying to push down the throats of German taxpayers but of course, it never had the okay from German voters. So, I think that this has a long way to play out, it was a very important vote .. the biggest winner from here may be Theresa May. But we’ll leave that for further discussion.

FRA: And John, your thoughts?

John Browne: Well, I’m very interested by what Yra said because I think you’re absolutely right. Theresa May may be the biggest winner of this because Merkel is very pro-German industry and that points towards a mutually favourable Brexit from Germany at least. And Germany really runs the European Union, although it’s meant to be everybody, but basically Germany runs the whole show. And that’s a very important thing that Yra mentioned. I agree with Yra that Merkel had a big loss, she was elected as forecasted but there was nobody else, she’s weakened significantly. I mean the interesting thing was that combination, again getting back to what Yra said, it wasn’t all immigration. It was partly to do with the financial environment. The Alternative für Deutschland, the Alternative for Germany, went from 0 seats to 88 and the Freedom Democratic Party went from 0 to 69 seats. 132 seats against Merkel’s 217, so it’s a big block in there. And it’s going to sober a lot of the left wing in Germany, the Greens lost and the Left both lost seats. And so, I think that’s very interesting in my view and I agree with what Yra said. I think its going to boost the thing for Brexit because Merkel is going to be favourable to a good deal with German business. As far as the ECB is concerned, I think there’s going to be continued press for EMU, the European Monetary Union. The Euro has faired fatally basically because it doesn’t have a unified economy and so, each threat to the Euro is going to be used by the European elite to force closer and closer fiscal unity on the way to becoming a superstate. And talk about undemocratic, I mean I’d call it the Euro Soviet.  So, a good reason is they say they offer a parliament, which is duly elected and I think quite fair with proportional representation, but of course they give that parliament no power, just as happened in the Soviet Union. And the other thing is they’re already talking now immediately of giving huge amounts of money for electoral reasons rather then taking money away from the politicians to be elected, making it less of a money game, they’re going to give much more. But only to parties that fully support the European ideal, the parties that go against it will have no funding. So, it’s becoming less and less democratic and right down the road of what I think justly called the Euro Soviet. And I think regarding the Euro, it’ll be used as a weapon to increase togetherness and of course a superstate. As regards commodities and things, what we’re living with masses of money, masses of credit and liquidity that’s falling value, bonds are going up because of zero interest rate policy and quantitative easing. And equities have risen on this thing, hugely, record highs in both bonds and equities all over the world. But of course, that is all organized by the swamp. If the swamp starts to get eroded, then the reverse is going to happen. Bonds are going to be probably the biggest bear trap in history, equities are going to be a problem and of course commodities and precious metals will rise, certainly in dollar price and also in value. And so, I think the whole thing depends on how effective it is to get rid of the swamp. Realizing both parties in Britain and America that have ruined the countries in the last hundred years. If you take an actual number of it, in 2014 in January when the Fed opened its doors, that dollar today, it would be only worth, it other words two cents of that dollar would buy a present dollar. The Fed has devalued the dollar by over 98% and in those days, there were 8 Dollars to the Pound, and now there’s 121 .. And this has been done by the swamp which is both parties and the question is, how long will it take for reality to dawn? Whether they can put it off with another type of QE, giving people money, not even QE but just giving us all a cheque like the Republicans did under Bush. But a massive cheque, like $10,000 a piece or that sort of thing, to fend off that awful day that reality may dawn.

FRA: Your thoughts, Yra on this and the possibility of fiscal integration in the EMU?

Yra Harris: Well, it’s like John and I have been talking our whole lives. But he uses this term the European Soviet, and you know Richard I’ve talked about it quite a bit so John, I don’t know if you know Bernard Connolly but he’s a very dear friend of mine. So, when I hear you throw that out it reminds me of his great book, The Rotten Heart of Europe. But I’m going to answer your question Richard, this is all about the fiscal harmonization, this has been the program pushed by the likes of George Soros and what I call the Davos crowd and I don’t mean that as a conspiratorial, that’s just what they’ve been pushing. And now Mario Draghi has a very serious problem. And the speech yesterday was horrendous and stupid, he should have cancelled that press conference that he had scheduled before the German election because its just not going to happen that fast. And it puts Draghi now as I would say the only game in town. Which is why these people or those people including Peter Boockvar and I, have gone back and forth on this. There will be no quantitative tightening yet from the ECB because Draghi is now going to be in a bigger hurry to keep piling on sovereign debt onto the balance sheet of the ECB because only through that effort can he synthetically create the Eurobond that they’re craving for. So keep loading it on, keep loading it on, and then they’re going to the Germans and go “well you can’t possibly not be the guarantor of this bond, you have to. We have all this debt piled on the ECB, you’re going to have to be the one who has to guarantee this.” Otherwise we go into a massive debt default and the world goes into a major Depression. That’s what’s happening and this is all being done by Mario Draghi and if Mario Draghi hears this broadcast and he wants to go head to head with me and argue this, I relish the day.

John Browne: Well I totally agree with Yra. And it’s interesting, I was an investment banker in London and we were asked to be managers of a Eurobond issue. Not a Euro like the currency, but European Bond Issue .. everyone wanted to do it in Europe except for Germany .. Germany said, “we’ve got terrific concerns about inflation from the Weimar we will never forget it, and we certainly are not putting the German signature to a European bond.” And I personally despite all the talk and the movements that are taking place, believe that is at heart in the average German. I mean what Germany has done since the Weimar is to say “Okay, you German women and men work hard, save your money, and we as the government will ensure that saved money is still worth the same as when you put it in. Unlike the Anglo – American governments that have stolen from every saver.” And so, I think Germany, now that Merkel is weakened severely by most interestingly right-wing parties effectively. Both financial and immigration wise, I think she’s going to be under bigger and bigger pressure not to put the German signature to that Eurobond. And I think that’s been pushed back and this is of course is a big problem for Draghi whose been depending on it and it’s going to become a tremendous issue. Germany, as Yra said, is going to be faced with collapse on the one hand if they don’t sign, but a collapse of support politically if they do sign. And I personally think Germany would stand in the long run to win by not signing a bond to hell, because that’s going to go for the birds. I mean its going to just follow the Sterling and the Euro down the drain. And we’ve got bigger challenges then just the rest of the world. We got China that’s now issuing a forward contract in oil, measured in Yuan, which the Yuan will be convertible into gold. So, if you buy your contract for Yuan and then sell it for Yuan at a profit, you can convert all those Yuan back into gold. Now that’s going to really challenge the prime reserves status of the dollar and that’s a huge question mark. And if they do it for oil, what not other important international commodities like copper for example. I think we’re facing severe challenges and China is just waiting her time to strike. Whereas we’re spending fortunes on military equipment, China is spending it on making sure that she’s going to win economically and financially. And as the greatest generals have said, the greatest way to victory and power is to put your enemy in a position where they have to capitulate without firing a single shot. And I think that’s what China will do.

FRA: And John, do you think that there’s a possibility for the ECB to begin to buying Germany equities if German bunds become scarce in the overall ECB asset purchase program?

John Browne: Yes, absolutely. They’ll do anything above the law, around the law, they have no laws. They would do anything to save that Euro against the disaster that I see coming unless the Germans back it. And the price for Germany backing it is German rule of the European Union. Which Germany tried three times an empire, Franco-Prussian war, first World War, second World War. Each time and I think they’ve now realized that the Deutschmark i.e. money, is the key and the key to this is either the Deutschmark or the Euro to win their empire which will be Europe. And Britain is hopefully going to be leaving it.

Yra Harris: I think that John is exactly right and the Chinese are interesting to watch. More interesting is the amount of dollar borrowing that Chinese corporations and individuals are doing, Chinese real estate markets, they’re doing these huge dollar bonds. And I’m paying attention to that because first, it puts the Fed in a terrible situation and this is I think where John goes with not having to fire a shot, because the Fed, you know Bernanke beats his chest to talk about how great he’s been and how great it was. I think Janet Yellen has done a much better job by the way, but he just kept adding on and adding on and adding on, and this money had to go somewhere. And it went into the borrowings of, of course emerging markets. So, we’re so borrowed up in dollars now that if the dollar, if the Fed were to move here aggressively, which they’re not going to do, but we’ll create they’re favourite counterfactuals and let’s say they do that. The rally to the dollar would be fairly severe, especially because Europe is going nowhere now, so the dollar would rally more and because there are all these borrowings in dollars which means people are short dollars essentially, it would put a huge rally to the dollar which would wreak havoc across the Emerging markets, and it’s the Emerging markets that are now driving the global economy. Don’t believe the nonsense of European growth, I still see European unemployment hovering at 10% and I’m being kind because I’m using their numbers, the United States has tepid growth at best. So, it’s the Emerging markets and if they were to get into a situation where the dollar became expensive and the amount of dollars that they’d have to go raise to start paying just the interest on the debt. It would cause a very severe contraction. And that’s with the Chinese, I can’t agree with John more, it’s interesting to see who is hoarding gold here. And again, people say oh you’re a gold bug, I’m not a gold bug and I listen to John, he’s not a gold bug. But I’m not a Fiat currency bug either because I see the games that they play. So, I don’t love any of any  investment that much, there’s nothing that I see but I just try to protect myself and to see where the world is going to have to go to. So, I’m in total agreement with what John is putting out there. And the ECB, Mario Draghi is the most dangerous person right now in the world, right now. Because he’s in a hurry and he’s now lost his key supporter who was Angela Merkel. Merkel is really going to have problems and if you follow the news today Schäuble is already out as Finance Minister which means that its going to be Lindner who’s the head of the FDP who gets the Finance Ministry and he’s already drawn a line in the sand that he won’t go to for fiscal harmonization in Europe. So, this now gets very interesting and nobody is even talking about the fact that Schäuble is going to take the Presidency in of the Bundestag which I haven’t written about but I’m going to write about it this afternoon or later .. You’re going to have Schäuble, whose a fiscal conservative at heart, you’re going to have Lindner .. I think this now gets very interesting.

John Browne: That’s what I think, that’s fascinating what you say, I totally agree with you about Bernanke, Yellen, and those things. China of course has been borrowing hugely in dollars, of course has got a lot of dollars in terms of securities and Treasury bonds as its second largest holder after Japan, well of course the Fed is the largest holder with about 4 trillion, Japan is about 1.05 and China’s about 1.02 trillion and it ties with Japan for being the second holder. And of course, they will be paying back any debts they borrow. It’s like balancing, by borrowing dollars they’re balancing the dollars they own, which I think is entirely sensible. And even if they borrow more then they have, if they borrow more then 1.02 trillion, they’re going to be paying back in peanuts! And so, I see that as a great strategy for Japan. Regarding gold, its rumored, I mean we’re told America has 8300 tons of gold in Fort Knox, and it may still be there .. but nobody knows who owns it anymore. Its rumored and I say rumored, that already over the last five years China’s been accumulating gold by all means possible, through shipments and out of London through Switzerland and so on, that its now the largest holder and now has more gold then America, but that’s a matter for rumor. But I think they’re very gold conscious, and in the end, I think they see a totally depreciated dollar which they will be paying back the excess debt, they can write off the debts they have against the dollars they own and then they can pay the overspill of the debt in depreciated dollars relying on gold. And I think that’s a serious risk for the dollar and the dollar still is one of the most important things in the whole world economy. And so, if the dollar really collapsed it would create mayhem in the world. That’s why people are buying Bitcoin and all this stuff. I mean the average Joe who elected that Doctor yesterday in Alabama over the established swamp Republican, if people are getting sick of it, and that’s why people are saying if big banks like J.P. Morgan won’t even allow us to hold cash in our own safe deposit box, what we’re paying for. They’re now dictating we can’t hold, we can’t hold cash and all that sort of thing. They’re moving to get rid of cash? Well lets get into Bitcoin or gold or precious metals or something where we actually own the thing. And although I think some of these cryptocurrencies are highly speculative and have had fantastic gains recently, but I think highly speculative, that the people are going for it in desperation to get out of clutches of big government, swamp government that’s just robbing them blind.

FRA: And John, what are your thoughts on the current status of Brexit and the potential for other exits in the EU, EMU?

John Browne: Well first of all I thought May, I saw her first speech and met her very briefly. I thought she was terrific when she got in and even when the Brexit vote happened last summer, 2016 I mean. And she was strong and everything. But then she was advised by these two incompetent people to go for an election trusting the polls which were all wrong on both the Trump election and the Brexit vote and to trust those polls. And she went in and got heavily defeated in the polls, she’s still in the government but she’s severely weakened .. I thought her speech in Florence last week was very weak, I mean offering to pay, Britain is the European Union’s second largest contributor, why on earth should Britain pay anything? Let alone billions of dollars and she sort of gave way a bit on that, I thought that was disgraceful. And also lengthening the time of the transition. We want to stick strictly to the two-year transition so that if people want to have a divorce where the divorce is put off until after the financial arraignments, which is the reverse of any other human thing, you have the divorce first and then talk about the finances. They want the reverse. I think that’s obscene for Britain which was the second biggest contributor is outrageous and she’s giving way and that worries me .. this is just as Yra said right at the beginning, I think Merkel’s election has actually strengthened her hand a little. So, she’s almost back to where she started a week ago. But still it’s a touchy business, and you ask what of the other things? I think the European Union if Britain wants to stop Britain getting out, its largest contributor and everything else and I think there are only four countries where Britain enjoys a trade surplus, all the rest have trade deficits, have trade surpluses with Britain. So, it would be a severe blow both tradewise and economically if Britain leaves and they want to make sure Britain doesn’t leave .. they’re going to tie Britain down and punish Britain as an example to anyone else like Spain, Italy, Greece, who wants to leave, or Poland. You can’t leave, you’re going to be crucified, look what we did to Britain, and Britain was rich. And we still smashed her. And so, it’s a huge thing ahead of us now and until this Sunday I felt very depressed that May had given away so much, but then with Merkel’s erosion of her vote I’m feeling slightly more bullish.

FRA: And Yra, your thoughts on the potential for other exits in the EU, EMU?

Yra Harris: 100% I agree with him 100% their going to be punished, to be made an example and the Brits don’t really realize how good they are getting out because when you go to fiscal harmonization if they go to that, and I think it was a weak possibility before I think it’s been much weakened, it’s going to cost them a fortune. Anybody who has any money and the Brits have money. And why do I know that? All you do is have to open your eyes and look to see what’s going on with who is funding through the individual national central banks in Europe. The Germans are accepting the liability for the entire project and nobody ever asked them. Otmar Issing himself wrote that article two years ago they put it in the FT, he talked about no taxation without representation and this is going to become the battle cry in Germany because you cannot escape from it.

John Browne: Exactly, completely agree.

Yra Harris: First of all I wouldn’t pay them a dime, I’d say to them you know what, come and get it. Come and get it. They couldn’t bomb Libya so I don’t even know what Europeans are talking about. They had to get the ordinates and weapons from the United States to bomb Gaddafi. So, this is not 1914 .. you’re not coming to get it, you’re not getting paid because you’ve gotten all you got from us and we’ve got nothing in return, you’re trying to steal the financial centre of Europe out of London the French have had their eyes on this forever and now they think that they have a free pass at it. I’d give them nothing and tell them you know what, you’re lucky I don’t send you a bill for all the aggravation and all the court costs that I’ve had to endure and all the other things that we’ve had to endure. And John’s point about Germany and Britain industrially being tied into it is absolutely right and the Brits should start playing that up more and more. And if I was May I would turn around and give them a bill and say this is what you owe us for our good offices all the time that we’ve had to put. It’s ridiculous.

John Browne: I quite agree, I totally agree I just like that one point, was when that wrenched man Brown was Prime Minister, no relation to me, he was asked to give the British a contribution of gold into the European Central Bank which was the second largest of course. And he was so ashamed of the thing that he didn’t want the television or news picking up truckloads of gold being shipped to Frankford from London. So, he sold half of Britain’s gold reserves at just over $300 an ounce and lost Britain billions and billions of dollars on that transaction alone just to save his face. So, he could wire the money rather then send it in gold. It moved Britain from being the fifth largest owner of gold down to about the tenth. It was staggering, really. All these countries that save money like Germany and France have large gold holdings .. they all have large gold holdings. Switzerland is trying to get rid of its gold because its Swiss Franc is so strong and they’re trying to do everything to weaken and be like members of the deprecation gang to get their Swiss Franc’s cheaper because it’s hurting their trade. But that’s a false indication, Swiss basically are like the Germans and savers and are sound money people and savers as a result. The American world has turned savers into spenders, and for spenders, depreciated money is the name of the game. Financial dishonesty really.

Yra Harris: Yeah, you know the name of this show is “Financial Repression Authority” .. financial repression –  the Fed was number one but now number one of course is the ECB. But to close I just want to pick up with what John talked about with the Chinese hoarding gold. John, I think you will appreciate this, if you go back to I think it was November 2nd 2009, when the IMF had its last gold sale, it sold 200 tons of gold to the Indian RBI at $1,048. Now that’s been a very important level for me. In fact, the last move down in gold stopped at $1,045 and that’s been a very significant level because the Chinese were furious that the IMF sold that gold to the RBI because the Chinese wanted to buy that gold. So that becomes a very critical level of look at all this into what the Chinese truly want to do. And you know what, I think the 3rd or 4th largest gold owner in the world is the IMF even though they cry if they don’t have enough funding, you know I always say oh all those good Keynesians at the IMF and I have no problem with Keynesians, but they have a problem from the gold perspective. Why don’t they monetize that gold and turn it into gold-backed bonds? IMF issued gold backed bonds. And you watch how the Chinese would scoop those up in a minute which is why they won’t do it, because they know who’s waiting there to take and accept that hoard of gold.

John Browne: The net position of gold verses currency is that gold is real money .. It means reality will dawn .. If the central banks of the world are united underneath by making sure reality does not dawn. But history has a habit of eventually something happens and reality does dawn. And of course, one of the countries that’s really interested and very powerful in having reality dawn in the west is China. And that’s why I think China will win this battle without firing a single shot. And it’s a sad thing, I don’t think any shot is going to be used if our currency collapses which is what the real threat is.

Yra Harris: And if we know the Chinese, they’ll be bimetallists and because they got a little evening to settle with the Brits over the silver situation in the 1800s so they’ll probably be bimetallists by that time.

John Browne: Oh yes, the precious metals, but the big boys use gold. That’s why silver is a greater investment at the moment because at the moment if you were to imagine a bell curve we’re on extreme left-hand end very very few people compared to the worlds population own precious metals. And of course, an ounce of gold at $1,300 is a lot of money for the average Joe .. But at $20 for a coin in silver is not so bad. And therefore, the mass market will go for silver and that’s a huge on the bell curve and would drive silver up much faster then gold. But gold is the real money in the end and this will defeat players play.

Yra Harris: Right, and I’ll tell you from a trading standpoint, John and you probably know this, is that there’s not a real precious metal rally that takes place without silver leading the way. That’s a fact. When gold ran up to $1,900 it was silver that lead the first leg of it by a lot. So, I keep waiting for that to happen, somebody has their foot on it but we’ll see.

John Browne: It comes from the average Joe .. If those people are worried about their money they buy silver. And that’s why I still believe in silver so I agree with you entirely.

FRA: Well that’s great insight, gentlemen. I know you have a time constraint John but how can our listeners learn more about your work, John?

John Browne: Well I write for ( it’s a website and I write for that and there are a lot of articles and things like that. That’s mainly what I do and I sometimes get asked to go on Fox, CNBC, and CNBC Asia to speak about these things, but I never know when that’s going to happen.

FRA: Great, and Yra?

Yra Harris: You can reach me at Notes From Underground or and you click on notes from underground which is where I blog at, but I’m on the Santelli Exchange all the time, and I gotta tell Rick Santelli to get John Browne on! He needs a British voice.

FRA: Excellent.

John Browne: Thank you very much, Thank you very much Yra.

 Transcript written by Jake Dougherty<>

LINK HERE to download the MP3 File

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/28/2017 - John Mauldin: The Bubble In Government Promises Is The Biggest Bubble In Human History .. Pension Storm Warning

“‘The bubble in government promises’ I think is arguably the biggest bubble in human history. Elected officials at all levels have promised workers they will receive pension benefits without taking the hard steps necessary to deliver on those promises. This situation will end badly and hurt many people. Unfortunately, massive snafus like this rarely hurt the politicians who made those overly optimistic promises, often years ago ..

The graph we showed earlier stated that unfunded pension liabilities for state and local governments was $2 trillion. But that assumes an average 7% compound return. What if we assume 4% compound returns? Now the admitted unfunded pension liability is $4 trillion. But what if we have a recession and the stock market goes down by the past average of more than 40%? Now you have an unfunded liability in the range of $7–8 trillion ..

We throw the words a trillion dollars around, not realizing how much that actually is. Combined state and local revenues for the US total around $2.6 trillion. Following the next recession (whenever that is), the unfunded pension liabilities for state and local governments will be roughly three times the revenue they are collecting today, and that’s before a recession reduces their revenues.”

LINK HERE to the article


Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/28/2017 - Great Chart On Bubbles

Danielle Park: “Good visual summary of some of the many asset bubbles today. Thanks central bankers!”

LINK HERE to the chart – click 1x or 2x to enlarge

Courtesy of Danielle Park and Mauldin Economics

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/28/2017 - McAlvany Podcast: Worldwide Central Banks Pumping In $300 Billion Per Month

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/28/2017 - Yra Harris: Nothing The Federal Reserve Has Forecast Has Proven Correct

“The FED has been worshiped as all-knowing fonts of wisdom when nothing they have forecast has proven correct. Yesterday, Fed Chair Janet Yellen admitted that the FED is as confused about the lack of inflation as most of the prognosticators on Wall Street. This confirmed my theory that what the FED peddles IS NOT ROCKET SCIENCE .. IT’S NOT ROCKET SCIENCE!So much has been wagered on the high probability outcomes of the FED‘s models but now we are provided a sense of concern about the outcomes generated by those models.”

Notes From Underground: Which Spark Will Start the Prairie Fire?

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/19/2017 - James Grant On 100 Year Bonds, Inflation & Federal Reserve Policy

Jim Grant podcast: 100 year bonds, bitcoin, Tesla, inflation & Fed policy

Grant’s Interest Rate Observer Podcast, Released on 9/18/17


1:30 #Austria floats a 100-year bond
3:24 Limited supply of #bitcoin?
4:24 #Tesla promises one million cars per year
7:30 Five year/five year #Euro inflation swap rate
12:58 Hawkish hints
16:40 Half-empty #FOMC

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/19/2017 - Fiat Currency Has Encouraged Massive Debt, Excessive Credit, Loose Monetary Policy

DeutscheBank Jim Reid: “We think the final break with precious metal currency systems from the early 1970s (after centuries of adhering to such regimes) and to a fiat currency world has encouraged budget deficits, rising debts, huge credit creation, ultra loose monetary policy, global build-up of imbalances, financial deregulation and more unstable markets.”

LINK HERE to the article

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/18/2017 - The Roundtable Insight – Nomi Prins On The How G7 Central Banks Are Coordinating Monetary Policies Together

FRA: Hi, welcome to FRA’s Roundtable Insight. Today we have Nomi Prins. She is a renowned journalist, author and speaker. She is currently working on a new book, “Collusion”, formally called, “Artisans of Money” that will explore the recent rise of the role of central banks and the global financial and economic hierarchy. Her last book, “All the President’s Bankers”, is a ground-breaking narrative about the relationships of presidents to key bankers over the past century and how they impacted domestic and foreign policy. Before becoming a journalist, Nomi worked on Wall Street as a managing director at Goldman Sachs, ran the international analytics group as a Senior Managing Director at Bear Stearns in London, worked as a strategist at Lehman Brothers and an analyst at Chase Manhattan Bank. Welcome Nomi.

NOMI PRINS: Hi – Thank you very much Richard.

FRA: I thought today that we would focus on a recent writing you have that stems from your emerging book, “Collusion”, it’s titled, “A Decade of G7 Central Bank Collusion – And Counting”. It’s a great piece and it’s available on your website and has been reprinted elsewhere as well. I was just wondering if you would like to give us a brief synopsis of that.

NOMI PRINS: That piece comes from some of the conclusions that relate to ongoing monetary policy globally, particularly with the G7 central banks. When I talk about collusion, in terms of the importance of setting monetary policy to the G7 for the G7, there have been, since the financial crisis of the United States, so many multiple meetings, background meetings, calls, statements between the central bank leaders and so forth which collectively have created a monetary policy that is zero percent interest rate and has also connected to it a substantial amount of asset buying or what we now know under the term, quantitative easing, by the major central banks in particular. It’s not that other central banks haven’t been co-opted or have retaliated by trying to set their own monetary policies in their own countries, but it just so happens that this has been a G7 process that has been led by central bank of the United States, the Federal Reserve, and particularly the G3 central banks: the Federal Reserve, the European Central Bank and the Bank of Japan, that has together kept interest rates on average zero and are set on course, since the last year and a half, have raised interest rates up to one percent. But while that happened, 19 countries in Europe including the ECB have rates at negative as well as does Japan, and the Japanese central bank on average comes out to zero percent. And it’s not an individual policy – it’s a collusive collaborative policy.

FRA: So, it’s almost like the collective set of G7 central banks are acting as a unified central bank. Can that be stated?

NOMI PRINS: Yeah. They are absolutely acting as unified and occasionally they have independent commentary to their regions whether that be throughout Europe, in the United Kingdom, or Japan. But the idea is that, even if you take these individual statements and meetings and media coverage separately, the reality is, this is a coordinated effort. For example, last year when the Fed had raised rates and it caused a lot of chaos in the markets in the beginning of 2016. Immediately, some of the other major central banks in Europe and Japan had cut their rate down and it was like a balancing act. But the way the coverage works in general is that it tends to be independent and so what I looked at for the book is all of the communications, collaborations and the timing of all the various monetary moves, which again, have collectively averaged to zero. But there is a process along the way, after the financial crisis, where the Fed first embarked upon zero percent interest rates – They were the first to embark upon quantitative easing by simply buying US government bonds, treasuries and very soon after that, US mortgage bonds from the private banks that needed the liquidity and capital. But this sort of grew and you have the European central banks buying corporate bonds; you have the Japanese central banks buying collections of equity here and there. So the process segued into different details, but it was very much coordinated and over the years, for example, there was a particular problem with debt in 2012 in Europe with a potential credit crisis, after all of these years of cheap money and the potential for defaults, that’s when again central banks got involved and acted in a unified fashion. So throughout the period in the last 10 years since the US financial crisis began, there have always been these iterations of collaboration and them acting as a unit even though their individual leaders tend to behave within their own countries, to their own government, as if they are acting independently.

FRA: It almost seems sort of like a game of passing the baton like an Olympic team running event. I remember back in 2014 there was a time when the Japanese central bank, the Bank of Japan, seemed to have taken over the baton, if you will, from the Federal Reserve and it almost seems that when one of the countries get into trouble they let that country run with more quantitative easing. Do you feel a lot of examples of that?

NOMI PRINS: Yeah, it’s actually interesting. If you look at just the chart of the easening and then hone that into the G3 from the last 10 years, you will see exactly what you’re saying. And then what began in 2013 is that the central bank governor and the Bank of Japan’s [Haruhiko] Kuroda when on this crazy, very fast accelerated pace of quantitative easing. And so what wound up happening was, if you look at a chart of purchasing of Japanese government bonds by the central bank, all of sudden the line went up in almost a straight-line fashion – A very steep line upward because two things happened: the president of Japan and the central bank of Japan were incoordination as well within the country. So there was coordination between letting the Bank of Japan go nuts on quantitative easing and then it worked within the fiscal policy promises of Shinzō Abe, who had just come in as well as the leader of Japan. He wanted to improve the economy. His concept was that he had 3 pillars of an economic policy, one of which was having cheap money and that worked with what the central bank leader wanted to do because he is quite international as well and saw his opportunity to increase quantitative easing. And that also had the effect of accelerating the Japanese stock market, had the effect of accelerating the flattening of the yield curve, purchasing of government bonds and so forth. As recently as a few weeks ago, the central bank leader of Japan, Kuroda, was talking about this idea of unlimited capacity to continue to buy bonds or to continue the quantitative easing process which also is what Mario Draghi, in slightly different words, was doing in Europe. So, it is a passing of the baton and you would think that after 10 years of what began, according to the Fed anyway, as emergency measures in the wake of the financial crisis and the idea of if we go back then was that there was no liquidity in the banking system, and that there was a fear that was stoked by the Treasury Secretary Henry Paulson, the Federal Reserve head at the time Ben Bernanke and the New York Federal Reserve president Tim Geithner who all basically got together and colluded to indicate that: unless there was an immense amount of liquidity offered to the banking system, everything would seize up and people wouldn’t be able to get their money of out ATMs. And so they created this bailout from the standpoint of congress, but the bigger bailout was what the Federal Reserve and central banks did which was at the time, start to bring bank rates down to zero at the end of 2008 and then start to buy bonds. Then when the Feds stopped, the European central banks started and it accelerated and then the Bank of Japan continued to accelerate. And then you have smaller central banks involved such as the Bank of England who have half a trillion or so assets on their books. They have kind of dibbled in and out, but recently they have talked about expanding their quantitative easing program, Mark Carney did, the head of the central bank there. And they kind of use it as this tool – They promote it as this tool, to either stimulate growth in economies or to create stability in opposition to some type of a problem or a process. When we had the problems with Hikoshimi, we had the other G6 central bank governors get together and promise that they would help with whatever liquidity was needed for Japan to navigate that crisis. So, what began as an emergency measure has become normalized.

FRA: In the collusion article, you mentioned that the central banks have amassed assets on their books worth nearly 14 trillion. Is that for the big 3 central banks or the G7?

NOMI PRINS: Yeah – that is exactly right. The G3 are at about, give or take, 13½, then you add in the UK, Canada and other banks and it’s probably a little bit more than that, but on average it’s between 14-14.3 trillion – It’s a fairly large number. If you consider that that number was basically zero 10 years ago.

FRA: And you mentioned the result of all this is the fuelling of bubbles and money that isn’t serving any productive real economy purpose because it happens to be in lockdown. Can you elaborate on those?

NOMI PRINS: So if I’m a central bank and over some period of years I decide to create electronic money, we refer to it as printing money, but the idea is: creating some fabrication for money that is then used in an exchange process for either government bonds or, in the case for the US for example, mortgage debt from the banks. What that does is puts this fabricated money into the system which didn’t come from tax receipts or organic growth in companies, it was merely manufactured. And it was an offering return for the Fed amassing debt on their books – Debt in the form of treasury bonds and mortgage bonds. So, what that means is that it effectively created 14½ trillion dollars of money that did nothing but an exchange for debt. And if you’re just exchanging debt and you can’t determine how that debt would’ve been spent anyway, then it’s really just sitting there on the books for no apparent purpose. Now it’s not the Fed’s job, technically, to do this, but if you had examples conceived of a process by which instead of exchanging fabricated money for debt, you invested it in some sort of a national bank or you develop roads or railways with it or energy systems or whatever it might be – That is productive. Whatever the process is there could have been productive ways to utilize fabricated money to actually enhance the real economy, but if you’re just buying debt, then you can’t trace that debt to the real economy. In fact, for mortgage bonds, all you’re really doing is giving banks liquidity or giving them capital to do other things with because you’re not telling them what they can or cannot do, you’re not stipulating what kind of loans they can and cannot make, it’s just capital that is given to them – Then, that money is not being used for any productive purpose. It is on lockdown at the Fed because they basically offered it out. They have in exchange received these bonds or this debt and they are not going anywhere – They are just sitting on the books not being used for any financing or any productive purposes, real growth, wages, hiring people, research and development or really anything. And that’s been copied in Europe as well on the European central bank in terms of trillions of dollars, on the books in the Bank of Japan and so forth. So none of that money is really being used, but the way it gets discussed is that it somehow is connected to economic stimulus, but if it was actually stimulating the economy then you wouldn’t have a 10-year policy where it has to keep continuing. So, what you have now after 10 years is the central bank leaders, for example Mario Draghi at the European central bank recently, who is saying, “Hey, you know what? This is the only thing that needs to done. Creating a monetary policy alone or low interest rates and buying bonds alone isn’t enough to stimulate the economy”. So, after 10 years they are saying we have to keep going because what we did wasn’t enough and somehow if we keep doing it and other measures get put into that, such as a type of fiscal policy, then altogether after we have done this for 10 years somehow it will relate to the economy. So, these people themselves are basically saying that this process: their collusions, methods, strategy and policies really haven’t done anything for 10 years.

FRA: You even point out how Stan Fischer who was the Vice Chair of the Federal Reserve, who recently just stepped down from that role, essentially admitted that the Fed caused low interest rates globally while failing to achieve the economic growth as promised.

NOMI PRINS: Right. Stanley Fischer was the academic mentor for the doctorate for both Ben Bernanke and Mario Draghi who ran at different times with some overlap, between the Federal Reserve and the European central bank so it’s interesting that Stanley Fischer, who was also the Vice Chair of the Fed for a number of years before resigning, was one of the supporters of this policy throughout his years of a mentors as well of his years of being at the Fed itself. So he was one of the very people who would’ve voted at various meetings and so forth to continue to keep rates low and the effect of the Feds keeping rates low was that they were kept low globally. Now what he didn’t say was that they were actually kept low globally because they are having communications with each other and that this was not a choice, it was kind of a mutual decision and it unfolded that way in terms of events and in terms of when rates were reduced versus when assets were bought by the various central banks. And at the end admitted that it really didn’t stimulate growth and not only did it not stimulate growth, but even the Federal Reserve itself had a report out a few years ago where it indicated that after a number of years of these policies in the US it actually increased inequality. The way it does that is that this money that is being created is really only going to top bankers and through governments – It’s really not trickling down into the real economy which means that cheap money is also being used to fuel these bubbles. If rates are at zero on a 2-year or close to zero on a 10-year depending on the country, you’re not going to be investing in government bonds – You are going to be looking for something else to get returns out of. And you have this money coming to you cheaply, but not if you’re a regular person. If you’re a regular person, you are not getting money at zero percent or close to zero percent like a bank does, like a bank can give it’s major clients or like major corporations can raise debt for themselves. A regular person is stuck with much higher rates whether it’s personal loans, credit cards, student loans or even mortgages – They don’t have the benefit of the cheap money. They suffer the consequences of not having more secure investments like government bonds or even CB’s or even good rates on a savings account like they would’ve had historically. So, they’re sucked into this vortex of the stock market whether they are actively involved or not whether through their pensions, their life insurance contracts or whatever it might be because there is nowhere else for those pools of money to invest and get a return that even keeps up with a very low inflation that we’ve had globally in the last 10 years and we’ve had very low growth. The bubbles are a result of these policies and even some of the superbanks/development banks such as the IMF indicated that this is a problem, that bubbles are a problem. Everybody is aware that these policies don’t promote growth, create bubbles in the riskier markets and yet they can do nothing else but continue them.

FRA: So with all of these failed policy experiments behind us after what has happened, this brings us to the big question that you ask: Why should we have faith that the Fed or any other central bank has any clue about what to do next?

NOMI PRINS: Right – Because all they’ve done for 10 years is effectively the same policy which they then admit has not gotten them any closer to what they had indicated the policy was initially supposed to do, which was to stimulate growth. In emerging countries it is more volatile, but slightly higher, but in terms of real growth it’s not there. In terms of being able to invest in more secure bonds for the population or for again, pensions and insurance, you can’t do that. And so what are they going to do if there’s an actual crisis. A crisis can come in any form. It could’ve come from, unfortunately, the hurricane that just happened in Florida. I’m not saying that will create a crisis, but you have a situation where a lot of development, real estate, leverage and cheap financing going into these larger development companies and through the main banks and so forth, is hit was a stoppage in occupancy rates. Or having to rebuild and having to wait for money to come in and that trickles in to potentially defaulting on certain payments or loans. It could be anything that starts to crack these asset bubbles whether that’s a natural disaster, a geopolitical thing, a new war or whether it’s simply that rates do get raised enough in one area, and I don’t believe the Feds are going to raise rates again this year for all of these reasons, but all of these things start to become cracks to let the air out of these bubbles at which point what do central banks do? They will double-down or triple-down on what they have done. That could work for a year or two years, but it’s still an artificial stimulant to the global economy. It’s still not healthy. It’s still an external source of capital that is unlimited and unregulated from the standpoint of a policy, and that’s very artificial and creates a lot of ongoing inequality and inability, ultimately, for people to have money invested in the future and be secure about it.

FRA: Given this lessening faith or growing sense of lack of faith in central banks – Could we get a Wile E. Coyote moment in the financial markets where there is all of a sudden a large drop in the equity markets?

NOMI PRINS: You could in the extent that something happens from an external perspective whether that’s a sector that continues to default or something happens to the real estate sector or the energy sector, right now energy is going to be a little better because of what just happened, retail which was just shifted in terms of the way in which people shop such as consumers losing confidence – A lot of external things can happen that deflate confidence in what is actually a stock bubble that could drive things down. Now this policy, these 10 years, has been really unprecedented in terms of this collusion between central banks. If it were not a global policy, it would be more likely to crack in one area which would reverberate throughout the world, but because it’s collaborative, artificial and collusive, there has been this way of keeping the house of cards up. Any major thing that happens can also take that down very quickly. The one thing we learned just studying crises historically is that there has never been a global reaction of this magnitude to a crisis. What tends to happens when something hits the markets is that they do tend to go down faster than they went up. That hasn’t happened yet, but if there’s a confluence of the wrong events, it definitely could.

FRA: If that were to happen, do you foresee the central banks again coming in in a consorted way to save the day? Especially, considering that there’s a concern on pension funds and insurance companies with large holdings of equities and the central banks are not looking forward to bailing them out if there was another financial crisis affecting them.

NOMI PRINS: I don’t think they care so much about pension funds and insurance companies. They care about the financial system as a whole and I do think that the first thing that would happen in the event, this happened in 2016 which showed a precursor to this, is in the event that something catalyzes a very fast day or two fall in the stock market, that central banks do come in and coordinate some sort of policy that boosts them up, but the fact is there is no ideas for them to do that this time simply because they are almost collectively at negative, aside from the Fed. The fed could go down by the point it’s gone up since December 2015 and it could go negative, but there is not much more room to go. It would boost the markets again though if things really fell and the Feds say that they’re going to reinstate quantitative easing in order to stabilize the economy or stabilize the financial system or promote growth or whatever it is they’ll say they’re doing it for. So, then you’ll just have volatility in the markets in that way. You could have a very steep drop followed by the sort of “save the day” efforts on the part of the major central banks and you’ll have an uptick. Then let’s say confidence goes down because there isn’t a lot of room to continue to do that in the same magnitude, then the markets go down again. You can kind of see how that might precipitate a jagged type of bear market with major ups in between when central banks do announce movements, which they would announce to try and save the market. All of this just means that their main function has become to continue to keep these asset bubbles inflated. A couple months ago when the private banks in the US had to give the results of their stress tests, basically stressing their books to the extent of what could happen in certain crises situations, and the Feds said that they all passed with flying colours while having mostly not passed the year before. So, somehow in a year they managed to magically change. They turned around and said that rather than saving extra capital or whatever, we are going to just buy our own stock. That just creates more inflation of these bubbles and that why the financial sector increased by so much more than some of the other sectors because all of a sudden they were given a green light by their own regulatory body, the Federal Reserve, to just use this, effectively 1% or less, money to buy their own stock and to pay themselves dividends that amount to two more than that – Effectively using the Fed’s policy to freely inflate their own stock by paying themselves dividends on their own stock that they bought. It’s kind of market manipulation if you think about it, but it’s legal because the regulatory body that is supposed to control this sort of thing green-lighted it.

FRA: So when does this all end? You mentioned ongoing emergency procedure spells an eventual recipe for disaster if you think about growing levels of central bank assets, you mentioned 14 trillion, and given the coming even much higher numbers on unfunded liabilities that may need to have central banks monetize further debt by governments, but is the end point limited by perhaps the interest rate? Or if you sort of look at it as a lever between debt and interest rates for servicing debt, is the end point involving interest rates?

NOMI PRINS: At some point, what’s going to happen is the interest rates will continue to remain low and again, I don’t think any of these banks are going to move rates up this year, but when a disaster happens, so not necessarily when rates get raised a smidge although that certainly does push that lever when the fact the Feds have moved rates by even just 1%, has created some more instability in terms of defaults and international corporate defaults and so forth because you have companies that have been mostly funded through US banks and other major private banks in dollars. They have multinational operations and have to repay them in dollars, but their currency isn’t worth as much, and the interest rates go up again for them so they lose twice, and they’re not growing as fast so don’t have as much profit to cover it. So that stuff is happening throughout the world organically. The lever is really when those numbers start to tip, but I don’t know when that is. I used to try and find the end point, such as when the European central bank actually stops using their quantitative easing program and then they get to the date where it’s going to stop and then they extend it. They have this ongoing elasticity in terms of their policy, but what will happen besides monetary policy in central banks is that the sheer development and growth of companies that are highly, highly leveraged relative to even how they were before the financial crisis, just simply aren’t making enough money to cover even the minutest of interest rate payments on their debts. That’s when stuff starts to collapse, not necessarily if they’re raised, although that would certainly hasten it and that’s why it’s kind of stopping right now, but when they’re actually simply not growing enough organically to make their own payments. And there’s a lot of that happening. For example the son-in-law of the president of the United States, Jared Kushner, he’s a real estate person; his major building 666 Fifth Avenue in New York City is completely overleveraged and it’s occupancy rates continue to become lower, which means he can’t pay for even the debt he has with the people who are supposed to be renting out space in his building – That’s an organic problem. On one hand it’s because you’ve taken out too much debt, on the other hand it’s because people won’t pay you for the provision, space, service or whatever because they don’t have the money or want to spend that. That’s when things start to collapse from an organic perspective, unless again we have a major war or a major sect or something like that happens more acutely and will more quickly create some sort of collapse.

FRA: But not really in terms of the time frame?

NOMI PRINS: Well if we go back into discussing negativities with North Korea, if the defaults have been increasing in the various sectors throughout the world continue to increase at a more rapid rate – You could see a crisis happening within the next year even though you’ll have the cavalry of central banks attempting to double-down or triple-down on what they’ve done simply because there will at that point be nothing on the gross side at all to enable companies, particularly small-medium sized companies that hire a lot of people, to pay off their debts. And if they don’t hire people they have to fire people. If they fire people and they aren’t paying people, people can’t buy stuff. If people can’t buy stuff, it all goes down very quickly and becomes a very quick spiral. You’re starting to see that. You’re starting to see defaults in various sectors and if that continues it could spiral down within the next year and that would happen naturally.

FRA: That’s great insight Nomi. How can our listeners learn more about your work and also when is your new book, “Collusion”, coming out?

NOMI PRINS: Collusion is slated to come out on May 1st of 2018 and in terms of anyone who wants to read more of my books or any of my writings I do have online or just in general, you can come to my website which is just my name,, and just check it out.

FRA: Great – Thank you very much Nomi.

NOMI PRINS: Thank you so much Richard.

Transcript by: Daniel Valentin <>

LINK HERE to download the MP3

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/18/2017 - Dr. Lacy Hunt: The Secular Downtrend in U.S. Treasury Yields – Fueled By Excessive Monetary Easing

“If we are talking the long term bond yields, central banks have very little influence. Long yields over time are determined by inflationary expectations. Something that’s know as the Fisher equation and the reason that long yields are low not only in the United States, but around the world, is because the inflation rate is very depressed… The action of the world’s central banks, in my opinion, are actually serving to lower, not raise, inflationary expectations. The Federal Reserve has tightened four times. The rate of growth in the money supply is decelerating very substantially. Bank loans have moderated even more substantially than the rate of growth in the money supply. The velocity of money is falling. So to summarize, what I would say is when you have an extremely over-leveraged economy such as we do today, a little bit of monetary tightening goes a long way.

…The ability of central banks to influence the long term rates by acting on the short term rates in very very limited, and in fact it’s often contradictory. For example, when the Fed was expanding their balance sheet under QE1 and QE2, a lot of folks called that money printing and said it would be inflationary and the bond yields actually rose because the bond market is so sensitive to the rate of inflation. When the Federal Reserve allowed the balance sheet to contract very slightly between QE1 and QE2 and then again between QE2 and QE3, money supply growth came off, the economy decelerated, and bond yields declined…”

LINK HERE to the article – video


Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/18/2017 - Chris Martenson: Central Banks Are Petrified With Record High Markets

“We are talking about a steady erosion of the dollar as a reserve currency. I think that is most likely. The only thing that could make that really go fast is some kind of war. The United States and China, we got to keep our eye on this because Trump has been threatening a trade war with China. China responded and said if you do that, we may dump the dollar. . . . So, there is all this trade and financial back and forth and maybe even actual war at some point… China has the ability to really impact the dollar in a big way on the world stage. We better hope it does not come to that because a slow erosion we can adjust to; a quick erosion is going to really roil the markets and maybe blow a few of them up.”
artenson contends the U.S. could see hyperinflation in a short time if China “dumps the dollar.”

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/18/2017 - Governments Begin Cracking Down On Cryptocurrencies And Begin Creating Their Own Cryptocurrencies

“Last week bitcoin plunged over 40% from all time highs hit as recently as three weeks ago on news that China had ordered local exchanges to halt trading in the cryptocurrency. Since then, defying naysayers yet again, bitcoin staged a remarkable comeback, rising from under $3000 to $4000 in the last few days of trading, but China appears to be nowhere near done, and as the WSJ reports this morning, Beijing is moving toward a ‘broad clampdown on bitcoin trading, testing the resilience of the virtual currency as well as the idea its decentralized nature protects it from government interference’ in what the paper dubs the ‘most draconian measures any government has taken to control bitcoin.'”

LINK HERE to the article

“So with China having already banned exchange-based trading of bitcoin, if not bitcoin itself just yet, and with India seemingly on pace to do the same as it pushes for its own, regulated and central bank-mandated cryptocurrency, the question on everyone mind is will this global crackdown against bitcoin and its peers boost their already near-record high popularity and price, or will it force holders to flee, wary of getting burned further by a wave of governments who have turned increasingly hostile to the ad-hoc cryptocurrencies which are not controlled by the central banks themselves, something Eric Peters hinted at earlier today. If the answer is the latter, will that prompt monetary purists and seekers of central bank inert currencies to finally start buying gold once again?”

LINK HERE to the article


Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/12/2017 - Former Executive VP Federal Reserve Bank Of NY: “Strong Chance The Fed Will Turn To Asset Purchases Again When The Next Substantial Economic Downturn Occurs”

Brian Sack is Director of Global Economics at the D. E. Shaw group. Prior to joining the D. E. Shaw group in 2013, he was an Executive Vice President at the Federal Reserve Bank of New York (FRBNY), where he served as head of the FRBNY’s Markets Group and managed the Federal Reserve’s System Open Market Account portfolio from 2009 to 2012. Below, he reflects on the experience with the Fed’s asset purchase programs and argues that the Fed should maintain a relatively large balance sheet and be willing to deploy it as a policy tool during future downturns.

“In my view, there is a strong chance that the Fed will have to turn to asset purchases again when the next substantial economic downturn occurs, considering that the neutral level of the federal funds rate has fallen notably .. Purchases of Treasuries and agency-backed securities—the primary assets that Congress has so far authorized the Fed to buy—have the advantage of allowing the Fed to affect the market price of interest rate risk without taking on any credit risk. Purchasing a wider set of assets—as do some other central banks—might enable the Fed to have a larger effect on financial conditions and promote faster recoveries. But it would also involve putting more taxpayer money at risk and having an imprint on a wider set of risk premiums in the market. So there is a tradeoff involved that Congress would ultimately have to consider.”

LINK HERE to the article

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/12/2017 - Nick Giambruno: “Ultimately The Federal Reserve Will Paper Over The Pension Crisis By Printing More Money”

“Ultimately, the Federal Reserve will paper over the pension crisis by printing more currency.

Politically, it seems impossible that the government would default outright on its promises to millions of its own employees when the Fed can simply print more currency.

Ultimately, this will turn a local debt crisis into a national currency crisis. And many states will effectively default on their pension obligations anyway, since those payouts will be made with depreciated currency.”

LINK HERE to the article


Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/12/2017 - The Roundtable Insight: Adam Andrzejewski On Unsustainable And Reckless Government Spending, Deficits And Debt

FRA: Hello, Welcome to FRA’s Roundtable Insight. Today we have Adam Andrzejewski. He is the CEO and founder of Open the Books (, a government watchdog organization not funded by government, and he’s a national leader in bringing transparency to government spending. Welcome, Adam.

Adam Andrzejewski: Great to be on the program, Richard. Thank you very much for your interest in our work.

FRA: I notice on your website you initially set up homepages as the nation’s largest publisher of community telephone directories?

Adam Andrzejewski: That’s right, I’m probably the only guy you’ll ever meet anymore that actually monetized a yellow page publishing company in the internet age. So I had the good fortune to sell my shares to my brother and an investor from the east coast back in 2007, that was 1 year before the iPhone was invented.

FRA: Wow. And then you ran for governor of Illinois with a pledge to create this organization, correct? The

Adam Andrzejewski: So I ran for governor based on my private sector success. And I knew in Illinois, where we ranked high we should have ranked low and where we ranked low we should have ranked high and I felt we needed new blood, a new day. I ran on two things, both of these things we’ll talk about today. A hard forensic audit of all state and local spending, you know evidentiary, follows the money, holds up in court. If you think about it it’s how we caught Al Capone back in the day and Illinois is horribly corrupted on every level and we needed that audit. And that resonated, that idea resonated on the campaign trail. The second idea I ran on was the tagline slogan “Every dime online in real time” aggressive financial transparency. You know I lost the race. I lost about 5.5% of the vote, I’m comfortable with that. But what we knew was the ideas resonated and I’ve carried those forward at our non-profit charitable organization at

FRA: Great, and I just want to point out before we get in some of the details on what you’re saying as well as what your organization is doing about what you’re saying. Just want to point out that every fact, statistic, and development that you’re going to mention, we see as the root cause of increasing central bank and government interventions in the economy and in the financial markets. So all of these spending issues, deficit problems, challenges and overall debt levels the challenge by government to control the burden of that debt, we see as a root cause of increasing central bank and government interventions.

Adam Andrzejewski: Well I think the founders of the country thought the same way. They recognized that knowledge is power, they actually wrote transparency into the United States Constitution. It’s article one section nine, and this gives us at the authority as citizens from the private sector to open the books on government. So it simply says that a regular statement and account of receipts and expenditures of all public money shall be published from time to time. So Richard this is our information, the people own this government spending information and at our mission is to post online every dime taxed and spent at every level of government across the entire country. We’ve captured 4 billion federal state and local expenditures and it’s 80 cents on every dollar of spending at every level right now. And we have visibility over the course of the next 18 months to get that first very unique data set so you’ll be able to track every single tax dollar from every level of government.

FRA: And today you’ve compiled some very interesting facts and statistics. First on the state of finances in Chicago and Illinois, how that is evolving. And then also for municipalities, other U.S. states. Do you want to bring some of those up?

Adam Andrzejewski: So I think in the city of Chicago and across the state of Illinois, the number one public policy problem that affects the delivery of all government services whether it’s education, housing, the war on poverty, the soft social safety net, medicine, the delivery of healthcare, it’s quite simply the number one issue, is the extreme level of pay perquisites and pensions for public employees. In Illinois this summer we identified 63,000 highly compensated public employees that make more than $100,000 per year. For instance, in the city of Chicago, Rahm Emanuel paid out nearly $300 million worth of overtime last year. And 1,000 city workers got at least $40,000 in overtime alone. You’ve got people for instance, phone operators in the police department that last year made nearly $200,000 because they got $126,000 worth of overtime.

FRA: Wow.

Adam Andrzejewski: You’ve got 4,800 police officers assigned as detectives that made between $10,000 and $126,000 in overtime last year trying to solve the homicides and thousands of shootings in the city. It’s a mismanagement of public resources, it’s a mismanagement of taxpayer dollars and we’re holding Rahm Emanuel accountable.

FRA: And for overall in Illinois as well?

Adam Andrzejewski: Well it’s just out of control across the whole state. So for instance, there are 30,000 Illinois educators that last year got a check for over $100,000, you know paychecks. Now 20,000 of them are actually currently employed in their school district. But the 10,000 of them, they’re out the door, they’re retired on six figure pensions. So look, you can educate kids, or you can pay a massive education bureaucracy. The delivery of government services is conditional on reasonable levels of compensation. What we’re showing in Chicago and across Illinois, they’re just completely out of control.

FRA: Probably the easiest way to do it is, I remember an example given by Martin Armstrong, he basically said if you have 10 government employees and 4 of those retire, that those 4 need approximately say 3 units of retirement pay pensions and all that benefits, you have to hire for the other 4. So you need a budget then of 13 units. You’re going to raise property taxes 30%, you know it’s unsustainable essentially.

Adam Andrzejewski: In the state of California, when we looked at their highly compensated public employees, and by the way, in California we found 220,000 of them. We took a look at one position, and it was a water management position I believe it was in Los Angeles County. And the position was a million dollar a year position because there were two $350,000 pensions that taxpayers were paying out of the pension plan. And then the current one was hired for about another $350,000 on salary. So you had two out the door, one currently working, and $1,000,000 at stake.

FRA: Wow, that’s in California. So you’ve got some examples you’ve sent also on New York?

Adam Andrzejewski: So in the state of New York it’s not much better than Illinois or California. New York has 170,000 public employees that make over $100,000 a year. And look it’s out of control like every other state. For instance, in the New York City public school system you’ve got 700 janitors, they’re called “custodial engineers” they’re janitors in the public schools. And they can make up to $206,000 a year. Now, we took a look at the average principal salary in those New York City public schools, the average principal makes $125,000 and there’s 700 custodial engineers that out earn the average principals salary.

FRA: Have you also taken a look at projections based on the statistics that you have, projections on unfunded liabilities and sort of unsustainability limits?

Adam Andrzejewski: We leave that for the actuaries. Obviously, those are complicated calculations, but we actually read all the reports. So a number of years ago I remember, this is an interesting story about 2012, I wrote a piece based on what I had read in one of the pension system reports. And it was the Illinois teachers retirement system, that at the time had about a $100 billion unfunded liability and today it’s probably about $130-$140 billion unfunded liability. And we wrote that that system very rapidly was going to run out of money. And I remember getting an email from the spokesperson of the system and he said look, this is scaring people, you are wrong, this is factually incorrect retract it. And we wrote him back we said no, here’s the evidence. About a year and a half later an email was leaked from the executive director of the teacher’s retirement system. And he confirmed and every single year to date he confirms that unless something is done with the system, if the employees need to work a little longer, pay them a little bit more, receive a little less lucrative cost of living adjustment, if these things are not done, the system very very rapidly in the early 2020s will run out of money.

FRA: And so if we look at how governments are coping with this, you know how are they reacting, what draconian measures they are currently resorting to, can you identify some of those measures currently and in the near future?

Adam Andrzejewski: Well I think Illinois is a great example of this. And you know its taxes for as far as the eye can see. So for instance right now there’s huge uproar is in Cook County, Illinois. And that’s the country where- Chicago is encompassed by Cook County. They’re taxing everything, they’re even taxing soda pop. They didn’t tax the Starbucks drinks and things like that, they tax the soda pop. And so regular rank and file people are just in revolt. The soda pop tax in Cook County has a lower poll approval rating then president Donald Trump has in Cook County. It’s very very interesting. So whether it’s ever escalating property taxes, whether its taxes on businesses for a headcount of employees, if they can think of a tax they’re putting in a tax. And of course, that’s what driving everybody out of here, Illinois loses businesses. We’re a very narrow state, there are actually five geographic state borders, we border five states. And it’s very very easy just to move a few miles and jump over a state border to a different state for a future of prosperity.

FRA: And also on sort of a government taking over everything, the militarization of federal agencies, can you go into that?

Adam Andrzejewski: Well I think that once you can’t pay your bills when you have ever escalating taxes, when you have a regulatory regime that continues to regulate everything, tax everything, at a certain point- you know the federal government has 36,000 lawyers enforcing those regulations? Now only 12,000 work for the Department of Justice pursuing crime and criminals. So you got 24,000 federal lawyers enforcing the regulatory states of America, and that’s why people feel over-regulated. So after you grab legal power, and somebody has to enforce the regulations and the taxation. What we have shown, and we broke this on the editorial page on the Wall Street Journal, our honorary chairman is Dr. Tom Coburn, the former U.S. senator from Oklahoma, and we wrote a piece that broke our oversight report. The piece was entitled, and many people still remember this piece, it was called Why does the IRS Need Guns? And there were two major findings in our oversight report, now these were the federal agencies outside of the department of defense. So we found 67 federal agencies bought $1.5 billion in a 7 year period of guns, ammunition, and military style equipment. And 53 of those agencies were not a part of homeland security or the department of justice. These 53 agencies were rank and file, traditional, regulatory, paper pushing agencies like the IRS, like Health and Human Services, like the Animal Health Inspection Services, like the Veratrin’s Affairs. So we found that an IRS special agent can carry an AR15, the Health and Service agents are trained on the same special weapons platforms that our Special Forces military warriors use. They’re trained by the same vendors to use those weapons, and it goes on and on. I just want to point out, Richard, that the second finding in that report was equality as interesting. We quantified for the first time 200,000 plus federal officers with arrest and firearm authority. And that exceeds the number of United States marines at 182,000.

FRA: Wow, amazing. And in terms of what’s happening, you referenced earlier some of the time frame considerations, any idea on how this unfolds timewise? I know Chicago Illinois is sort of fairly the first to have these challenges, but how do you see it playing out between other municipalities, other cities, and states across the country?

Adam Andrzejewski: So, if they follow the lead of Illinois, they’re going to be in trouble. Obviously, the Illinois legislature just hiked taxes with no underline spending reform, the budget they passed with the tax hike is still $1 Billion underfunded. And taxes went up from roughly about 3% to, it was about a 67% tax increase. So the fundamental reforms weren’t there. We had racked up $15 billion worth of unpaid bills, and now Wall Street is going to bear the financing of those bills. To date, Main Street has financed it just waiting to get paid. But now, as of last week, Governor Bruce Rauner has said that he’s going to bond out $6 billion of the $15 billion of unpaid bills. So look, every single day in the state of Illinois we look more and more like Puerto Rico and as a matter of fact, we might be worse than Puerto Rico.

FRA: Wow. And all of this is also causing brain-drain and wealth-drain. Just before we started you gave the example from your hometown.

Adam Andrzejewski: So back in the late 1970s, I grew up in Kankakee County which is about 100 miles south of the city Chicago. And I grew up in a fairly rural area, our County had 100,000 people, and we lost our two main manufacturers. And nearly overnight the population dipped from 100,000 to about 75,000 people. And it took over 20 years before the population recovered. And it was even more than the loss of jobs, it was moral decay. Before I ran for governor in 2010 I took a look at the number of sex offenders in the city of Kankakee and it was 126. And I looked at a similar size town just north of Chicago, and they had 1. So not only do the jobs leave, but capitalism is the best system for honing an individual, keeping them engaged within communities and preventing decay of all types.

FRA: I guess all of this is quite negative, but what your organization has been doing is quite positive, serving as a beacon of light. Can you go into some of the activities that your organization is doing about these developments?

Adam Andrzejewski: Yes. So one of the major issues and lack of transparency at the federal level is the federal pensions and retirement annuities. And with the federal pension systems, taxpayers are on the hook for a $3.5 trillion unfunded liability. But right now Richard, you and I, we have no right to know, we have no ability to see who the retiree is, how long they worked, what they put into this system, what taxpayers put into this system, and what that retiree receives in retirement. We have no ability to look at the federal agencies to see who is confirming the most for instance 6 figure retirement pensions. And we have no right because all of this pension data is not subject to the Freedom of Information Act. And so we have legislation that we’ve put together with Florida Congressman Ron DeSantis and it’s a great bill. The bill is called Federal Pension Disclosure Act and it already has 10 sponsors in the house, in congress. And we’re optimistic that this will pass the house and we’re looking for Senate sponsors. So this would open up all of that.  I mean wouldn’t you like to see Lois Lerner, she was the IRS boss who is rumored to have retired on full pension benefits? She allegedly led, she plead the fifth in front of congress and she allegedly led the targeting scandal of the conservative and tea party groups ahead of the 2012 election for Barrack Obama. I just think all of this needs sunlight and that’s just one of the areas that we are aggressively moving forward to open up.

FRA: Now a lot of people have pointed out the potential for a movement to the far left. I mean you mentioned capitalism just a few minutes ago and there may be some misunderstanding by the millennial generation of the current economic system, especially in the light of what happened during the financial crisis and the causes of that. Do you have any initiatives that can reach out to the millennial generation?

Adam Andrzejewski: Yes we actually use the latest in technology to display all this data. And millennials love having the tools and the ability to hold the political class accountable. So I think it’s a generation that naturally fits our mission and vision of empowering citizens with robust facts and hard data. In the year of, fake news is talked about all the time, well this information actually comes from the government, so it’s true. And I think people like having that ability to just circumvent and ask hard questions demand answers and hold people accountable for tax and spending decisions.

FRA: Great, and how can our listeners learn more about your work? And do you have a service or a newsletter they can subscribe to?

Adam Andrzejewski: Yes, so if you come to all you have to do is, if you want to give me feedback on this interview just do the contact us, and then you’ll have subscribed to all of our services. So that’s just the easy way to do it, is just come to and send me an email through the “contact us” function.

FRA: Great thank you very much, Adam, for being on the show.

Adam Andrzejewski: Richard, thank you for your interest in our work, I look forward to keeping you updated.

FRA: Great, and we’ll end it there. And yeah Adam, we’ll do this again. It will be interesting to see how this continues to evolve. And especially on the reaction by governments, what they’ll do, and also perhaps maybe if the federal government steps in to do like a bailout of the states, if that’s going to happen in some way. So it would be interesting to see how this evolves.

Adam Andrzejewski: It really is, and we’re going to be there for it. I mean you and I, we’re young we got a lot of years to go and this probably in states like Illinois won’t take too long. I mean you know the levels of debt, the levels of spending, the lack of- the political structures that have been cemented in place just ensures that all of this continues to a race to the bottom. So it’s not a question of if, it’s just a question of when. And you know the trend can continue for a good bit. But at the end of the day it does stop, and when it stops it’s going to be a painful experience. And I don’t think it’s going to take that long.

FRA: Right, actually I was just talking this morning with an economist who’s originally from Argentina and now is working in Canada. And all the economic devastation down there, he mentioned how prevalent and how the Austrian School of Economics is in trying to sort of bring back the economy positively from down there. So they’re sort of much ahead of the evolutionary process if you will then where we’re at now in the US. I know your partner Matt, he takes a very close view of the Austrian School as well.

Adam Andrzejewski: Right, right. No, I kind of looked at things through more of a political frame. So what I hear or what I see is just further genius of the system instituted by the founders. So it’s conditioned on federalism. So the laboratories of the states, they try out all these different ideas. The successful states over time where a lot of people want to live have the better ideas. That’s what you’re seeing, you’re seeing people moving from California and Illinois and New York and they’re going to states like Texas and Florida. And those states eventually grow in political power, in federal power and the states with bad ideas, they die. And they become less powerful over the course of time. Now, things are so bad in some of these states, you know California is the most populous state and Illinois is the fifth most populous state and New York is the third most populous state. I mean, can these states bring down the good old United States of America before federalism rights the ship? And I think that’s an open question. Federalism may be moving too slow to help us this time.

FRA: Yeah, that’s a very interesting observation.

Transcript written by Jake Dougherty <>

LINK HERE to the MP3 Podcast

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/11/2017 - The Roundtable Insight: Alasdair Macleod And Jayant Bhandari On The Rising Synergistic Asian And European Economies

FRA: Hi, welcome to FRA’s Roundtable Insight. Today we have Alasdair Macleod and Jayant Bhandari. Alasdair is head of research for GoldMoney and an Austrian economist. He has a background as a stockbroker, banker and fund manager. Jayant is constantly traveling the world looking for investment opportunities, particularly in the natural resources sector. He advises institutional investors about his findings. He worked prior 6 years with U.S. Global Investors in Texas, a boutique natural resource investment firm, and also for one year with Casey Research. He also is a follower of the Austrian School of Economics. Welcome, gentlemen.

Alasdair Macleod: Thank you for having us.

Jayant Bhandari: Thank you very much, Richard.

FRA: Great, today I thought we’d do a discussion on currencies, commodities, cryptocurrencies, what’s happening there. An update from India, and also just what monetary policies are doing by the major central banks, some recent writings by Alasdair in that regard. So to kick things off, just wondering Jayant if you want to give an update, we were just talking about the recent announcement by the Reserve Bank of India?

Jayant Bhandari: Richard, a very funny thing came out a few days back by the Reserve Bank of India. Firstly, the reality is that in this electronic age, when you have deposited all the money into the banking system the government should have released the effect of the demonetization very soon after the end of December 2016. And I’m talking about the demonetization process that has started in November 2016. Now a few days back they came out with a new saying that 99% of the demonetized currency had been deposited with the bank by the end of March 2017 which basically means that more than 100% of the money in circulation was actually deposited. Which basically if you try to understand what this means is, not only legal tender was deposited, the counterfeit currency in circulation also ended up getting deposited with the banking system. So not only did the banking system of India completely failed to stop corruption or black money, they actually converted counterfeit currency into legal currency. Now also if you read the recent news releases, they have also come out with the latest survey reports, which now tell you that the economic growth has fallen to 5.7% which is now much lower than that of China. And it clearly shows that the Indian economy is now starting to stagnate. In my view, it was stagnating 6 months back and it’s actually regressing in my view. Two more things before I go complete my response here Richard. Most of the growth can be attributed to destruction of the informal economy and transfer of that economy to the formal economy. Which in real terms means that they are destroying the economy, not improving the economy. Also, a huge amount of GDP increase is a result of massive increase in government spending. Which is of course as you and I know is not sustainable and it’s actually not helpful to the economy or to the society. So there are constantly negative news coming out of India right now.

FRA: Your thoughts Alasdair?

Alasdair Macleod: Well I find that fascinating. It doesn’t surprise me, before we came on we were just sort of remembering last time we spoke about this, and I think you Richard agreed this is going to be economically destructive. Yet the Reserve Bank of India count money has been sorted, which means that there’s got to be some money that which money in there. And the economic growth figures has been fiddled with. There is no way that you can destroy the money and then expect a growth of any sort to occur because economic growth or contraction is purely a reflection of the money SKIP Economic growth simply collapses. It seems to me that what’s happened is that the figures have been filled one way or another, as Jayant suggests, to come up with something that looks reasonable in the circumstances. I wouldn’t believe for a moment that there’s been economic growth of 5.7%. I don’t actually hold any SKIP. Is completely meaningless, because you can’t get at what is going on in the economy, whether it’s progressing or not. I would say that that figure is completely false and anyway pretty meaningless.

FRA: Jayant, what has been the effect on the currency? The exchange rate and purchasing power and inflation/deflation?

Jayant Bhandari: So food prices in the country have now started to rise. So if you remember, Richard, when we talked initially soon after demonetization, I was telling you that food prices had fallen drastically. Food prices were down about 50% or so. That seems like good information to most people, but the reality is that food prices fell so much because poor people were unable to feed themselves. Hundreds of millions of people had lost their jobs, and they had no option but to reduce the food consumption. Now that also meant that farmers could not really make money, and they did not sow properly for the next season which now means that food prices are now increasing across the country. So that is the harm that has been done to the inflation/deflation situation. Deflation happened for the wrong reason and now inflation is happening for the wrong reason in the country.

FRA: And what has been the effect on gold prices in rupee terms locally?

Jayant Bhandari: So Indian currency has surprisingly done very well in the last 7 months. Now, these are all in the short term. I don’t think should pay attention to the currency prices because these changes tend to be noise. And there is another thing that is happening that Western institutional investors continue to be very euphoric about India; the reason why they keep pumping money into the Indian stock market. And as a result of that more Western money keeps flowing into India which has helped the Indian currency. Now another thing that is happening is the situation with gold and Bitcoin. Bitcoin is being bought by Indian states, a lot of people now come to me asking about Bitcoin and a lot of people have increased their consumption of gold. They have also increased the storage of gold in Hong Kong, Dubai, and Singapore. This is what rich Indians are doing, so in my view from what I see, gold consumption has gone up and Bitcoin consumption has gone up in that country as well.

FRA: And you were mentioning earlier about the rise of other metal prices like the base metals over the last year period, can you provide some commentary on that, Jayant?

Jayant Bhandari: Well I mean this is, of course, a good sign in my view that China continues to consume a huge amount of commodities. Which in my view underpins the future of China which is that China continues to grow. And I continue to be very optimistic about China and therefore commodities and I continue to be optimistic about gold, but for the wrong reasons which is that many of the third world countries continue to stagnate and suffer as a consequence of bad policies.

FRA: Alasdair, your thoughts on the rise of base metals and how that relates to the precious metals?

Alasdair Macleod: I think Jayant is absolutely right about China. China if you like, is a mercantilist economy. It’s driven, if you’d like, by policy from the center. And the policy from the center on various 5-year plans, and they’re on the thirteenth 5-year plan now, is basically to create an industrial revolution throughout Asia. At the same time, the spice route spice road projects the OBOR project is beginning to cut down substantially the transcontinental shipment times. There’s an enormous number of trains now going between China and Europe. And we’re now in a position where SKIP can put a brand new car on a train, ship it over to China on that train and have it in a showroom in Beijing in 15 days. That time is going to come down too, around about 10 or 12 days eventually and probably in the not too distant future. And this compares with sea transport times of at least 30 days for the same thing. At the same time, you have companies in Europe like Zanussi Italian white goods manufacturer. They’ve got factories in China and they’re shipping their white goods by rail now in contain raised shipments. And again they’re getting the benefits of their goods coming into Europe within literally almost a fortnight out of the factory. Now, this is very very beneficial and China is in effect driving the economy of the whole of the Europe and Asian continent. It’s becoming particularly visible in the Asian part, it is becoming more visible in the European part. The German economy is going like a train, it really is. Other Eurozone economies are if you’d like, they don’t have the manufacturing porous but nonetheless, they are beginning to recover. And this is really the story I think for the next 2 or 3 years at least as far as Europe is concerned. So when it comes back to base metals, the demand for base metals I don’t think we’ve seen anything yet. There is another aspect of this and that is the currency aspect. What China basically wants to do is to do away with using the dollar as a settlement currency for her trade. And she’s made enormous strides to achieve this end. And there will come a point where she will take a view on her reserves, which total roundabout $3 trillion equivalent, most of it is in dollars and about a trillion of it is invested in T-bills and bonds, treasury bonds and so on. There come to view about that relative to other currencies. And I think we’re on the edge of China reducing her reserves in favour of buying base metals because she needs copper in particular. She’s redoing the whole of her electric metalwork, her grid. Air conditioning is a huge market in China. And the building of these cities, I mean we think these are just castles in the sky, but they’re not. Actually what China is doing by building these cities is she is seeking to rehouse huge numbers of people, up to 200 million people is the plan, where the get redeployed from low-value agriculture and that sort of subsistence existence into these satellite cities where they will be redeployed in manufacturing. You know in all the sort of activities if you’d like that go with the modern economy. The Chinese economy, it is becoming rather like the European economy if you take a 5-year view on it. It’s going to become service driven, you’ve got middle classes and all the rest of it. And middle classes want things like air conditioning, they want electricity that works. And so this is the demand for copper that we’re seeing. And when it comes to all the construction, the railroads the improvements that are going on, the industrialization of the whole of Asia, that’s where things like iron and steel come in. And of course, you have all the other metals. Golds relation to this, well there are two ways of looking at it I think. The first is that the price of base metals, the price of anything energy as well, is a lot more stable over the centuries measured as gold as it is in paper currency. And I think that’s a very important point to bear in mind. So if you see the base metal complex rising in price, then it is likely that that will put an upward stimulus on the price of gold as well measured in paper currencies. And the reason for that is that its paper currencies that are losing their purchasing power, not gold. So that’s the first point. The second point that I would make about gold is that if China is serious about doing away with the dollar, the Yuan as currently constituted is not a satisfactory substitute for the dollar. So what she must do is offer trade partners if you’d like, the ability to settle in something else. And this is where gold comes in. We’re seeing this on the futures exchanges in Shanghai. There’s a Yuan contract already on the futures market for gold, the next contract that’s coming in, and it’ll come in by the end of this year, is a Yuan contract in oil. So what this means is that a country like Iran who exports a lot of oil to China, because Iran doesn’t want to use the dollar and she is restricted very heavily on what she can do with dollars, she doesn’t want anything to do with the dollar, she doesn’t necessarily want to take Yuan. So what she’ll do is through the futures exchanges she’ll cover her shipments, the payments that she expects her shipments to China through the futures market. First of all converting oil into Yuan, and then another futures contract converting Yuan into gold. And this is going to produce I think a demand for gold which will not be satisfied by China indecently, it will be satisfied through the markets, deliveries through the market which will put quite a drain on global gold resources. So this is another way in which China is going to move away from settlements in the dollar and that is to provide the facilities if you’d like as an entrance stage for her trade partners to accept payment in effect in gold by bridging through the futures. Eventually what she has got to do is she’s got to formalize the relationship between the Yuan and gold. And that I think will happen in time, how long is difficult to say. All I can say is that the moment that is done, almost actually the moment that Iran can go and just literally sell oil to China in return for gold by using the mechanism of the futures markets, then this is almost like a financial nuclear attack on the dollar. And I do see the dollar is very very vulnerable to this. The timing on this I think in a sense has been speeded up by the election of Donald Trump, because that’s produced a huge air of uncertainty in international trade relations. America is isolating herself in this. But I think that the Chinese, they will move cautiously but watch North Korea, watch Afghanistan, that’s another thing. Also watch the relationship between China and Russia which is very very close. And I think Russians might have some input as to the timing on when they if you’d like pull the rug out underneath the dollar. So I think we’re living on sort of a cliff edge if you’d like as far as the dollar is concerned and this is a fascinating time. And I think anyone who basically doesn’t hold any gold or silver for that matter which is a geared play on gold in financial terms, I think could find themselves with egg on their faces. So it’s a very interesting time and I would be very positive I think on what’s going on, on base metals and also on gold and all to do with China. China is developing the most amazing economy for the whole of Asia. I think Europe is a major beneficiary, Europe will overheat very quickly on this by the way so there’s got to be a very sharp reversal in monetary policy by the ECB. But guess who’s not in the game at all? And that’s America. America has just isolated herself from the gold game and she’s sitting there thinking what to do about it.

FRA: Jayant, you spend a lot of time in Asia, do you see the same type of dynamics from your perspective as Alasdair has elaborated on?

Jayant Bhandari: I’m certainly extremely bullish on China, I go to China quite often and I have talked with you about this several times Richard. I continue to see good growth taking place in China. And I see whenever I go to villages, towns, and cities in China I see improvements. Sidewalks get constructed, coffee shops come up, the coffee shops get cleaner and more hygienic as time passes by. So China is actually improving consistently as time has gone by. One thing very interesting to add to what Alasdair was talking about is to look at the currency chart, the comparison of the Yuan with the U.S. dollar. Now, two years back people were starting to feel very pessimistic about the Chinese currency, they were thinking China was going to start regressing or stop growing. And Chinese currency actually did continue to fall for about 1.5 years. But then people don’t really talk much about the Chinese currency because since the beginning of this year, Chinese currency has improved massively and has gained back at least half of the losses it has made in the earlier 1.5 years. So this is also a reflection of the fact that Chinese economies actually doing quite well.

FRA: Alasdair, you’ve recently written about the Jackson Hole speeches of Yellen and Draghi, omitting commentary about the burning issues of the day. And you list a few of those, one is the question: why is the ECB injecting 60 billion per month if the great financial crisis is over? In the same writing you also indicate in reference to the Fed normalizing interest rates: will take nominal rates only 1-2% to set off another financial crisis. So how do you see things playing out? Do you see what you just mentioned earlier as putting more pressure on the ECB and the fed?

Alasdair Macleod: Yes, I do. I think the importance of the China story is that everybody has got commodities to export, everybody who has territory if you’d like on the Euronation continent is going to benefit from what China is doing. America is not, America doesn’t have any friends really in the trade sense. She’s even turning around under NAFTA and telling Canada and Mexico: “we don’t like this arrangement, we’re going to rejig it”. They’ve already given up on any sort of trans-Atlantic and trans-pacific idea. I mean this is absolutely crazy, America has isolated herself. Where this translates into economic performance is that I view the U.S. economy as still being in a recovery stage from the great financial crisis, and by that I mean the credit cycle. The next phase of the credit cycle is the one of expansion. The expansion of credit, when banks actually start competing to lend to the 80% of the economy, which is the medium size and smaller business. We’re not there yet I think in America, and we probably will never get there because of the trade policies and the isolationism of President Trump. But Europe is a very different thing, Europe is turning around very very quickly. And I noticed in the Jackson Hole speech that Mario Draghi made, he made reference to the time difference in terms of recovery between the Eurozone and America. And he got it completely wrong, he said you’re ahead of us in the recovery. No, Europe is actually ahead of America. Europe is now expanding very rapidly, we’ve yet to see it really I suppose, in normal statistics, but the anecdotal evidence-and if you just watch what’s going on and you just look at the situations. I mean I described the situation for a company like SKIP. There is a major Italian company, whose doing incredibly. Got the most manufacturers, particularly the German manufacturers, I mean this is amazing. And the interest in Europe is actually going to go one further, very soon I think you will find that Germany SKIP for the Eurozone. And what that means is there will be a break with the American lead NATO arrangement. Whereby America says “This is who we’re going to have sanctioned, and everybody is going to fall in with us,” I think this is going to stop. And this is terribly important because SKIP. Mario Draghi and the ECB doesn’t seem to recognize SKIP. Here we are, we got banks who despite money at the ECB, have a negative interest rate of -.4% the interest rate from the ECB is 0% so you’ve got somewhere between negative interest rates and zero rates. They are doing quantitative easing of 60 Billion Euros a month. And they’re still doing this. And in my judgment, in a credit cycle, they have moved from recovery and they’re moving into expansion. Monetary policy in the ECB is completely inappropriate for what’s going on. So I see the big shock, if you’d like, by the end of this year has got to be a complete SKIP fast, by the ECB when it comes to monetary policy. We’re already getting wind of this, the Euro has risen from I don’t know, 1.05 against the dollar it’s now currently knocking at 1.20 to the dollar. And of course you’ve got all the manufacturers in Europe turning around and saying “oh the currency is too expensive, how dare you raise interest rates and make the situation worse” so the ECB’s got itself into this hole, which so often central banks who are behind the curve find themselves. And this is going to be very very difficult for them. First of all, stop QE SKIP. Also, and that is with the dollar declining, eventually she’s going to have to think quite seriously about raising interest rates to avoid a huge great debt problem in the economy. Which really means that over in debated business are going to find that the cost of money starts going against them and they are going to start failing. So it’s an interesting one you go back to the Eurozone, you also got the problem SKIP and the banks are all up to their necks at the moment in government debt. And that government debt is wildly overvalued. It’s overvalued on the basis that the ECB is in there buying relatively scarce bonds pushing down yields. The moment that stops, there are going to be huge great losses on the Italian banks, all the losses that they haven’t dealt with from the financial crisis. So I can see the worst nightmare I think for a central banker is that we move from this sort of this recovery phase, which just rumbles on and rumbles on and rumbles on. They don’t have to raise interest rates, they ignore things like unemployment and inflation sort of stays somewhere around about 2% and you know everybody is happy with that. If you actually get an expansion of credit because things are going like a train or beginning to go like a train, SKIP because I think must hope that we are in a permanent stage of repressed recovery. But I don’t think that’s going to be the case unfortunately with the Eurozone because of the Chinese stimulus across the whole of the Asian continent.

FRA: And so from this, what is your outlook on the Euro, the U.S. dollar, and gold prices?

Alasdair Macleod: Dollar down, gold prices up, Euro up. I think there’s going to come a point where the Euro- I don’t know whether the Euro outpaces gold or not. At the moment gold is outpacing the Euro I mean if you look at gold measured in Euros, it’s only up by about something like 3% something of that this year, it was actually down 2% until fairly recently. So basically to answer your question, I think that gold is going to go up. One thing that really really light a fire under gold I think is when the Chinese come in with the oil to Yuan contract on the futures market. And then you’re going to get Russia, you’re going to get Iran, you’re going to get various of the oil producing Asian countries using that facility to not buy dollars, but to just sell their oil for gold. And I think that’s going to make a huge difference.

FRA: Jayant, your views on ECB policy and Fed policy and your outlook for the currencies and gold?

Jayant Bhandari:  Well I’m very optimistic about the gold price and virtually every sign tells me that gold is going to go up. Not only the monetary policies but also what I see as stagnation I see happening, economic stagnation in the third world countries, except for China of course. Also, the North Korea situation is very likely to continue to push the gold price up. I might add some comment on Canada, Canada has recently increased the interest rate. And as we know the housing prices have been going up continuously in Vancouver and Toronto. And the Canadian society is hugely in debate, the private debts are huge. So it will be amusing to see what happens if Canada continues to keep the interest rate at what they have now declared or actually increase it going forward.

FRA: Interesting, great insights gentlemen. Just wondering how our listeners can learn more about your work, Alasdair?

Alasdair Macleod: Well, I publish an article every Thursday, around about midday I guess in Eastern Standard Time. You can access it by the website, or the other way to access it is open an account and we’ll send you an email. But basically yeah, I publish an article once a week on the Thursdays. I also do a market report on the Fridays. And what I try and do is look as dispassionately as possible at both what’s going on if you’d like in the futures market, the physical markets, if I have good information. And I don’t rely on charts at all on that. I mean what I will do is I’ll quote charts because other people use charts. But I try to get to the nitty grittiest of what the balances are and you know, where the interest is in market. And that’s quite fun, that’s on Friday, I write that on a Friday before we get the commitment of traders figures so it’s a slight leap in the dark, but anyway those are my two things, regular contributions if you’d like.

FRA: Great, and Jayant?

Jayant Bhandari:  Everything I do, Richard, is on my website

FRA: Great, thank you very much. We’ll do another session again, thank you, guys.

Alasdair Macleod: Thank you.

Jayant Bhandari:  Thank you very much for the opportunity, Richard.

Transcript written by Jake Dougherty <>

LINK HERE to the MP3 Podcast

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

09/08/2017 - The Roundtable Insight – Yra Harris: Central Banks Fear Deflation More Than Inflation

FRA: Hi, welcome to FRA’s Roundtable Insight. Today we have Yra Harris. Yra is an independent floor trader, successful hedge fund manager, a global macro consultant trading foreign currencies, bonds, commodities and equities for over 40 years. Also he was the CME Director from 1997-2003. Welcome Yra.

YRA HARRIS: Richard, thanks for having me back again.

FRA: I thought we’d begin today with a discussion of your interview with Rick Santelli back in February of 2016. At that time you mentioned gold and bonds are better plays than the Chinese Yuan. Since then, I think you referenced gold at being 18% higher and also referenced a shift in asset classes taking place – that would be great to get your insight on that.

YRA HARRIS: This is always a cautious zone for me to do this. Sometimes you just have to go back and look at things you said to weed out all the noise that crowds the world of finance and the discussion that takes place. So yes, on February 1st 2016 I had done a hit which you can find HERE. And it was the Monday after a weekend – I mean it was a scheduled interview, and what took place over that weekend is what I call the four horsemen of the global macro world. People I hold very high regard for their analytical ability: David Tepper, Ian Horton, Kyle Bass and George Soros – These guys came out and made comments over that weekend, it got a lot of media play, that they expected a 30% depreciation in the Chinese Yuan because of all the debt issues in China and other things that were taking place. On that Monday morning with Santelli I discussed that that’s a difficult trade for a lot of people to make .. I said I would rather be long bonds, all kinds of bonds all over the world, sovereign debt not corporate, and gold. It raised Rick’s eyebrows and he said, “Why?” I said, well, because if the Chinese Yuan, and at that time it was trading at about 6.58, which was an okay level, it has certainly weakened over a period of time where it was down to 6.10, so I said if you’re looking for a 30% depreciation from these levels, the impact on the globe will be massive deflation because if the Chinese were depreciating that much that means they would be shoving exports out as fast as they could and it would really put downward pressure on prices all over the world and we already know we had too much slack in the global economy, and that would be the impact. And I would own the gold because it’s deflation that will force the hand of central banks to panic. We are now at zero to negative interest rates. People say they fear inflation; no they don’t, not at this point in time. We go back to Ben Bernanke talking about the lessons of 1937 and that’s the fear of deflation. Central banks fear what happened in Japan for the last 20 years. The fear of deflation weighs upon them, so then, from a hard money perspective, it’s more the issue of what you do in response to that deflation. And that’s why I said gold would be a better play, a safer play and an easier play for most investors and traders to make. So I went back the other day to review it and the Yuan had actually dropped. Right now, it is through the level it was on that weekend and right now it’s trading at 6.48.  So that’s moved where the Yuan is actually higher from that date, but gold is up now 18-19% from then and the bonds are basically steady, maybe they are now 10 basis points higher than they were. But that was the purpose of that trade because again it’s to put the light that central banks fear deflation far more than they fear inflation at this point in time. Now will that change? Well, the Fed hopes it changes, but it’s not changing. And we heard Mario Draghi this morning; he’s much more worried about hitting his inflation targets on the upside than anything else. So that was my point of that. I just wanted to go and revisit that for people who follow my blog and just to put perspective to things.

FRA: Great. And what about your current thoughts on the 2/10 U.S. yield curve? I think you had some concerns that it might be breaching the 73 basis points level.

YRA HARRIS: Yeah, we’re down here again. This 73 basis point level has been an important level for me. I’ve written about it for 4 years and we’ve bounced out of this area several times, but here we are back visiting it so we are getting some flattening in the curve. Now as I warned last night in my blog, this is a critical level for me and it sends a very important message to the banks because this curve ought not to be flattening. If the Fed embarks upon, as our beloved Peter Boockvar calls: Quantitative Tightening (QT), which is a wonderful phrase, but if they begin shrinking their balance sheet that should unleash more supply in the long-run in the market & the curve ought to steepen. But, if the curve chooses not to, I think the Fed will have received a message. We saw the Bank of Canada tighten after we saw the response of the currency which rallied quite a bit because it caught the market off guard because the consensus was that they weren’t expecting a tightening. So we saw that action and this plays right into Lael Brainard’s speech back in June. What Lael Brainard said recently is that she doesn’t want the Fed’s Funds Rate to go up, that the Fed Funds rate is high enough to embark upon quantitative tightening. And with more supply it’s going to be a trickle effect to begin with, just as Janet Yellen has famously said that the quantitative tightening will be like watching paint dry. Peter Boockvar doesn’t believe that, nor do I, once this starts going, but this curve is very interesting. Now, as I warned, and I’m not being a two-fisted economist here, but with the impact from the Bank of Japan and from the ECB still actively involved in quantitative easing programs and because we believe in the global macro world that money is fungible, it might push the long-run US curve lower and lower. And this is really going to cause a problem for the Fed. They’re going to have to sit up here and take note of it because they cannot afford in all their designs for whatever they want to do, for this curve to start flattening more dramatically.

FRA: And that’s what you think would likely happen if the 2/10 reaches 73 basis points then…

YRA HARRIS: Yes, especially if it closes on a weekly basis. In today’s world we can get all kinds of erratic movement, but it closed on a more long-term technical level like a weekly close, that would give me a warning sign. My history of studying this has been that when you get flattening curves, especially in the US dollar, which is of course the most significant part because they are the world’s reserve currency  – That your currency ought, and I emphasize ought, first of all to rally .. now that may seem counter-intuitive but that’s what does happen. I don’t know what the time lag is but the currency does rally. And it’s not good for metals because what does it reflect? It reflects a coming slow-down in the global economies. That’s what flattening yield curves project, that’s historical .. And that’s why historically they have been great predictors of economic and financial outcomes. But, in this world of massive QE, we don’t know that. Again, as we’ve stressed, and I’ve been on with you I think for 3 years on and off – the signalling mechanism has been so badly broken. And this may be one of those times, but it certainly sends a warning sign. And the warning sign this time will be interesting because if I’m right, this time the dollar will not rally and the gold will not break. It may have an initial effect, but there won’t be any significant damage done to these prices levels because the Fed will be in a very difficult situation as to how to respond to this because with interest rates at 1.25% it’s not like they have much latitude on that end. So this gets very interesting. We are at very interesting pivotal points and we’re going to wait to see how this unfolds. But, the market dynamics are telling us that we’re at very precarious points.

FRA: Yeah, and we also talked yesterday on the program show in terms of what’s happening in China on the Silk Road and the rally of base metals over the last 1 year period or so. So in the old world, base metals and precious metals could fall, but now because of all the distortions and new factors such as China’s development, we could still see that trend of rising base metals and precious metals?

YRA HARRIS: Well, yeah. I mean we are still trying to figure this out as we’ve watched copper rally. And I’ve been suspect about the copper rally, but now between the Hurricane Harvey and Irma there is going to be a lot of rebuilding and the copper prices were already moving higher, so we might see some of that fall off from that. With China’s Silk Road initiative it certainly has had some impact, but the way the Chinese securitize some of their debt is with commodities which I’m a big fan of. I think that there should be gold-backed bonds. How this hasn’t taken place is beyond me and I know my friend Bosko up in Canada has been working on this because he trades – he makes markets for people’s gold coins and he has been very interested in this. But this is significant. These are significant events that are taking place here and part of the reality may be that the Chinese are securitizing a lot of commodities and that puts a floor on the pricing and keeps them in demand. The problem is that when you use commodities as securitization, if you haven’t priced them, meaning: if you pledge me 100 ounces of gold and you’ve given too big of a haircut on it, then I’m not really protected if gold prices collapse. But if you figure out the right ratios it does work. Are we embarking upon this? I don’t know as of yet, but we are certainly seeing some interesting responses to all of this.

FRA: As you mentioned earlier about the central bank policies of Europe and Japan factoring into this thinking, do you still see their monetary policies as staying the same like the current program of 60 billion Euros per month by Europe? Do you see that changing?

YRA HARRIS: Well, I think about that. Peter and I have actually disagreed because he thought we were going to see an earlier statement from quantitative tightening, but he was dead right on target in saying that it will probably come in October after it shifted a little bit after Jackson Hole. And from what Draghi talked about today in his press conference, recalibrating the October meeting which fits Peter Boockvar’s timetable now. I don’t know; I think it depends on many things. Number one, I think that Mario Draghi is hoping, he’s fervently hoping, that Merkel does very well in this election because it will give him more latitude because Merkel has been running protection for Mario Draghi in his whole quantitative easing plan since day one. So the stronger she is, the more comfortable he is. So we will see the way this election comes out and we’ll play upon that. I still say that Mario Draghi nets me my premise and I’m sticking to it. He has a far different agenda than the Fed or the Bank of Japan does because he has a political agenda and his political agenda is how to craft a Eurozone bond because it will take a Eurozone bond to create a truly unified European financial system and therefore the bigger he builds that ECB balance sheet, the higher the chance that he is going to be able to synthetically create a Eurozone bond.

FRA: And to continue building that balance sheet if the ECB is running out of bonds to purchase, could it expand or broaden to include German equities?

YRA HARRIS: Well, that’s a very good question. Mario Draghi was actually asked that question today and he danced like he was afraid to answer, he really didn’t give an answer. Could he? – He said they haven’t discussed it – Baloney they haven’t discussed it. They are very aware because this is going to become a legal issue regardless. And if the AFD, the Alternative for Deutschland Party, actually does better in the election than some think, it will for certain become a major legal contention because they are already violating the whole basis of the Maastricht deal to begin with, but everybody has looked beyond that because Mario Draghi’s real mandate is preservation of the Euro. He said that in July of 2012. He keeps talking about inflation, but he has taken that upon himself to be the preserver of the entire EU project regardless of costs. So, we can’t answer that question, we really can’t, until we see certain things start to play out. Everybody is going to develop their own hypothesis and some are going to prove right and some are going to belong in the trash heap of ideas, or as Max Planck would say, science advances one funeral at a time; same with trading.

FRA: The last question is on the Euro. Where do you see that going? We’ve seen a lot of volatility, today for example after Mario Draghi’s speech and also the ECB releasing forecasts on foreign exchange.

YRA HARRIS: In fact, Rick Santelli had John Coulter on and Santelli asked him a great question at the end. Rick asked him about the Euro and he asked would he be buying Euros and Coulter of course dodged the question just as Mario Draghi dodged the question, he dances one with great ability. It’s interesting that he cited the 1.18 Euro level as the number that they use in their projections. So he was being nailed down to that, but he didn’t give it that much credibility. My view on this is that he likes Euro here because it helps Merkel because it quiets the Germans. He wouldn’t come out and say this, but if I was there I would have certainly asked the question: Does the strong Euro represent the successful policies of the ECB? Which of course is what Draghi would say if asked .. I’m not sure where it goes here, but I’ll tell you this, and I’m going to blog about it tonight: so far today in the cash Euro market the high has been 1.2059. This is a real critical area because if you go back to July 2012, and especially July 23rd when Draghi delivered his famous comments of whatever it takes – Meaning to preserve the Euro. The low that week, when he made that comment, was 1.2042. Then over the next year and a half the Euro proceeds to rally all the way back to 1.40. Now during that time is when the United States when in full quantitative easing mode. And then 2014 when the United States began tapering, the dollar starts to rally and the Euro drops over the next few years from 1.40 to 1.05. So these areas that we’re in are very important and we’ll see what happens.

FRA: Great insight, lots of volatility and moving parts today. How can our listeners learn more about your work Yra?

YRA HARRIS: You can follow me on my blog, “Notes From Underground” at You can register for it; it’s free. You will get a real-time into what I am thinking about

FRA: Great excellent. Thank you very much Yra.

YRA HARRIS: Thanks Richard – I appreciate it.

Transcript by: Daniel Valentin <>

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