The Bank of England has been flashing an amber light for months about the complacency shown by low market volatility, but in house-price obsessed Britain, mortgage excess is the focus of its worry. Last month it became the first of the major central banks to set out to try to control credit using non-monetary tools: in the jargon, “macroprudential measures”. Ms Yellen has been highlighting macropru as the first line of defence against bubbles for a while.

The problem SEEMS simple central bankers. Central bankers want money to lubricate the real economy, not to flow into pointless leverage of existing assets. Higher rates could reduce the incentives to leverage, but at the cost of damage to the real economy. Their solution is to set up barriers inside the banks to direct the flow.

If central bankers ever get serious about using macropru to control bubbles, it will mean limits on more than just mortgages. The obvious place to start is with the froth in junk bonds and the leveraged loans used by private equity houses. It is interesting, therefore, that the Fed’s monetary policy report last week emphasised that the central bank is “working to enhance compliance” with leveraged loan underwriting and pricing standards. If it becomes harder for private equity groups to gear up, they can afford to pay less to buy companies, cutting back one source of demand for shares. READ MORE

 The real danger comes if central banks try to use macropru as a semi-permanent way to keep interest rates lower than normal, as Mr Napier fears. In this case investors will face a double setback: they will not be treated as part of the “real economy” deserving of funds, while state-directed allocation of assets has a terrible history of supporting duds, hurting growth.

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.

Bank Of Japan Prepares To Buy Nikkei-400 ETF To Boost Stocks 07-09-14 Zero Hedge

It is no secret that unlike other banks who, while directly intervening in the bond market only manipulate equity prices in relative secrecy (usually via HFT-transacting intermediaries such as Citadel), the Bank of Japan has historically had no problem with buying equities outright, traditionally in the form of REITs and equity-tracking ETFs. Which explains why overnight it was revealed that in order to boost the stock market, pardon, economy, the Bank of Japan is preparing to purchase exchange-traded funds based on the JPX-Nikkei Index 400 as an “option to boost the impact of unprecedented easing,” according to people familiar with BOJ discussions.

Bloomberg reports that including funds that track the index would broaden the range of shares in the BOJ’s ETF purchases, and encourage companies to deploy cash for investment. That is the official storyline. It goes without saying that what the BOJ is really after is to generate further upside in the Nikkei225 which unlike other stock markets, is still notably in the red, because not only will the primary impetus behind QE – the wealth effect of the 1% – suffer, but also all those new billions in Japanese pension funds reallocated away from bonds and into stocks will continue to lose money. And the last thing the Abe cabinet, its popularity already flailing needs, is the realization that it has gambled the retirement funds of the locals on the biggest Ponzi scheme in Japanese history. READ MORE

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.

Japan is moving to get its pension funds to sell Japanese government bonds (JGB) to its central bank, then use corporate governance & regulatory changes to force the pension funds to buy stocks

.. “A return to more normal JGB interest rates of above 3% – which will prove loss-making for present holders such as the BoJ – is not likely for at least two years. Part of the Bank of Japan (BoJ)/Ministry of Finance (MoF) strategy of encouraging Japanese private sector portfolio shifts away from JGBs into equity-type assets is that the BoJ can bear such losses far more easily than other investing institutions. One of the most important moves concerns redeployment of assets held by the $1.2tn government pension investment fund (GPIF), where decisions are imminent on investing more in domestic equities rather than government bonds.”

READ MORE: Japanese QE to continue as inflation rise slows Abe’s impatience spurs reform drive

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.

GREAT FOR GOVERNMENT AS DEBT FINANCING GETS CHEAPER

A DISASTER FOR THE PEOPLE HAS REAL WAGES PLUMMET

THE JAPANESE PEOPLE HAVEN’T FULLY WOKEN UP TO THE FACT THEY HAVE BEEN ‘CONNED’

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.

Officials led by Mark Carney, the Bank of England governor, are attempting to bridge sharp differences among leading G20 countries as they prepare a landmark set of proposals aimed at tackling the problem of “too big to fail” banks according to the Financial Times today. Talks under the auspices of the global Financial Stability Board (FSB) over the summer are approaching a key stage as officials aim to clinch an agreement on bail-ins and the bailing in of creditors including depositors of banks.

The issue is of major consequence also to depositors who could see their savings confiscated as happened in Cyprus. Bail-ins are coming to banks in the western world with consequences for depositors. READ MORE

Coming to Your Local Bank

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Why Is Fed Considering Paying Banks Not To Lend To Main Street? 07-18-14 IBD

The Federal Reserve created a monster $4.3 trillion balance sheet, up by $3 trillion from 2008, through quantitative easing. QE ends this fall. Now the Fed is trying to figure out what to do with this monster. Their thinking seems to be that they can maintain control over it by paying banks more money to not make loans.

The implication, in the July 9 FOMC minutes, is that they will likely increase the interest paid on excess reserves when it comes time for the Fed to raise interest rates. Their thinking seems to be that this mechanism will serve an equivalent function of what the federal funds rate did before QE.

The current interest rate on bank excess reserves is 0.25%. But if the Fed needs to eventually raise that to 2% or above to control inflation expectations, it becomes politically unpopular.

READ MORE

Fed Excess Reserve Payments Could Yield Banks More than Equity Yields!

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.

Research paper on the relationship between European governments & European banks .. the pressure & influence between governments & banks are giving rise to financial repression & regulatory capture:

“Government agencies have been frequently described as being at the mercy of the financial sector, often allowing financial interests to hijack political, regulatory and supervisory processes in order to favoring their own private interests over the public good”

.. & the opposite:

“Governments, which have often been portrayed as subverting markets and abusing the financial system to their benefit, either in order to secure better financing conditions to overcome their own financial difficulties, or with the objective of directing credit to certain sectors of the economy, ‘repressing’ the free functioning of financial markets and potentially the private interests of some of its participants.”

READ PAPER

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FINANCIAL REPRESSION IS AGGRESSIVELY BEING IMPLEMENTED TO STOP FALLING REAL US GROWTH RATES

BEFORE DEBT IMPLODES FROM BEING

UNPAYABLE & INEXTINGUISHABLE

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.

 “In 2004 IBM had $13 billion of net debt. Today the figure stands at just under $37 billion. And why not. IBM’s average weighted cost of debt last year was just shy of 1%.Thank you, monetary politburo!”David Stockman – Former Director OMB

“Under a honest free market in the financial sector, America’s once greatest technology company would not be functioning as a slush fund for Wall Street gamblers“ David Stockman – Former Director OMB

The Fed’s Financial Repression At Work: How Big Blue Was Turned Into A Wall Street Slush Fund 07-18-14 David Stockman

IBM is a poster child for the ill-effects of the Fed’s financial repression. In effect, the Fed’s zero interest rate policies are telling big companies to issue truckloads of debt and use the proceeds to buyback shares hand-over-fist. That way fast money speculators on Wall Street are appeased by the resulting share price lift, and top executives collect bigger winnings on their stock options.

In its recently completed quarter, IBM again repurchased nearly $4 billion of stock—which amounted to about 93% of its net income for Q2. Likewise, IBM also reported lower sales versus prior year for the ninth quarter in a row READ MORE

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The Coming US “Tax Overhaul” Has a Different Goal In Mind than the Public Thinks!

RESEARCH STUDY: THE EFFECT OF RISING INCOME INEQUALITY ON TAXATION AND PUBLIC EXPENDITURES: EVIDENCE FROM U.S. MUNICIPALITIES AND SCHOOL DISTRICTS, 1970–2000

INCREASED LOCAL PROPERTY TAXATION IS COMING AS FINANCIAL REPRESSION TRANSFERS DEBT TO RESIDENTIAL OWNERS

Municipal spending is rising alongside Inequality

Because most cities don’t have the power to tax income, they usually use property and sales taxes, which tend to hit all residents or fall more heavily on those who are middle class or lower income. As in Scandinavia, people are paying for their own increased services.

The increase in income inequality experienced by the typical city is associated with an $88 increase in expenditures per resident on top of the $900 per resident on local services spent by the typical city each year. The additional $88 of funds are allocated across the board to cover police services, fire protection, road maintenance, education, and more.

READ MORE: Inequality Is Forcing US Towns To Try Scandinavia-Style Taxation — And It’s Working 07-13-14 BI

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Circulation credit means that banks lend money, and thereby expand money supply, without backing them by real savings (or reduction of consumption). This circulation credit is creation of money “ex nihilo”. Booms as well as busts are damaging because they slow down long-term investments with the consequence that resources in fluctuating economies are lacking.

According to Mises, the problem is not low consumption but low saving.

Why Fiat Money Is “A Large-Scale Fraud System” 07-11-14 Ryan McMaken of Mises Economic blog,via ZH

The Center for Financial Studies in Frankfurt reports on a recent talk given by Thorsten Polleit:  

READ MORE: Thorsten Polleit on the “planned chaos” of money

A Core Tenet is the De-Incentive & Discouragement of SAVINGS

We had CAPITALISM:

SAVINGS was reinvested as CAPITAL INVESTMENT

We now have CREDITISM:

CREDIT is created and spent on CONSUMPTION

According to Mises, the problem is not low consumption but low savings

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Expropriation Is Back on the Policy Table as Global Economic Woes Worsen –  Martin Armstrong of Armstrong Economics,

I have gone on record that the most dangerous organization is the now French led IMF with Christine Lagarde at the helm, which has presented a concept report that debt cuts for over-indebted states are uncompromising and are to be performed more effectively in the future by defaulting on retirement accounts held in life insurance, mutual funds and other types of pension schemes, or arbitrarily extending debt perpetually so you cannot redeem. Yes you read correctly, The new IMF paper is described in great detail exactly how to now allow the private sector, which has invested in government bonds,  to be expropriated to pay for the national debts of the socialist governments.

I have been warning that there is an idea that has been running around behind the curtain that the national debt of the USA could be settled by usurping all pension funds in the country. Here is a remarkable blueprint that throws all previous considerations concerning the purchase of government bonds over the cliff. The IMF working paper from December 2013 states boldly:

Read More

 Is Christine Lagarde The Most Dangerous Woman In The World?

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Regulators Ready Money-Fund Rules 07-10-14 WSJ

FINANCIAL REPRESSION REGULATIONS WILL PREVENT YOU FROM EXITING YOUR MONEY MARKETS (CASH) AT TIME OF TURMOIL

SEC Vote Could Come as Early as This Month

Money funds are cash-like instruments used by millions of individuals, businesses and municipalities to safely park cash.

The plan would allow money funds to temporarily block investors from withdrawing their money in times of stress, or require a fee to redeem shares.

Other regulators, including members of the Financial Stability Oversight Council, have said such redemption restrictions could spur, rather than curb, investor stampedes.

Yellen called for what she termed:

“A more robust macroprudential approach.”

In fact she used that word macroprudential no fewer than29 times. For those not fluent in Fedspeak, what she meant is that we can deal with financial instability through increased regulation procedures

Monetary Policy and Financial Stability – Remarks by Janet L. Yellen Chair Board of Governors of the Federal Reserve System

The 2014 Michel Camdessus Central Banking Lecture International Monetary Fund Washington, D.C.

July 2nd, 2014

In closing, the policy approach to promoting financial stability has changed dramatically in the wake of the global financial crisis. We have made considerable progress in implementing a macroprudential approach in the United States, and these changes have also had a significant effect on our monetary policy discussions. An important contributor to the progress made in the United States has been the lessons we learned from the experience gained by central banks and regulatory authorities all around the world. The IMF plays an important role in this evolving process as a forum for representatives from the world’s economies and as an institution charged with promoting financial and economic stability globally. I expect to both contribute to and learn from ongoing discussions on these issues.

• *YELLEN: `WE HAVE MUCH TO LEARN’ IN MACROPRUDENTIAL OVERSIGHT
• *YELLEN: MACROPRUDENTIAL RULES SHOULD BE MAIN STABILITY DEFENSE
• *YELLEN: STABILITY BEST PROMOTED BY MACROPRUDENTIAL OVERSIGHT

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 principal victims of the Fed’s policies are those at or near retirement who face a Hobson’s Choice of gambling in the stock market or getting nothing at all. A summary of these deleterious effects on retirement income security, explained in more detail below, includes the following:

1. Increasing income inequality. Zero rate policy represents a wealth transfer from prudent retirees and savers to banks and leveraged investors. It penalizes everyday Americans and rewards bankers, hedge funds and high-net worth investors.

2. Lost purchasing power. Zero rate policy deprives retirees and those nearing retirement of income and depletes their net worth through inflation. This lost purchasing power exceeds $400 billion per year and cumulatively exceeds $1 trillion since 2007.

3. Sending the wrong signal. Zero rate policy is designed to inject inflation into the U.S. economy. However, it signals the opposite – Fed fear of deflation. Americans understand this signal and hoard savings even at painfully low rates.

4. A hidden tax. The Fed’s zero rate policy is designed to keep nominal interest rates below inflation, a condition called “negative real rates”. This is intended to cause lending and spending as the real cost of borrowing is negative. For savers the opposite is true. When real returns are negative the value of savings erodes – a non-legislated tax on savers.

5. Creating new bubbles. The Fed’s policy says to savers, in effect, “if you want a positive return invest in stocks.” This gun to the head of savers ignores the relative riskiness of stocks versus bank accounts. Stocks are volatile, subject to crashes, and not right for many retirees. To the extent many are forced to invest in stocks, a new stock bubble is being created which will eventually burst leaving many retirees not just short on income but possibly destitute.

6. Eroding trust and credibility. Economics has been infused in recent decades with the findings of behavioralists and social scientists. While this social science research is valid, the uses to which it is put are often manipulative and intended to affect behavior in ways deemed suitable by Fed policy makers. This approach ignores feedback loops. As retirees realize the extent of market manipulation by the Fed they lose trust in government more generally.

 The Fed has resorted to repetitive bouts of cheap money for extended periods. This monetary ease has found its way into inflated asset values that in turn provided collateral for debt-driven consumption. These binges drove the economy until the inevitable asset bubble collapses caused a contraction in consumption and launched another cycle. At no time were savers rewarded for prudence.”

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The Global Hunt for Taxes IceCap

IMF’s Recommendation for a Global Wealth Tax

FULL IMF REPORT

“A sharp deterioration of the public finances in many countries has revived interest in a “capital levy” – a one-off tax on private wealth – as an exceptional measure to restore debt sustainability”

Read More

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.

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.