“The zero interest rate and now negative interest rate policies of our central banks are gumming up the global retirement machinery. The Federal Reserve and other central banks have spent so many years subsidizing debt and punishing savings that it is now extremely difficult to guarantee future income streams at a reasonable present cost. And future income streams are the very heart and soul of retirement. Without adequate future income streams, retirement as we know it today is off the table. Whether this sad fact is what the central bankers intended or not, it is indeed a fact, whether you are an individual saver or a trillion-dollar pension fund .. Neither you nor a massive pension plan acting on your behalf can generate enough risk-free income to assure you a comfortable retirement. Why not? Because our monetary overlords decreed that it should be so. Retirees and their pensions are being sacrificed for what now passes as “the greater good.” Because these very compassionate overlords understand that the most important prerequisite for successful future retirements is economic growth. And they think that an easy monetary environment is the necessary fertilizer for that growth. So, when they dropped rates to zero some years ago, they believed they would soon be able to raise them again – and get people’s retirements back on track – without risking future economic growth. The engine of growth would fire back up, and everything would return to normal. So much for the brilliant plan. You and I, the expendable foot soldiers in the war to reignite growth, now gaze about, shell-shocked, as the economic battlefield morphs from the Plains of ZIRP to the Valley of NIRP.”
– John Mauldin*
LINK HERE to the report

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 has an in-depth discussion on the future of Bitcoins and Block Chain technology with serial entrepreneur, Reggie Middleton. Middleton’s experience has given him the ability to recognize value, or the lack thereof, well before much of the professional populace. His ability to identify opportunity and his “out-the-box” mind-set are due to years of entrepreneurial pursuits in insurance, financial valuation/modeling, technology, media, and real estate. He is the founder of Veritaseum and the finance and technology blog, Boom Bust Blog. Until 2011, he wrote about financial evaluation and the global financial crisis at the Huffington Post.

After graduation with a degree in business management from Howard University, he worked for Prudential Insurance and trained in the sale of financial products. Since then, he worked in the fields of financial securities and risk management. He was also a significant investor in residential real estate.

Middleton is known for making predictions about the crash of markets and large financial institutions long before they occur. Aaron Elstein of Crain’s New York Business said “Mr. Middleton has been startlingly accurate in the past. He forecast the collapse of the housing market in 2007, and in early 2008 warned of the demise of Bear Stearns weeks before it happened. Earlier this year, he said that Ireland’s finances were in terrible shape long before Standard & Poor’s got around to downgrading that nation’s credit rating.”

In 2007, he founded Boom Bust Blog, a commercial financial advisory reported to have over 3000 subscribers. In February 2013, he won CNBC’s first-ever stock draft competition, beating out six other professional traders. He then went on to win the second CNBC stock draft in 2014 by an even larger margin, beating out all other professional participants.In 2014, he founded his current venture, Veritaseum, the progenitor of UltraCoin technology. According to Mr. Middleton, UltraCoin exploits modern cryptography in the fields of finance, economics and value transfer to disintermediate legacy financial institutions such as Wall Street banks.

THE EUROPEAN BANKING SYSTEM

“The problems from 2006-2009 are the same problems we have now.”

I call it the great global macro experiment. Authorities attempted to do things they have never done before. Things such as negative interest rates and particularly QE which was a practise adopted from the Japanese. It is important to note that Japan began QE within their economy 30 years ago and still to this day the desired results from it have not been achieved; Japan is still fighting inflation.

“Central bankers believe that if they prolong the problem long enough they can export their economic problems to other countries, not realizing that it is a global economy.”

The way it works is, we have a bubble; and a bubble is defined as an instance when prices shoot above the fundamental value of the good or service. Once this bubble pops and instead of allowing a natural reset of prices and value, instead people try to further push prices up.

Blockchain Technology

“It is essentially bitcoin revamped with a different name.”

Bitcoins underlying foundation is essentially a new way of dealing with databases. It is a database that is distributed amongst many individuals. In essence it is a database run by 3 million machines which each shares a full copy of the database and each having full functionality of the database.

With this much territory, you get a system which cannot be taken down by a single or even multiple authorities. In addition it solves something called the “double spending problem” which is the risk that a digital currency can be spent twice.

Double-spending is a problem unique to digital currencies because digital information can be reproduced relatively easily. Physical currencies do not have this issue because they cannot be easily replicated, and the parties involved in a transaction can immediately verify the bona fides of the physical currency. With digital currency, there is a risk that the holder could make a copy of the digital token and send it to a merchant or another party while retaining the original.

This was a concern initially with Bitcoin, since it is a decentralized currency with no central agency to verify that it is spent only once. However, Bitcoin has a mechanism based on transaction logs to verify the authenticity of each transaction and prevent double-counting. Bitcoin requires that all transactions, without exception, be included in a shared public transaction log known as a “block chain.” This mechanism ensures that the party spending the bitcoins really owns them, and also prevents double-counting and other fraud. The block chain of verified transactions is built up over time as more and more transactions are added to it.

“The bitcoin and block chain technology now parallels what the internet was in 1993. Most people didn’t get it and if they did get it they strictly thought of the internet as email; fast forward and look where we are now with the internet. Bitcoins and digital currencies are a way of transferring value.”

INDEPENDENT GLOBAL BANKING

Certain strong regimes such as the US, Germany and Britain have attempted to impose their limitations. An example would be the US with peer-to-peer file sharing halting the activities of The PirateBay. This was possible because it was a centralized server which was easy to target. But now we are in an environment that has similar things with millions of hubs and files are transferred in a huge web. This is near impossible to take down therefore the law was broken and governments and authorities resorted to illegal means to halt these new developments, it is unclear still as to how successful they were.

“It is about adapting to paradigm shifts. History shows that entities that fight or prevent these shifts will not be successful and eventually be forgotten. Microsoft is a good example of a top tier company which sustained two paradigm shifts and this was because of all their patents and so much of the world using their services.”

The banks are taking bitcoin technology and trying to incorporate it into their business models. It will make many processes faster but at the same time, you do not need banks to make transactions anymore. Therefore no matter how much more efficient banks become, if they become obsolete than the increased efficiency is of no good.

“The banks are following the same route with banking as AOL did with the internet. Ultimately the end result will be no different as well.”

If you charge a correct risk payment for capital, a bank could never get big enough to take down the world because it wouldn’t be able to afford to take that risk. If I can get money at 75 basis points then I would take all the risk in the world and if I mess up I only have to pay 75 basis points; there is no reason not to take risk. But if I paid 18-25% for that money I would become far less risk averse.

“Bring back true fundamental market analysis, natural market economics and the system solves itself.”

FUTURE OF BITCOIN AND BLOCKCHAIN

At the end of the quarter we are launching an HTML client which allows you to hold assets in your device on a webpage. It is like having a bank account on a webpage that sits on your device and it cannot be stolen unless it is stolen from you directly.

Additionally we will be launching applications of block chain technology to capital markets. We plan to have applications for credit, peer-to-peer swaps and for real estate transactions in beta of md-year but definitely by year end.

There are legal issues but we can get passed these issues by putting actual cash within the block chains. It will increase the efficiency to facilitate cash flows from various kinds of investments. It is a way of eliminating banks from the equation.

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.

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.

Danielle DiMartino Booth looks at the trends & risks associated with negative interest rates & the abolishment of physical cash .. points out how non-working wives in the past used cash to maintain their lifestyles regardless of where the business cycle may have been ..  It’s with good reason that The Lindsey Group’s Chief Market Analyst Peter Boockvar calls negative interest rates ‘weapons of mass confiscation.’ That is the very essence of negative interest rates. And yet the brain trust that dreamed them up has deluded itself into believing they will force lending into the economy when they will do no such thing.” .. DiMartino Booth hope Federal Reserve Chairwoman Janet Yellen will take a cue from the wives saving & using cash to weather business cycles.

LINK HERE to the essay

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.

NIRP (negative interest rate policy) is both possible under U.S. law & achievable by the Federal Reserve through various transmission options, including paying a negative rate of interest on excess reserves .. Federal Financial Analytics, Inc. (FedFin) released a report today concluding that the Federal Reserve has the authority to execute a negative interest-rate policy (NIRP) should it be compelled to do so. The paper also concludes that the central bank is under such acute political risk that it will shun NIRP if at all possible. However, should its hand be forced, the central bank is most likely to implement NIRP through limited reductions in the interest on excess reserves (IOER) now paid to U.S. banks – “Until the Bank of Japan’s disastrous NIRP launch, the FRB looked at NIRP largely as a technical central-banking question. Now, it sees all too clearly its political risk even if those to financial stability remain less of a deterrent .. Using IOER – seen across the political spectrum as a big-bank subsidy – could thus be the FRB’s only option even though it should know full well how disruptive this would prove to sustained, stable growth.”

LINK HERE to the study

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.

Jay Taylor interviews Jeff Deist of the Mises Institute .. Deist describes what anti-free market policies will have not only on our economy but on personal liberty & what impact they may have on markets .. 23 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.

David Stockman writes a scathing assessment on central bankers .. “For several years now the small coterie of Keynesian academics and apparatchiks who have seized nearly absolute financial power through the Fed’s printing presses have justified the lunacy of unending ZIRP and massive QE on the grounds that there is too little inflation .. The whole 2% inflation mantra is just a smokescreen to justify the massive daily intrusion in financial markets by a power-obsessed claque of monetary central planners. They just made it up and then rode it to ever increasing dominance over the financial system .. The negative sign of NIRP will be the great political inflection point. The negative sign will be the flashing neon lights announcing that the government is confiscating the people’s savings and wealth. So when they actually try to go to NIRP in the neighborhoods, the central banks will be signing their political death warrants. That day can come none too soon.”

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.

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.

Graham Summers is the Chief Market Strategist with Phoenix Capital Research in Washington, DC. Phoenix capital research is an investment research firm, that has clients in 56 countries around the world, specializing in investment research on a subscription basis.

Japan‘s NIRP announcement & the US$

Japan is at the forefront of the Keynesian central planning that has been in the markets for the past few decades. The federal reserve first went to ZIRP and launched quantitative easing in 2008. The European central bank went to ZIRP and they launched QE in 2015. The bank of Japan first went to ZIRP in 1999, in which they then launched quantitative easing in 2000. They’re much more experienced in seeing what these sorts of policies can accomplish.

A week or two before NIRP was announced, Kuroda, the head of the Bank of Japan announced that Japan’s potential GDP growth was 0.5% or lower, which is an astounding admission, implicitly admitting that no matter how much money is printed or what monetary policy will be used, Japan’s GDP will not and cannot break above 0.5%.

Graham states, “From a psychological perspective, this is like a central banker saying, ‘we don’t have the tools required to generate economic growth’ – Similar to a doctor saying, ‘no matter how much medicine you take you won’t possibly get better’.”

That was the beginning of the end. “It wasn’t too surprising for me that shortly thereafter when the Bank of Japan went to NIRP, the market reaction was terrible. When you reach the end game for central banking omnipotence, there are no longer positive results from central bank policy.”

“Anytime you cut interest rates, or launch quantitative easing, there will always be negative as well as unintended consequences. The one positive consequence since 2008 is that when these policies are launched, stocks go up” “None of these policies really generate economic growth, they’re all about the bond bubble”

Graham mentions that when Kuroda launched NIRP, the positive consequences of that policy which is the Japanese stocks rising, only lasted one day. The negative aspects exist, and Japan has since had to cancel a bond auction due to a lack of interest, which in Japanese history, has never happened. Meaning that Japan was not able to sell it’s debt on the markets because investors did not want to buy bonds at a negative yield. “When the crisis hit in 2008, all central banks coordinated their responses, however, this was in a fiat world, where everything was relative. All the policies consisted of currency debasement,  with the idea of inflating away debt payments.” The problem with this is that when any one country launches any policy, it has an adverse effect on the currency against which their currency trades.  The most obvious example being the euro vis-à-vis US federal reserve and the dollar. The euro represents 56% of the value against which the dollar trades, if the ECB does anything to push the euro down, the dollar would naturally go up. The bank of Japan and the European Central Bank employing NIRP, should be very dollar positive. However, for years hedge funds have been betting very large leveraged sums that are shortening the yen and going long on the Nikkei, when the Bank of Japan implemented NIRP and the negative consequences occurred, that trade began to surge, as did the yen, and the Nikkei collapsed. What this has done is forced very many institutions and hedge funds to liquidate their positions.

“We are seeing the yen soaring and the dollar is falling as a result. That is not based on any fundamentals, that is just liquidity sloshing around the system. From a global perspective, what the bank of Japan did should be very dollar positive and I believe it will be proven to be the case”

“We are in such a central planning oriented world that what has been driving markets in the short term is perspective on what central banks are going to do.”

An Imploding Bond Bubble

The bond bubble is the bedrock of the financial system, it is over $100 Trillion in size, and is going to take years to deflate. The first wave of deflation was the high yield bond market, which has begun to implode. It will also feature emerging market corporate debt defaulting. Slowly, one by one each foot will fall until we will reach the sovereign bond default but it will take months, if not years.

“Oil experiencing a 60% price collapse in about a 6 month period in 2014, was really the bond bubble, the junk bonds in the energy sector blowing up. The bubble we’re dealing with right now is the crisis to which 2008 was the warm-up, and it will take much longer to unfold than people think.”

Gold

Gold was in a bit of a bubble in 2011, it was so far overextended above it’s overall bull market trend line, it was bound to collapse. When that collapse is combined with central bank manipulation and the effort to suppress gold, you’re going to see an asset class struggle for years to find it’s legs again.

Since China devalued the Yuan in August – September, gold has begun to outperform stocks. Since Japan went to NIRP this process has accelerated dramatically. It appears for the last 6-7 years, investors were loading into stock as a hedge against central bank policy, and gold would also benefit from this. This trend reversed in 2011, investors continued to use stocks as a hedge against central bank policy, but they abandoned gold. That seems to have reversed, investors are now moving into gold as a hedge against central bank error and stocks are suffering. The reason gold is having such a dramatic move is that the gold market is so much smaller than stock, that when you start seeing large scale chunks of capital moving into gold, the movements become very significant.

Custodial Risk

Graham explains that custodial risk is the question of what an individual actually owns. He uses the example of buying stock and how individuals no longer receive a paper certificate, and the assets are held digitally, usually in a broker’s account.  If the financial institution who is sitting on these assets for you, goes out of business, what are people to do with their money? Graham illustrates that gold and physical cash is so appealing due to the lack of custodial risk.

“Central banks hate physical cash because the custodial risk does not exist”

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 currency wars are intensifying. Out of desperation, more central banks, including Japan, are running headlong into negative interest rate policy, or ‘NIRP’ .. Negative interest rate policy by the world’s central banks is getting out of control .. Central banks want inflation, but negative rates feed deflationary expectations. This causes consumers to hold onto cash in the expectation that goods will get even cheaper .. Stress is rising throughout the global financial market as investors start questioning the negative consequences of central bank policies. Who knows what lies at the end of NIRP policy — or even if it’s reversible? .. The real reason is the power elite want to abolish currency so they can force everyone into the digital bank system .. Paper money must be abolished before the elite plan can be implemented. This forces you into the digital bank system .. Once everyone is forced into the banks, it’s easy to impose negative interest rates to confiscate your money. Getting savers into digital accounts is like rounding up cattle for the slaughter. For now, it’s just talk by the Fed. But they’re getting you used to the idea now so they can impose a negative interest rate hidden tax in 2017 or 2018.”

link here to the reference

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.

Mike Gleason interviews Dr. Marc Faber* who says central banks have been manipulating just about everything .. “I believe that the Fed has not just intervened in bonds through Operation Twist, in interest rates through QE programs but occasionally they step into the stock market to stabilize the market and try to push it up. I think other central banks around the world … in Japan, they announce it, the central bank, the Bank of Japan, is buying shares through ETFs.” .. points out central banks are now going into negative interest rates .. already $7 Trillion dollars worth are trading at less than 0% .. “Negative interest rates will not help the world” .. on a cashless society: “If you have negative interest rates, you want to essentially prevent people from hoarding bank notes in their safes at no cost. So you want to deprive them of that privilege, of that freedom, so you introduce a cashless society.” .. on government & politics: “The government is not representing people anymore – this is what we discussed before about the good showing of Sanders and Trump – but the government is representing itself. It is eating at the economic cake and by eating too much of the economic cake, the remaining economy, the private sector, cannot grow fast enough to boost overall growth rates. Because the government doesn’t do anything to boost growth. It actually is growth-retarding with regulation and laws and all kinds of things. So basically, everybody – the media, the government and in the financial sector – detests and hates gold because it’s honest. The whole financial sector, they love money printing.”

LINK HERE to the article & 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.

Daniel Amerman considers recent developments to discuss the possibility of governments initiating capital controls on the movement of money across international borders .. “For governments, the savings of the citizens are a resource for the nation, and there is a very long history of nations using capital controls on the amount and terms under which people’s money is allowed to leave – or enter – a country. These restrictions have been seen most recently on a temporary basis during crisis in countries such as Greece and Cyprus – but what few people realize these days is that long-term capital controls were the norm for the advanced economies of the West during the 1940s, 1950s and 1960s. And capital controls may be on their way back – if some leading financial authorities get what they want. Which, in a vastly changed world, could impact our daily lives in ways which most people have never considered.” .. given heavily indebted governments getting desperate for promoting economic growth sufficient to service their massive debts, capital controls are becoming a strong possibility .. “capital controls are a key component of financial repression – when the economy is good, debts are low, and markets are healthy, then rules and regulations often liberalize and free markets gain dominance over government controls. When markets get in trouble while the economy goes bad and governments become heavily indebted – then rules and regulations often increase as government controls become dominant over free markets .. financial repression has a much more specific meaning as well. It is the name for a process in which nations effectively take wealth from savers, and use that wealth to reduce the effective size of national debts, or at least slow down the growth of national debts .. There are five traditional components to Financial Repression, with the first two components being 1) very low interest rates, and 2) a somewhat higher real rate of inflation (which can be quite different from the official rate of inflation) .. That situation is painful for savers, so the other three components effectively involve putting up fences so investors can’t escape. These fences include 3) forced participation by financial intermediaries; 4) capital controls; and 5) discouraging or outlawing precious metals investment.” .. Amerman concludes that capital controls could be deployed over a period of years by the G-20 with warning & discussion, or they could be deployed overnight in the event of financial or economic crisis – in either case, he advises planning ahead of time for their increasing probability.

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.

Gordon T. Long, Co-Founder for the Financial Repression Authority,  interviews Leo Kolivakis, Publisher and Editor of the Web Site “PensionPulse.blogspot.com“. Mr. Kolivakis is an independent senior economist and pension and investment analyst with years of experience working on the buy and sell-side.  He has researched and invested in traditional and alternative asset classes at two of the largest public pension funds in Canada, the Caisse de dépôt et placement du Québec (Caisse) and the Public Sector Pension Investment Board (PSP Investments). Also Mr. Kolivakis consulted the Treasury Board Secretariat of Canada on the governance of the Federal Public Service Pension Plan (2007) and been invited to speak at the Standing Committee on Finance (2009) and the Senate Standing Committee on Banking, Commerce and Trade (2010) to discuss Canada’s pension system.

You can follow his blog posts on Bloomberg terminal and follow Mr. Kolivakis on twitter @PensionPulse where he posts links about pension and investment articles.

In this 45 minute video interview Leo Kolivakis discusses the importance of a good pension system with strong governance being critical in insuring the average persons retirement security.  Pension liabilities are going up while bond yields are going lower which is going to create a huge amount of stress on pensions!

Contributory Pensions and 401Ks have proven to be a failure compared to Defined Benefits programs. History will eventually show that the transition from Defined Benefits to Contributory Benefits was in fact is detrimental to the global economy.

Structural Issues

Leo Kolivakis believes we have entered a period of long deflation due to six major structural issues:

• The global jobs crisis
• Aging demographics
• The global pension crisis
• Rising inequality
• Technological Advances
• High and unsustainable debt all over the world

Each of these structural factors is significantly contributing to global deflation.  Together they are a domino effect, exacerbating deflationary headwinds in the world.  They are causing rates to remain ultra low and will continue to for years to come .

Rising Inequality

What is not understood and fully appreciated by economists is how the dramatic rise in inequality brought on by low interest rates is limiting aggregate demand growth.

Investing in an Era of Low Aggregate Demand

Bond yields are going lower to negative and you must prepare for a lower returns, for a very long time

Question:  If rates remain ultra low, won’t that be good for residential and commercial real estate?

“Not necessarily. If deflation becomes entrenched, low rates will exacerbate debt and increase unemployment at the worst possible time. It can easily spiral into a debt deflation crisis and you’ll see rising vacancy rates and/ or declining rental rates. In this environment, real estate is the asset class that makes me most nervous.”

But it’s not just real estate that will suffer if deflation becomes more entrenched.

“All asset classes will exhibit a prolonged period of low or negative returns except for…good old nominal bonds!”

Ultra Low Rates For Years?

Abstract written by Joshua Brown-Tapper

Joshua.BrownTapper@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.

Dr. Marc Faber joins FRA Co-founder Gordon T. Long in an exciting discussion of monetary malpractice, negative interest rates, the influence of current geopolitical risk and much more. Dr Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a PhD in Economics.

Between 1970 and 1978, Dr Faber worked for White Weld & Company Limited in New York, Zurich and Hong Kong. Since 1973, he has lived in Hong Kong. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK) Ltd. In June 1990, he set up his own business, MARC FABER LIMITED which acts as an investment advisor and fund manager.

Dr Faber publishes a widely read monthly investment newsletter “The Gloom Boom & Doom Report” report which highlights unusual investment opportunities, and is the author of several books including “ TOMORROW’S GOLD – Asia’s Age of Discovery” which was first published in 2002 and highlights future investment opportunities around the world. “ TOMORROW’S GOLD ” was for several weeks on Amazon’s best seller list and is being translated into Japanese, Chinese, Korean, Thai and German. Dr. Faber is also a regular contributor to several leading financial publications around the world. A regular speaker at various investment seminars, Dr Faber is well known for his “contrarian” investment approach. He is also associated with a variety of funds and is a member of the Board of Directors of numerous companies.

JAPANESE NEGATIVE INTEREST RATES AND THEIR GLOBAL IMPLICATIONS

“It’s an experiment by few mad professors that occupy senior positions in central banks.”

Over the last 5000 years of recorded human history, interest rates have never been as low as they are now. The time value of money is the natural state. It is the markets way of pricing today’s money and the future’s money.  The higher the uncertainty of future money is, the higher the rate of interest will be. What central banks are doing at the present is incomprehensible to me, unless it means an expropriation of money.

The central banks in their madness believe this will result in economic growth. But in reality it will force people to become insecure. For example if you received 6% on your money, and then rates become zero and in this case become negative which in other words you’re being penalized for your deposit. Does that rate make you save more or spend more? One thing I will never understand is despite us having democracies, somewhere, somehow, the system has given so much power to a bunch of well understood, unelected academics and most of them have never worked for the private sector for a day. The Fed, Bank of Japan, ECB are all likeminded people; they all believe money printing boosts economic activity and tight money is negative.

“They will bankrupt the world.”

We do not know how badly it will end, but an interesting thing to note is if you look at the 2008 financial crisis, which sector got the most bailout money? It was the banks and the fund managers. Then you look at the performance of their stocks, it is a disaster. Bailout money and money printing doesn’t help at all. In fact it has made matters worse for the average American. I side with Americans who support Bernie Sanders because he is expressing the views of ordinary people that the Wall Street guys and the banking lunatics have essentially cheated the people.

“In every instance where they have negative interest rates, the exact opposite of the objective occurs.”

This view of central banks to distort the free market and capitalist system is a view of the paternalist; some people that think they know better.  They think they can steer the economy like how you would drive a car.

FED RAISING RATES

“As a working man it is hard to believe the world has handed so much power to a bunch of ignorant and arrogant people.”

Firstly Janet Yellen was the president of the San Francisco Federal Reserve which is in charge of California, Arizona, Nevada and another state. In her district we had the biggest real estate bubbles ever. Now she is the Fed chairman and slashed interest rates. We have had eight years of zero interest rates, and now she increases it by a quarter of a percent which is meaningless. She should have increased rates when there was a strong recovery in 2010 and 2011 but she waited. She waited right until the world is entering a very deep recession. She will go down and have a front portrait in a museum as a central bank failure.

IMPLICATIONS OF MONETARY MALPRACTICE 

“There are reasons to believe that central banks will go bust.”

Systemically I think they have allowed the debt level to expand, particularly they have allowed government credit to expand as a percentage of the economy. You have to understand that when you try to supress individual risks in a system, eventually you end up with systemic risk. We will eventually have a huge crisis and investor will not know how to deal with it.

People like Bernie Sanders are not blaming the Fed, they are blaming Wall Street. In other words they are blaming rich people for the hardship or ordinary people. The Fed essentially threw money at Wall Street and naturally they kept it for themselves. Yes, there is a trickle-down effect which makes them give their waiter a slightly larger tip; it is insignificant.

ISSUES OF CURRENT GEOPOLITICAL RISK

“Everything the US touched in the Middle East and Central Asia, from Afghanistan to Iraq, Syria, Egypt and Lebanon, it all turned into a complete disaster.”

The Neocons had this brilliant idea to start making trouble in Ukraine, not understanding it is Russian territory and historically until the early 20^th century Ukraine was part of Russia. Also not understanding that Crimea is of huge strategic importance to Russia, just like what California is to the US. Russia will never give up Crimea, I can promise you that. This is because it is a warm water port and they need it to have the access to the Mediterranean, without it they are at the mercy of America.

The Europeans are equally as incompetent. Angela Merkel just follows the US without understanding she is hurting the business interest of Germany. Russia and Germany were historically, culturally and politically very close. The interventions are very poorly thought out.

In the case of China, it is the second largest economy in the world with a population of 1.3 billion people. It is a highly advanced economy, especially in defense technology. A pivot to Asia by the US is seen by the Chinese as an aggression. It is a threat to the sovereignty and security of China  which has created another set of geopolitical tensions.

FEAR OF A COLLAPSING PETRODOLLAR

Under Mr. Greenspan the central bank enjoyed a lot of prestige. He had done better than his predecessors; his only major mistake was deliberately creating the NASDAQ bubble.

“However, Bernanke and Yellen are complete chaos. I don’t actually believe that they make the decisions; they are told by someone what they should do.”

It is difficult to tell what people think but if you look into the Japanese negative interest rates, the intention was to weaken the Yen. Not that the weak currency helps anyone, but by slashing interest rates and having them below zero 10yr Japanese bond will cause you to lose money unless the Yen appreciates. The idea was to have negative interest rates cause the Yen weaken but it actually strengthened.

INVESTMENT OPPORTUNITIES IN ASIA 

The area of Indochina is a boomtown. Not Thailand but Cambodia exports are rising at about 20%/annum. Vietnam has huge inflow of foreign direct investment, partly because the Taiwanese, Koreans and Japanese can invest in Vietnam and produce goods there.

There are a lot of investments coming from China and South East Asia. The US is afraid of China gaining too much influence in that part of the world so they waste money there by trying to displace the Chinese.  The Chinese will go to Cambodian government and say they are going to make a road or a bridge and in 6 months it will be built. Whereas the US will send a team of useless characters to go check out the scenery then come back in 3 months to check out more scenery and 5 years later nothing will have been done. All the while in this time the Chinese will have built roads, bridges, tunnels and all kinds of infrastructure.

ADVICE FOR INVESTORS

“My advice is to have a diversified portfolio. You have to have some equities, some bonds, real estate and precious metals.”

In my view it will not end well. This era of artificially low and market distorting interest rate structure will end terribly. There is a popular notion now of ‘sell everything’ but this is a flawed idea. You sell everything and you have all this money now, what will you do? Deposit it in banks? What happens when the bank goes bankrupt? In practise it is very dangerous to have all your money with one bank.

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.

ZERO HEDGE  Tyler Durden  02/18/2016

Dale Dorsey isn’t happy.

After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school.

Dorsey attended a town hall meeting in Kansas City on Tuesday where retirees turned out for a discussion on “massive” pension cuts proposed by the Central States Pension Fund, which covers 400,000 participants, and which will almost certainly go broke within the next decade.

“A controversial 2014 law allowed the pension to propose [deep] cuts, many of them by half or more, as a way to perhaps save the fund,” The Kansas City Star wrote earlier this week adding that “two much smaller pensions also have sought similar relief under the law, and still more pensions are significantly underfunded.”

“What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States,” said Jay Perry, a longtime Teamsters member.

Jay is probably correct.

Public sector pension funds are grossly underfunded in places like Chicago and Houston, while private sector funds are struggling to deal with rock bottom interest rates, which put pressure on expected returns and thus drive the present value of funds’ liabilities higher.

Illinois’ pension burden has brought the state to its knees financially speaking and in November, Springfield was forced to miss a $560 million payment to its retirement fund. In the private sector, GM said on Thursday that it will sell 20- and 30-year bonds in order to meet its pension obligations.

“At the end of last year GM’s U.S. hourly pension plan was underfunded by $10.4 billion,” The New York Times writes. “About $61 billion of the obligations were funded for the plan’s roughly 360,000 pensioners.” Maybe it’s time for tax payers to bail themselves out.

Speaking of GM, Kenneth Feinberg – the man who oversaw the distribution of cash compensation to victims who were involved in accidents tied to faulty ignition switches – is now tasked with deciding whether the Central States Pension Fund’s proposal to cut benefits passes legal muster. “Central States’ proposal would allow the retirees to work and still collect their reduced benefits. But some are no longer able to work, and the idea didn’t seem plausible to others,” the Star goes on to note.

“You know anybody hiring a 73-year-old mechanic?” Rod Heelan asked Feinberg. “I’m available.”

“I’ll have to go find a job. I don’t know. I’m 68,” Gary Meyer of Concordia, Mo said. “It would probably be a minimum-wage job.”

To be sure, retirees’ frustrations are justified. That said, the fund is simply running out of money. “We simply can’t stay afloat if we continue to pay out $3.46 in pension benefits for every $1 paid in from contributing employers,” a letter to retirees reads.

The fund is projected to go broke by 2026. Without the proposed cuts, no benefits at all will be paid from that point forward.

According to letters shared with The Star, cuts range from around 40% to 61%. “[The] average pension loss was more than $1,400 a month,” the paper says.

As for what will become of those who depend upon their benefits to survive, the above quoted Gary Meyer summed it up best: “I guess food stamps. Hopefully not. It would be a last resort.”

Don’t worry Gary, you aren’t alone…

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.

Cumberland Advisors’ David Kotok points out that negative interest rate policy (NIRP) is spreading throughout the world, though he thinks that the Federal Reserve will do everything they can to not have to use it as a tool .. “The implications of lower and deepening NIRP policies are enormous. First, they ensure that interest rates will be at a zero or lower level for the rest of the decade in those jurisdictions. Imagine that we are seeing commitments now for the next two years, as publicly declared by the central banks. Think about how difficult it will be to ‘taper’ back up to zero from a NIRP. Our best guess is that these countries and those who join them are locked in a NIRP policy regime for the rest of the decade. At Cumberland, we are using an expanding NIRP as a policy assumption for our investment decision making .. The second implication of a spreading NIRP is that NIRP anywhere suppresses interest rates everywhere. The more NIRP we see, the more downward pressure on rates there will be in jurisdictions that are not under NIRP. We see that in the United States, where bond rates are positive numbers but are continually pressured to lower and lower levels. Those investors who do not understand NIRP have missed a huge rally in bonds. At Cumberland, we have invested in that rally. Only now are we beginning (and we stress the word beginning) to take some of that profit and redeploy it .. The third implication of NIRP is that it changes a key characteristic of money. Money is still a unit of measure. Money is still a facilitator of commercial exchange. But NIRP alters behaviors when it comes to money’s being a ‘store of value.’  .. The fourth implication of NIRP plays out in the borrowing arena. When a borrower can finance at near zero and when that borrower is assuming that NIRP will continue for a prolonged period, that borrower changes the way debt is viewed. Essentially the use of money becomes free or nearly free. ..  The fifth and a huge implication of NIRP is its impact on asset prices. Remember, NIRP assures that the riskless rate will be zero or lower for years to come. With that assumption in place, the prices of assets rise and rise. The longer the duration of those assets, the higher the prices can rise .. NIRP is bullish for asset prices. It is repressive for traditional savers.”

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.

“It is now just a matter of time before the U.S. central bank follows the central banks of Japan, the EU, Denmark, Sweden and Switzerland in setting negative rates on reserve deposits. The goal of such rates is to force banks to lend their excess reserves. The assumption is that such lending will boost aggregate demand and help struggling economies recover. Using the same central bank logic as in the financial crisis, the solution to a debt problem is to add on more debt. Yet, there is an old adage: you can bring a horse to water but you cannot make him drink! With the world economy sinking into recession, few banks have credit-worthy customers and many banks are having difficulties collecting on existing loans .. Central bank policies have also driven government bond yields into negative territory. Nearly $7 trillion of government bonds are currently trading at negative rates .. The more you interfere with interest rates, the more you create a misalignment between demand and supply across time, and the greater will be the adjustment to realign output with demand to return the economy to sustainable economic growth with rising standards of living (see here and here). Negative rates will only ensure an ever greater misalignment between output and demand .. Meanwhile, a goal of some of the attendees at Davos and others has been to push the world toward a cashless society since an increase in cash holdings would limit the effectiveness of negative rates. They know that if they eliminate cash, central banks will have greater control over the money supply and the ability to guide the economy toward their macroeconomic goals  .. The best monetary policy, however, is no monetary policy at all, and central bankers should take an extended holiday so that the world economy can finally heal itself.

– Austrian School Economist Frank Hollenbeck

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.