Economist Satyajit Das sees negative interest rates as a radical move by central bankers .. Why would investors go along? There are several possible reasons:
1. Security & safety: Government bonds or insured bank deposits are backed by the full faith & credit of a sovereign nation, which has the ability to issue currency to make repayments.
2. Returns are relative: In Europe, for example, purchasing bonds yielding more that the official rate at the central bank — even if it is negative — is the least worst alternative.
3. Speculation: Investors may be attracted by the opportunity for capital gains from price appreciation if they expect yields to become even more negative. Foreign investors also may be attracted by possible currency appreciation.
4. Real returns: Investors may favor real return over nominal return. Bonds with nominal low- or negative return may preserve or increase purchasing power in situations where the expected deflation is greater than the negative yield, providing positive real yield.
5. Investment mandate: Fund managers may be forced to purchase negative yielding bonds, irrespective of the fact that it locks in a loss.
6. Banks’ and insurers’ mandate:Financial institutions may be forced to purchase negative yielding securities, given liquidity regulations that require these entities to hold high-quality securities.
7. Central banks’ mandate: Central banks with restricted investment choices are also buyers of negative-yielding securities.
“The most radical consequence of negative rates would be the abolition of cash itself. In a future economic or financial crisis, current low rates would restrict the effectiveness of monetary policy. Enhancing the ability to use negative rates would provide central banks with additional flexibility and tools to deal with a slowdown. This would be an imaginative, rapid, and durable mechanism for levying negative rates to confiscate savings. Abolishing cash would require a revolutionary change. Despite the increasing acceptance of electronic payment, cash is still extensively used throughout the world In effect, currency remains an important medium of exchange and means of payment for legitimate, legal transactions. Cash use is especially high among both poor and older people. Accordingly, the elimination of currency would have implications for social and financial exclusion. The cost of converting these users to digital payments would be substantial .. Banishing cash would likely meet stiff resistance. People are likely to object to the loss of the anonymity and privacy that cash provides. Where the elimination of cash is linked to negative rates, it would be seen as a tax on savers and the state confiscation of savings. The intrusion of the state and authorities on such a mass scale would undoubtedly become an explosive political issue.”

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.

James Rickards, Chief Global Strategist at West Shore Funds and a widely renowned author is interviewed by FRA Co-founder Gordon T. Long in which they discuss Jim’s just released book The New Case for Gold. They also delve into issues concerning the false perceptions of the world switching back to a Gold Standard and the reasons for a suspected G-20 stealth “Shanghai Accord”.

THE NEW CASE FOR GOLD

James Rickards suggests that there is a new case for Gold and points out that everyone thinks that what they own currently, in terms of stocks, bonds and other financial securities, is actually only “electronic digits” representing claims on assets. The new reality of Cyber war and Cyber attack suggests the real possibility of a single group of people or political regime hacking U.S servers. The potential exists today for investors to lose wealth and there will be almost nothing any one can do to bring back that money, at least in any realistic period of time. Physical Gold cannot be hacked nor simply be erased from the world’s ledger. It is the most tangible and secure way of preserving wealth and James recommends a portfolio with at least 10% being allocated to physical Gold.

Being outside the system, and being non-digital are the two main reasons that smart investors economists suggest will ensure having some sort of security for your wealth. Gold meets both these requirements and in the next big financial crisis will provide you with insurance for the rest of your portfolio.

“They’re not going to bailout the system; they’re going to lockdown the system”

OUTSIDE THE BANKING SYSTEM – The Best Kind if Insurance

The financial system is inherently unstable based on:

1-Complexity Theory and

2- Financialization,

Gold acts as an insurance policy no matter what happens:

1-Inflation,

2-Deflation,

3-Bank failures, and

 4-Bail-ins.

Gold is always gold – It’s outside the banking system, can’t be reproduced by fiat,  It cannot be “hacked”.

“It is one of the few asset classes that perform well in both inflation and deflation. That is the best kind of insurance,”

Jim talks to FRA about methodically dispelling the decades old arguments and fallacies associated with going back to the Gold Standard.  He additionally dispels myths such as:

• That John Maynard Keynes Called gold a “barbarous relic” (he didn’t),
• That there is not enough gold to support finance and commerce (there is, it depends on the price),
• That the gold supply does not grow fast enough to support world growth (it does if we are looking at real growth),
• That gold caused the Great Depression (it didn’t, it was the Fed in charge of managing the money supply),
• That gold has no intrinsic value (it doesn’t but neither has the theory of intrinsic value).

GOLD IS STILL A MONETARY ASSET & REAL MONEY

Rickards feels that over 40 years of “un-education or mis-education” has resulted in the new generation of economists and youth not understanding the importance or the value behind why gold is so important for our economy.  We cannot blame the new generation for this gap inn their knowledge. We have not been teaching Gold as money in university curriculum and along with myths created about gold have virtually disowning it from economic thinking.

“The only way every currency can get cheaper at the same time is not against each other, but against Gold.”

Gold is the one form of monetary value that can’t fight back which is why they have completely stopped educating the U.S public on Gold as a whole.

A POST MONETARY RESET – Gold after the Next Crisis

The current financial system is inherently unstable and may soon have to be reformed. Gold will play a prominent role, if that happens.

The IMF is the third largest holder of official gold reserves after the United States. Gold is at the very center of international finance as the International Monetary Fund (IMF) with its Special Drawing Rights (SDR) reserve currency is regaining prominence. In addition, the current valuation of the SDR could not be calculated without using gold, even though one has to go back to the 1970s to understand why.

China is not only acquiring vast quantities of physical gold, it is also going through the hassle of infiltrating the London gold market and simultaneously setting up its own clearing mechanism in Shanghai. Russia has boosted its gold to GDP ratio to 2.7 percent, higher than the United States percentage of 1.7 percent.

All powers are acquiring gold to have some bargaining power when the international financial system will be reformed.

“The gold to GDP ratio will be critical when the monetary system collapses because it will form the basis for any monetary reset and the new ‘rules of the game.’”

Why? After redistributing the official gold holdings and having monetized everything from bonds to stocks, the world’s governments and central banks won’t have a choice left other than to devalue paper money compared to gold, the same trick President Roosevelt used during the great depression and with the same objective of getting rid of an unsustainable debt burden.

In a monetary reset, gold will be the chips that are used to play a game of poker. Russians, Chinese and even the Iranians are stock piling gold because of this fear. If Gold has a role in the future monetary system, Gold’s price has to go up. Gold cannot multiply at the alarming rate that we will need it for. But we can always increase the price which is why the current monetary system will fail in terms of Gold in the future and will still hold the parity between money supply and demand. James expects a price target of $10,000 for the future if this falls in line.

“You want some assets in TANGIBLE ASSETS!”

James new book The New Case for Gold is available in stores and online now and provides an in-depth analysis on the old and new reasons for why Gold is a necessity in our upcoming monetary system.  As always for more analysis and interviews follow us on twitter @FRAuthority or Subscribe to our YouTube channel, Financial Repression Authority for weekly interviews.

Abstract Writer: Saad  Gohir  sgohir@ryerson.ca

Video Editor: Min Jung Kim minjung.kim@ryerson.ca

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.

Financial Sense posted article quotes Stanley Druckenmiller on the importance of monitoring central bank policies & global liquidity levels/movements in the investment process: “Earnings don’t move the overall market… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” .. the article highlights global liquidity conditions – as measured by BofA Merrill Lynch’s Global Liquidity Tracker, – it shows that global liquidity is still firmly in negative territory as of mid-2015 (bottom panel in the above chart). The most recent data shows a steep drop related to Japan, with 3 of the 4 components (Japan, Euro Area, & Emerging Markets) now below zero. Though the U.S. is fractionally positive at 0.75, the continual tightening of liquidity conditions abroad is the greatest risk currently, aligning with Yellen’s cautious remarks on raising rates.
From Bloomberg:
“Our real-time Global Liquidity Tracker (GLT) is a composite indicator of liquidity conditions in emerging and developed economies. To estimate our GLT indicator, we employ a dynamic factor model used by global central banks. Our Liquidity Tracker extracts a common unobserved factor reflecting the greatest common variation among market spreads, asset prices, monetary and credit data across different frequencies. We combine our US, Euro area, Japan and EM Liquidity trackers into a global composite using financial weights reflecting the average relevance of an economy in terms of market capitalization and private sector credit. All of this allows us to produce timely estimates of liquidity conditions in an effort to assess the state of the global economy. A reading of zero indicates liquidity at its long-run average while activity between -3 and +3 represents the standard deviation from this average.”
Bottom line from the Financial Sense article: “Overall global liquidity conditions are still unfavorable and show increased risks abroad. Japan has seen the greatest deterioration recently, but all components aside from the U.S. are now moving lower into negative (below average) territory. Should this trend continue, the Fed will have ample justification to delay raising rates or, worst-case scenario, eventually be forced to provide liquidity.”
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.

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.

FRA Co-founder Gordon T. Long is joined by Jordan Eliseo in discussing the value of precious metals as an investment.

Jordan Eliseo is a much sought-after and respected financial commentator and economic analyst with close to 20 years experience in the financial sector. After working for some of the biggest names in the global financial marketplace including Deutsche Bank, JP Morgan and AMP Capital, Jordan has amassed a wealth of experience analyzing investment markets.

Jordan not only ‘talks the talk’ but has walked the walk, setting up his own precious metal and mining fund back in 2003, when most people had never even heard of precious metal investment, and is also the founding partner of a national financial advice business, helping Australians take control of their finances and maximize their superannuation. And now he is the Chief Economist of Australasia’s largest independent bullion dealer – ABC Bullion.

Jordan holds a BA in Banking and International Finance from Flinders University and a Graduate Diploma in Applied Finance and Investment from FINSIA. He also holds the Diploma in Financial Planning (Financial Services) with specialist SMSF accreditation.

 

PRECIOUS METALS: GOLD

It’s been a very impressive quarter for anyone who’s gone long in precious metals, with gold up 16% and silver up 11% for the quarter, welcome respite after the cyclical correction in precious metals that started in 2013. In a world where equity markets are increasingly volatile and central banks are taking more extreme monetary policy positions and decisions, the merits of holding gold as part of a portfolio are high.

In 2013-15 there were hundreds of tonnes of gold diverted from gold ETFs, but that has increased in the last few months.

“People are, if not adopting it as a major holding, openly looking at it and analyzing the merits of including it alongside more traditional assets.”

People long term in gold argue that if there’s any interest in gold ETFs, there might be a shortage of physical gold. But there is several thousand tonnes of gold in London at this point and there’s the better part of 3000 tonnes of organic or freshly mined production being brought to the market every year.

“Central banks demand and emerging market demand are, to me, the bid under the gold market that will support it for the next few years.”

But for gold to move substantially higher, we will need to see western investors adopt it in their portfolio. It doesn’t have to be a major move, just 2-5% of the average western investor’s portfolio, we’d see prices move much higher.

“In a world where we earn less than nothing on cash, when there’s 20 trillion Dollars of sovereign debt… it probably makes sense to hold this asset class.”

EFFECTS OF JAPAN AND NIRP

There’s a lot more discussion on a cashless society ever since Japan announced NIRP, which correlates with the increase in consideration of gold. This has changed the perception around financial market risk and financial markets as a whole, and gold is affected.

A retail investor concerned about QA and bank bail-ins would find the argument for  holding gold strengthened. An institutional investor with a volatility mandate and return objective would be more interested in the potential for gold to deliver alpha in a low rate environment, since gold is uncorrelated to the financial markets.

PROBLEM OF LIQUIDITY

If you look at liquidity, it’s drying up in financial markets. In the last twelve months there have been multiple warnings about the waning of liquidity in markets. They’re worried in the liquidity might not be there in the event that investors move to cash and liquidize their bond portfolios. This is extraordinary as bonds are supposedly low risk and highly liquid.

If you’re an institutional investor, you need a large market to go into – gold fits that bill and has the advantage of having 0 credit rising despite its growing size.

PRECIOUS METALS: SILVER

The gold-silver ratio is now roughly 80:1, which indicates that it’s underpriced by many historical measures. In the last twenty years it’s only been even cheaper relative to gold once. We’re at a level now where the last three times we reached this kind of ratio, it really did market to bottom in the gold to silver ratio and silver comfortably outperformed to the outside.

I think there’s a couple reasons why it’s so cheap. In 2015 there was a bloodbath in industrial and energy commodities commodities. Gold has always been considered a pure monetary asset and store of wealth, but silver still has the quasi-monetary quasi-industrial status. So in environments with concerning rates of economic growth, it’s natural for silver to under perform.

But the smaller market means it will take less Dollars to move the price of silver. As a physical asset, silver is very attractive to hold. The future looks very good for silver in particular, even though it’s not getting the recognition that it should have.

SOUTH-EAST ASIA AND AUSTRALIA

In South-East Asia, there’s 3 billion people getting wealthier who understand the value of saving and investing. There’s misallocation of capital on a grand scale, especially in certain parts of China, but broadly speaking I’m bullish on the whole area.

If we bring it back to Australia, we’re facing some pretty strong headwinds in the next few years. The worst in the fall in commodity pricing is now behind us, but we will be in a softer real commodity environment for a few years.

“The investment in the money sector breaks 8% of GDP in Australia at one point. The long run average is closer to 2%.”

What’s kept the Australian economy going in the last few years was construction. The housing industry thinks that 2015 was the peak for home construction, and it’s going to ease up over the next three years.

Wages are also growing at less than the rate of inflation. While Australia has no sovereign debt issue, we have the high private sector indebtness in the world.

The average person in Australia has very little money in actual savings to spend, has never been more indebted, and is facing an uncertain employment outlook where their real wages are unlikely to keep pace with inflation. The majority of their financial assets are ring-fenced inside of superannuation.

“We will continue to see declines in real incomes, recession-like conditions, and much lower interest rates from the RBA, at least 1.5% if not lower, between now and the middle of next year.”

BACK TO BULLION

This reasserts the importance of owning gold, even for Australian investors, because all the interest rates they’ll earn on cash will decline and fall below zero. Our stock market has an almost unprecedented sector concentration within our stock market where about 45% of the ASX 200 is concentrated in financials, VS 20% MSCI world average. This worked well in the last 25 years, but that cycle is starting to change now.

POSITIVE OUTLOOKS ON THE FUTURE

“Even if we don’t grow at a substantial rate, that doesn’t also mean we’re going to have an absolute collapse in GDP.”

During the global financial crisis, financial markets fell more than 50% but GDP fell around 2%.The value we put on our output plummeted, but the actual output fell by a small amount. There will not be any major greenshoots on the horizon that are going to help the global economy grow in any meaningful way.

China’s slowing down, and there are huge problems in Brazil and Russia. Europe and Japan are still disasters and even the US is slowing down. There will not be an uptick in global growth, but there is no major reason to panic.

“As an investor, it comes down to making sure the portfolio is well constructed to protect yourself against the overvaluation in financial assets and making sure you protect real wealth  through this more challenging period.”

Abstract by: Annie Zhou a2zhou@ryerson.ca

Video Editor: Sarah Tung  sarah.tung@ryerson.ca

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.

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.

“The European Central Bank’s latest policy moves have shocked many observers. While the goal – to prevent deflation and spur growth – is clear, the policies themselves are setting the stage for severe instability. The policies in question include setting the interest rate on the ECB’s main refinancing operations to zero; raising monthly asset purchases by €20 billion ($22.3 billion) to €80 billion; and pushing the interest rate on money that banks deposit with the ECB further into negative territory – to -0.40%. Moreover, theECB has launched a new series of four targeted longer-term refinancing operations, which also carry negative interest rates. Banks receive up to 0.4% interest on ECB credit that they take themselves, provided they lend it out to private businesses .. The inflationary credit bubble spurred in southern European countries by the persistence of lower interest rates undermined their competitiveness and drove asset and property prices to unsustainably high levels. When the bubble burst, the ECB tried to prevent the excessive prices from returning to their equilibrium levels by using its printing press and promising unlimited coverage to investors. The latest ECB measures are just more of the same .. Neither monetary nor fiscal policy can substitute for structural reform. On the contrary, the more Keynesian and monetarist drugs are administered, the feebler the self-healing power of the markets and the weaker the willingness of policymakers to impose painful detoxification treatments on the economy and populace .. The worst effects of the ECB policy may be yet to come, if the eurozone’s still-sound economies also become credit junkies.”
– Hans-Werner Sinn*

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.

FRA Co-founder Gordon T. Long is joined by Christopher P. Casey in discussing the decrease in oil price and its potential effect on the global economy.

Mr. Casey is the Managing Director of WindRock Wealth Management, a registered investment advisor and wealth management firm that subscribes to the Austrian school of economics. Mr. Casey is a frequent speaker before a number of organizations and conferences, including USA Watchdog, GoldMoney, Freedom Fest, and various bar associations and radio shows, including weekly financial and economic commentary on The Edge of Liberty (WNJC 1360, Philadelphia).  His writings have appeared in a variety of publications and websites including The Ludwig von Mises Institute, Zero Hedge, Family Business, Casey Research, and Laissez Faire Books.  He is a board member of the Economics Development Council with the University of Illinois, a Policy Advisor for The Heartland Institute’s Center on Finance, Insurance, and Real Estate, and a Chartered Financial Analyst charterholder (CFA®)

COST PUSH INFLATION

Cost push inflation is a Keynesian concept that was developed to explain inflation during inflation; if any important commodity’s price rises, all other prices of goods and services rise. As we pay more, the standard of living would go down and inflation would creep in. But this actually puts downward pressure on other goods and services, so in the end the price level itself is largely unchanged.

“The price level is a function of the demand and supply of money itself, not of any individual commodity.”

It used to be that minor shifts in the oil price had profound impact on the economy, but that isn’t the case right now. Oil went from about $25 in 2003 to $140 in 2008, back down to $30 in late 2008, and $140 a couple of years ago. But have we ever seen a price level that rose or decreased according to the oil prices over the last fifteen years? The answer is no. The issue is that the Federal Reserve does believe in cost-push inflation, and they do think that deflation could be caused by lower oil prices.

“The great danger here is that they, in their mistaken belief that low oil prices could put a cap on any inflationary moves they do, as far as printing money, is that they could overshoot and end up causing more inflation than they intend.”

EFFECT OF LOWER OIL PRICES

“Lower oil prices are good for the economy, but not for the reasons people cite on mainstream media.”

There’s a possibility that this could spike interest rates, or mitigate a downfall in interest rates.

STATE OF THE OIL MARKETS

Lower energy prices used to be considered good for the economy, since people have more money to spend. But that’s going toward servicing debt; it’s not actually consumption, it’s going toward debt payments. There are also some real dangers that aren’t being discussed by mainstream media.

Oil production has increased about 85% since 2008, but what isn’t mentioned is how oil imports have decreased. It’s down from approximately 12% of total imports to 5% today, not just in Dollar terms but overall volume.

The price has dropped 60% in the last five years. Oil producing nations are making less Dollars from the US customer. This is a problem because there are limited options for what they can do with those Dollars, so the US’ major trading partners and oil producing countries hold a massive amount of US treasuries. If they reduce their purchase of US treasuries, that could increase interest rates.

“Interest rates would have fallen further, but for the selling or lack of demand from these oil producing countries.”

SAUDIA ARABIA PEG

The Riyadh is pegged to the US Dollar at 3.75 Riyadh to the US Dollar, but their economy is under strain and their deficit is staggering. In any fixed exchange rate, the only way to keep it is through manipulation of the currency market by active buying and selling of Riyadh and US Dollars, but that is only making them go bankrupt faster. This could ultimately affect US interest rates as well.

OIL SUPPLY & DEMAND

With multiple countries putting out as many barrels of oil a day as possible, there’s pressure to keep the oil supply up and maybe keeping oil prices down. But if the world economy falls off significantly, there will be a decrease in demand and then cut backs and lots of capital not invested. Then if demand rises there won’t be much capacity, which makes the market volatile. The banks are holding out in the hopes of a rebound, because they have so much debt outstanding to the oil industry. Eventually this will either create incredible inflation or a banking crisis.

“The banks cannot put up with this kind of strain . . . it’s kind of like being a patient and your doctor, who would be the central bank, is subjecting you to stimulants and depressants whether its quantitative easing or negative interest rates.”

FEDERAL RESERVE’S MISCONCEPTIONS

Regarding the nature of growth, history shows that the key is a high level of savings and decreasing government intervention. Another is the idea of deflation being bad; for example, the US experienced experienced two 30-40 year periods where the price level fell by half, but it was also the greatest period of growth in US history. The Federal Reserve also has misconceptions about inflation’s impact on unemployment, and interest rates, which could cause a banking crisis.

ADVICE FOR INVESTORS

If people believe that the oil market will create a banking crisis in the future, then they need to look at assets outside of the banking system. Gold and silver should absolutely be considered as part of their portfolio since it’s much safer than a number of currencies, as it has alternative value. Farmland is also an excellent inflation hedge and pays a dividend, unlike precious metals.

“A lower oil price, although all things being equal is good, there are some real dangers: there is the danger it could increase interest rates, there is the danger it could increase inflation levels… and there is the danger it could induce a banking system crisis.”

Abstract by: Annie Zhou: a2zhou@ryerson.ca

Video Editing by: Min Jung Kim <minjung.kim@ryerson.ca

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.

Forbes essay highlights how investing today is a lot of about guessing what the policy of central banks will be going forward .. “What is going on? It’s called ‘financial repression.’ It’s a technique whereby government transfers private wealth into public coffers by raiding savings and capital by the fixing of interest rates. If a saver is paid less interest than their money is worth, it is effectively being drained away to the benefit of borrowers. We of course know who the biggest borrowers are: the bosses of central banks, their governments. It is this draining of wealth from the private sector into the public sector that is causing the bubbling rage in America. Many know they are getting poorer but don’t know how it happened. Financial repression is the tool that is strangling the American middle classes and after all these years most are none the wiser.” .. explains how financial repression is going to be around for a long time – resulting in economic stagnation .. “The core problem underlying this situation is that ‘financial repression’ is building up ever deeper channels for economic difficulty. While removing the volatility of markets with a ‘curated’ economic reality, it removes one of the key drivers of economic progress, the link between risk and reward.”

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.

– Denis Kleinfeld, wealth protection lawyer

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.

Coping with Financial Repression

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Professor and CEO of Create-Research Amin Rajan shares his knowledge with an in depth interview on Risk Mitigation and how European Pension Plans are Coping with Financial Repression with FRA Co-Founder Gordon T Long .

Amin Rajan worked as an economic forecaster in the UK treasury for over 8 years, and since then has been focusing on investment matters driven by macro investment behaviors catering to pension funds, insurance companies and wealth managers.

What Structural Solutions Are Being Adopted to Cope With Financial Repression.

1. Risk focus has shifted from the past to the future
2. Structural solutions are being adopted
3. The resulting personalization of risk is an Everest of a task

Personalization of Risk

Amin Rajan thinks that there are two leading principles that must be noted when looking to mitigate risk in the future, since the risk in the past is much different from today with a huge emphasis on macro risk.

Firstly, the sources of risk in the future will be different from the past, referring to the debt crisis and the threat to the Chinese markets.

Secondly, he believes that a portfolio investment should be looked at as a whole and protected as a whole, instead of looking at individual positions of your investments.

“The next crisis will be caused by systemic forces and will not be your usual crisis”

Currently pension funds are facing a very difficult situation where they are experiencing negative cash flows, due to the changing demographics in the United States. They are using up all their money on current retirees and not leaving enough behind for the later generations. The non investment approach would be to change your retirement age, you can reduce your liability by 3-5% each year of increase in retirement age. But it is not very easy to change benefits because these funds come fixed and are for the most part impossible to change.

“These pension funds are turning themselves into a ponzi scheme.”

Lately most employers are changing their employment plans and membership requirements, the new employees are no longer open to the retirement benefit plans. They are freezing the future accruals for existing employees; meaning your benefits are fixed today and your benefits are not a result of your future retirement level. Furthermore, they are moving away from employee’s final salary towards career average salary to further decrease the amount of benefits provided upon retirement.  However even with all these new policies being taken place there is still not enough cash for them to sustain because the level of debts are too big for pension funds to solve on their own, and Amin expects Washington to step in soon.

“We are transferring risk from people who couldn’t manage it (governments and employees) to people who don’t even understand it”

Retirement Taxation

Europe always had high taxation; retirees were always paying taxes on top of their social security income. In Australia however once the individual retires they take out all their money and spend it. Storing it away, buying property for their children instead of keeping it with the banks. This personalization of risk is nobody’s first choice it is their only choice because of their situation. Employers do not have the money to put into equity; governments are facing imperishable levels of deficits. So individuals are now facing more responsibility when they do not have the right degree of financial knowledge to do so, putting us all in a downwards spiral where no one can help anyone else when everyone is faced with ultimatums.

Amin thinks that there is a fourth leg coming up in the new generation of retirees, which is working a part time job after retiring because they are not able to sustain their lives on just their retirement benefits.

Amin Rajan tells us that we should question everything; we live in an environment where we must approach everything with an open mind. Do not assume things are automatically going to get worse in the future nor should we take anything for granted so always weigh your options before making crucial financial decisions.

All of Amin Rajan’s research journals and papers are available for free and online to contact him and inquire about Amin’s research please visit www.create-research-UK.com.

ABSTRACT WRITER: Saad Gohir sgohir@ryerson.ca

VIDEO EDITOR: Sarah Tung sarah.tung@ryerson.ca

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.

FRA Co-founder Gordon T. Long delineates political developments and their consequences on the global economy with Martin Armstrong, founder of Armstrong Economics.

Martin Armstrong began his studies into market behavior when first becoming fascinated by the events during the Crash of 1966. He pursued his studies of economics searching for answers behind the cycle of boom and busts that plagued society both in Princeton and in London. He began to do forecasting as a service to institutional cash market players in gold that included Swiss banks. Armstrong had the unusual background in computer science in hardware and software and was perhaps the first to begin to apply his diverse knowledge from two fields together. He began creating a global model in the mid-70s and was publishing the results from about 1972.

Armstrong began providing forecasts for clients generally three times during the course of each trading day, it began on a closed-circuit telex system – a forerunner to the internet among professional dealers. As a consequence Princeton Economics International, Ltdwas born. Armstrong became the chairman focusing on the research while the partners became the managing directors around the globe. By 1985, Armstrong was certainly one of the top premier Foreign Exchange analysts in the world. He stepped up in 1985 when James Baker was convincing President Ronald Reagan to create the G5 (Group of 5 now G20) nations to manipulate the currency values to affect the trade deficit, which became known as the Plaza Accord.

Armstrong’s work has become world renown. This model has successfully pinpointed not merely major specific days who events well in advance, but it has provided one of the most consistent guides for understanding the turning points in the global economy and thus the business cycle not merely within a domestic economy, but within the global economy on a collective basis. This has been demonstrated by numerous articles.

CHINA AND CURRENCY DEVELOPMENTS

“Pegs do not work and they always break because of politicians setting the value of something for private agendas.”

The Chinese are trying to maintain a controlled economy but they are losing the grip of it. Many people misunderstood the economic statistics because they do not understand what is happening.  You had many companies in Hong Kong borrowing in dollars, converting it back in and paying 1% then funneling it into China and collecting 5%-8%. People perceived this as the Chinese getting lots of capital inflow, and the economy doing good, but it had nothing to do with the economy. Following this, shadow banking was shut down and then it was perceived that the economy was going down, but it’s been going down since 2007. We have China in trouble, Japan’s currency is really a closed economy and these pegs are starting to go because the dollar is the only viable currency. You can’t park in China, they don’t trust the bonds yet, can’t go into Russia, and essentially all of Europe; therefore it’s been dollar by default.

“The dollar is the most liquid and the least ugly. It is the prettiest of the 3 ugly sisters. It is the rise in the dollar which will create the change in the monetary systems.”

A change will occur sometime around 2020, the whole thing with negative interest rates and quantitative easing just does not work. Economies are just much more fluid today. Emerging markets began expanding debt to more than 50% of US debt and they did this because they issued their debt in dollars because of low interest rates, and pension funds needed high yields so they went and bought all this emerging market debt. The money supply that supposedly the Fed increased did not stay here. If you look at real estate, the Chinese are the #1 buyer of real estate in the US, and the IRS is also buying lots of real estate in New York and Miami. It has been all foreign money coming in and it’s shown in the US stock markets. When the Japanese came in what did they do? They bought the high profile stuff, Rockefeller Center etc. Foreign money goes into the Dow, so the Dow lead the market all the way up, the other markets only began to overtake only when foreign capital began to subside.

“International capital flows are really what drives everything, but unfortunately it is something they don’t teach in school and not many pay attention to it.”

ECONOMIC CONFIDENCE MODEL

The economy peaked in September of last year on a global scale. Everyone is pretty much in recession, the US rallied a bit but you drive down a street and you see every office building has ‘space for rent.’ The business cycles do a good job in showing you where things are developing. The last peak was in real estate in 2007, but what is important about that is many of these markets peaked back then, and to this day markets have not surpassed that peak throughout the world.

The US is realizing that there is a problem here. The Fed has been lobbied by the IMF not to raise interest rates because of international concerns and not domestic concerns. They realize that with the dollar as a reserve currency, they are losing the power to control their own economy.

“International interest has taken priority over domestic, keep this going and the Fed won’t be able to do anything to help the US economy.”

Eventually the market is going to raise the interest rate, because we are in a phase now where governments are all in trouble. They are all chasing money, going bankrupt and keep raising taxes; just another reason why quantitative easing is failing. Disposable income is consequently shrinking rather than expanding. This is largely why Trump is doing so well, many people don’t understand it but the middle class has been completely devastated so it is more of a protest vote. The American people are starting to wake up to this problem, and even if Trump does not win we are projecting a congress turnover by 2018 which is similar to what happened in Scotland. This is not a domestic issue, it is happening everywhere.

Younger generations don’t understand the core facts either. The Clinton White House was bought and paid for by Wall Street. The press will never say this because they are afraid it might hurt Hillary, but who basically made all student loans non deschargeable in bankruptcy? None other than the Clintons. In other words all the student loans that are hurting all our youth, it is Hillary that did it.

PRECIOUS METALS AND HARD CURRENCIES

“You can go back and forth in arguments about gold but to the average person it means absolutely nothing.”

Things will only change when these people lose confidence in their government. For example, Republicans are tremendously against Trump, and they rigged the rules in the last convention to sabotage Ron Paul. They made rules that if you did not have enough votes your name couldn’t even be put in to be nominated, but under these rules the only viable person is Donald Trump.

The primary reason why Republicans do not want Trump in is because he is an outsider, he is not owned by the banks or by anyone for that matter; he has funded himself and they do not know what he is going to do. One thing from studying law that I carry with me is, you never ask a question that you do not already know the answer to. Politicians are mostly lawyers and they do not know what he will do.

MAJOR CONCERNS

“A collapse in the confidence of government is incoming, and that is when your markets are going to start responding.”

We are entering a political year from hell. Europe desperately needs Britain and if Britain votes to get out you will see other countries voting for the same thing. They are very much afraid of a contagion developing and the EU collapsing. Everybody criticized Trump for saying he wants to block Muslims from coming in, and what does Cruz say? He is going to implement a bill that all Europeans have to have a visa.

“They are looking at collapsing the global economy and they are destroying it with every breath they take.”

Abstract written by, Karan Singh  Karan1.singh@ryerson.ca

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.

Michael Lebowitz of 720 Global Research explains how central banks are lowering interest rates to encourage additional borrowing to drive consumption & lift asset prices; all in the hope of ultimately achieving economic growth .. “Years of policy designed to encourage spending and discourage savings is likely reaching the end game; the point where those exhibiting prudence must be punished to keep the game going. At some point, and likely soon, central bankers will be forced to realize the efficacy of lowering interest rates is vanishing and is hindering achievement of their goals. When this occurs a paradigm shift in the way monetary policy is conducted will likely occur. Investors that understand this dynamic, and what it portends, will be in a much better position to protect and profit from the asset price adjustments that lie ahead.”
LINK HERE to the analysis

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.

Central banks — and central bankers — are in uncharted waters. They don’t know how to create economic growth, they don’t know how to fight the great bogeyman of deflation, they don’t know how — or if — they’ll ever be able to return to a time of “normal” monetary policy. Their pretense of knowledge, of being able to effectively control currencies used by billions of people, is coming to an end. But it’s not just an academic issue — all of us are affected by the possibility of negative interest rates, prohibitions on cash, and bank bail-ins. Will you be able to get cash out of your bank or money market account if the economy suffers another crash? Will governments force us into cashless, digital-only payment systems, tracking our every purchase & creating black markets in the process? Will you have to pay your bank, in the form of negative interest rates, for the privilege of holding your money? And will your deposits take a haircut if your bank suffers losses from its bad loans? .. 19 minutes

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.

One of the great pillars of financial repression is obfuscation of data .. Over the past decade, we’ve been told that inflation has been tame — actually below the target the Federal Reserve would like to see. But if that’s true, then why does the average household find it harder & harder to get by? .. The ugly reality is that the true annual cost of living is far outpacing the governments reported inflation rate. By nearly 10x in many parts of the country .. This week, we welcome Ed Butowsky, developer of the Chapwood Index, to the program. His index is a ‘real world’ measure of how prices are increasing much faster than the wages of the 99% can afford .. 38 minutes

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.

FRA Co-founder Gordon T. Long is joined by Michael Pento in discussing topics from the government debt problem, the current boom in gold and the outlook of the dollar.

Mr. Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients. Mr. Pento is a well-established specialist in the Austrian School of economics and a regular guest on CNBC, Bloomberg, FOX Business News and other national media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.

Prior to starting PPS, Mr. Pento served as a senior economist and vice president of the managed products division of another financial firm. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. Additionally, Mr. Pento has worked for an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career Mr. Pento spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Mr. Pento graduated from Rowan University in 1991.

KEYNESIAN INTEREST RATE MANIPULATION

“You cannot take interest rates down to zero percent and then into the negative territory, constantly increase the amount of something I like to call ‘quantitative counterfeiting’ and ultimately hope for a good ending. It’s just not possible.”

They’re constantly pushing interest rates lower and lower and now to the point where if you’re going to loan money to somebody, you’re going to pay them to do it. The reason their doing this as a method to make their debt serviceable; they need to make ends-meat so they borrow at lower cost. We know there is going to be a collapse because markets have been aggravated and not allowed to function for years.

“30% of all the worlds sovereign debt now has a negative sign in front of it, that’s $7 trillion.”

Here’s the main issue, let’s consider Japan: There is -0.1% for the Japanese 10yr note, an all-time record low. You’re loaning money to Japan, a nation that has 250% debt-GDP and you’re loaning this money going out for 10 years. All for the deal that you’re going to lose money each and every year in nominal terms, and then they have an inflation target and assuming they meet it, Japanese authorities will eventually step in and all of a sudden begin fighting inflation. The only thing this can lead to is an enormous implosion.

“Price discovery is essential, it is the nucleus of capitalism and we haven’t had it in decades.”

 SUSTAINING GOVERNMENT DEBT

“As debt has increased, interest rates have gone lower; it is all that they can do.”

When you base a nation’s growth, not on productivity and the size of the labour force, rather on market bubbles, furthermore when you consider there is 19-20 trillion in the US of outstanding debt; there is just no tax base that can finance this.

Look what Draghi had to do, it was not enough to buy $60 billion euros a month, they went to 80 billion, and why just buy government debt when you can buy corporate debt? These practise make no sense, seemingly there is no rationally thinking individual that enforces decisions.

We are stuck until we are hit with an inevitable implosion. The trigger will be when they reach their inflation targets and then become inflation fighters. There will be a period of time following this where you will see bond yield completely unravel, they will soar, and consequently stock prices and economic growth will plummet.

CENTRAL BANK PATTERNS

Local banks have their excess reserves at the central bank, and now the central banks rather than paying to keep the reserves, they are charging for the reserves. They are doing this so banks can go out looking for someone who cannot pay back in taking out a loan, else they will simply go buy more sovereign debt.

“Have we become such children in this world where grown men and women cannot just come forth and admit they have made a mistake and admit there will be a year or two of a recession or depression followed by prosperity?”

If you have so much debt which you cannot pay back, something has to change; the debt needs to be restructured. Debt is not fixed by artificially taking out interest rates and forcing individuals to take out more debt. We are not adjusting we just keep rolling the debt over and over.

“Capitalist systems do not work unless you have a cleansing at some point of excess debt. It is a healthy and necessary part of growth.”

THE GOLD BOOM

Well now in a time where if you stick your money in a sovereign note in a bank, you either get nothing from it or even charged for doing so, gold is definitely lucrative now more than ever. Additionally the ratio between gold miners and gold has never been lower than it is now. As interest rates go more and more negative across the globe, more and more money will be put into gold because for every ounce of gold you’ll pull out just that, an ounce of gold.

“The only escape is a deflationary depression on a global scale from the likes of which the world has never seen.”

ADVICE FOR INVESTORS

“Gold is going to be a winner no matter what happens, there is no losing scenario for gold.”

 To have 20-25% of my portfolio in mining shares which is high as far as Wall Street is concerned. So have gold, short in the market, and the only place being long is with energy. being long with energy as of late has proven to show great results. Forget base metals and in terms of energy it’s a great hedge in being short in the market.

THE FUTURE OF THE DOLLAR

“As I predicted, I have been on record in December of 2015 in saying the dollar will fall hard and it did.  I knew it was going to happen because I knew the economic data wasn’t supportive of floor rate hikes and this is what the dollar was priced in. It is important to question not what the dollar is going to do against the Yen and Euro, but moreover intrinsically against gold. I believe all the currencies out there are going to lose their value, the reason being that the real money out there and it has been for thousands of years, is none other than gold. “

Abstract written by, Karan Singh  Karan1.singh@ryerson.ca

Video Editor: Min Jung Kim minjung.kim@ryerson.ca

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.

Wall St For Main St interviews Michael Lebowitz on the Federal Reserve & Janet Yellen announcement this week that they will not try to aggressively raise interest rates & on the potential for going to negative interest rate policy (NIRP) in the U.S. .. Lebowitz thinks the Federal Reserve will likely start reversing interest rate hikes & cut towards 0 & into negative territory this year ..  says central bank policies from the U.S., Japan, China & Europe are driving people into gold along with the threat of NIRP .. 44 minutes

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.

Economist Stephen Roach explains how central banks are bringing “terror & mayhem” through negeative interest rates .. “you are changing the relationship between borrowers & lenders” .. the risk is banks make bad loans – this is what Japan did .. it will distort…. 4 minutes

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.

Faber emphasizes the power of free market forces .. says it would have been better to allow the economy & the financial markets to run their course during the financial crisis – it would have prevented an even bigger credit crisis .. on negative interest rates & helicopter money: “The magicians at central banks, they always come out with a new trick and these negative interest rates that we have today, this is for the first time in recorded human history from the times of Babylon up to today that we have negative interest rates, and it’s not going to end well. That, I can tell you. But the sequence of how it will not end well, I’m not so sure. But they still have a lot of ammunition. What they can do is helicopter money. In other words, they can send you and Mr. Bloomberg and me and everybody, say a check for $10,000, and that is like throwing gasoline into a fire…. will it help the economy? That is the question. It won’t help in the long run. You cannot grow an economy by just throwing money at people.” .. 2 clips

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.

The Daily Bell highlights the increasing trend of central bank-driven economies .. “This New 21st Century Economy features a tripartite stool of emergent monetary policies. The stool is supported by three legs. One is low or negative interest rates. The second is the ‘cashless’ society. The third is the ‘basic income.’ ..  These policies represent a fundamental shift in how economies operate. It changes the way we think about money and use it. We will need to consider it regularly when making plans for generating and retaining wealth .. Between depriving people of circulating money (cash), forcing people to consume via NIRP and providing people with a basic income for their lifestyle needs, central bankers intend to entrench the system so thoroughly that it will never be rooted out.”

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.