Key points & quotes on an interview with Financial Sense ..  he sees a “a peak in the credit cycle” & thinks the Federal Reserve may have to reverse course this year in light of a potential liquidity crisis .. “There’s concern (and you’re seeing it in the market from those who understand what’s going on)… that because we have so much collateral pledged to support debt and credit right now that when that collateral falls in price as we’re seeing in oil and commodities, you get margin calls and if you don’t have the liquidity you’re caught and you’re caught in a serious problem.”  .. identifies 1820 on the S&P 500 stock market index as the point when central banks will react with new policies – which will cause more adverse risks to investors, savers & retirees from the unintended consequences of financial repression ..  “We are going to see negative interest rates potentially…we already have $5 trillion in bonds around the globe trading negative…there are all sorts of things that the central banks could do other than just interest rates and they will do them when the collateral is in jeopardy because it will bring down the entire system.” .. emphasizes how the burdens of debt, the challenges of meeting unfunded pension liabilities & reviving the economy are not just about the U.S. – it’s the same problem in the UK, Europe & Japan .. “The Fed is boxed in—they are trapped right now…they can’t raise rates. We might be able to raise another half (of a percent with) two more twenty-five basis point increases possibly but I think personally a recession is looming… the global slowdown is serious and significant and it’s washing ashore very quickly in America.”

LINK HERE to the article

EXCLUSIVE TO FRA – LINK HERE to the entire podcast – permission granted by Financial Sense to make the whole podcast available to our readers

LINK HERE to Financial Sense’s podcast service

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.

“Nothing is risk-free in this system of chaos. And there is no longer any easy solution to safely grow or preserve your capital. Risk is now everywhere. If you invest in the markets, there is risk of temporary or permanent loss of capital. Even if you do nothing and simply hold cash in a bank, there is bail-in risk and financial repression. This is our reality now… the consequence of a financial system that’s at least a century old. In a way, today’s mad scientist central bankers have engineered financial dinosaurs back into our time. They think they can control the system.”

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.

When the next financial crisis comes – the big banks could save themselves by confiscating your money right out of your checking account. Banking expert Ellen Brown, Public Banking Institute/Web of Debt/The Public Bank Solution explains how in Conversations with Great Minds. .. it’s financial repression .. 13 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.

Special Guest: Adam Taggart – Co founder, Peak Prosperity

FRA Co-Founder Gordon T. Long interviews Adam Taggart, regarding his new book: “Prosper! How to Prepare for the Future and Create a World Worth Inheriting” co-authored with Chris Martenson PhD. Adam is an author, and the Co founder of Peak Prosperity, a website created to help individuals make appropriate and informed financial decisions.

“We fell from a certain height in 2008, we’re at much higher heights in many other areas right now, and none of the fundamental causes of the 2008 crisis have been resolved or satisfactorily addressed”

Adam says that if in 2008 we only fell from about halfway up the ladder, we can expect a much greater upcoming fall which will be faster and hurt more. He is a strong believer in taking prudent preventative action, before a major correction. “Everyone wants to buy insurance after their house burns down, but it’s too late then.” This book is intended to aid people in taking informed steps to minimize or possibly avoid upcoming financial pain.

KEY MESSAGE OF THIS BOOK

Developing Resilience

“Resilience is the ability to be as least changed as possible by a change in your environment”

‘”Developing investments today that are going to protect you against the greatest and most likely risks”

Drawing from the permaculture school of thought, there are 8 forms of capital to address when developing true wealth: Financial capital, living capital, material capital, social capital, emotional capital, knowledge capital, cultural capital, and time capital.

Adam mentions it is important to realize capital is able to be exchanged from one form to another. Financial capital is often the first thought of form of capital, but Adam says it is important to consider the other seven forms of capital. Adam recommends people look upon these 8 forms of capital and examine where they have a deficit and where they have abundance, and encourages them to prioritize their time in reducing the deficits and not just focus on one or two.  This framework of 8 forms of capital will work for anyone, regardless of their socio economic condition

Adam mentions that everything in this book is common sense. Gord references a Will Rogers quote, saying, the most uncommon thing is common sense.

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.

A government agency in Zug Switzerland wants to be paid as late as possible to avoid having to pay negative interest rates on the payments it receives .. Mish Shedlock*: “I will gladly receive on Tuesday what you may wish to pay today. Is a fine for bill prepayment the next logical step? Think about that for a second. Rather than getting individuals and corporations to spend (the desired central bank action), negative interest rates (not yet tried at the consumer level) just might get everyone to pay their bills early. Going one step further, if lending rates are low enough, people could borrow money at negative rates and park it under their mattress or in safe deposit boxes and make money by borrowing. Please take the money! Just promise to pay me back whenever. More realistically, negative interest rates on consumer deposits will cause a run on the banks.”

LINK HERE to the commentary

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.

“When we next have a recession in the US, the Federal Reserve will give us QE 4. They are going to base their monetary policy on the data they have at the time, even though all their own research says that the last round of QE really didn’t do anything. They will once again push us into a world of financial repression malinvestment because they will feel the need to ‘do something,’ and about the only thing they will be able to come up with is more quantitative easing. Which will force the world into yet another mutually destructive round of competitive currency devaluations. The image that springs to mind is that of a circular firing squad, with the participants being the world’s major central banks, some of which actually do have bazookas. As usual, the investors of the world will be caught in no-man’s land .. There is a significant part of me that now feels, or perhaps fears is the better word, that the Fed will embark upon an experiment with negative interest rates in the world’s reserve currency.”

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.

“What is causing bank depositors to flee their banks in the first place? The answer is fear of bail-ins, confiscations, capital controls, and bank failures like we have seen in Greece and Cyprus. Recent examples include Portugal and Italy. These bail-ins are causing jitters. Can you trust Spanish banks? Italian banks? French banks? Greek banks? .. Depositors increasingly say no. And the recipient banks in Germany, Netherlands etc, don’t want to risk bonds in those countries when the deposits are transferred .. Do you think German banks are safe? If so, you are badly mistaken .. If Spain, Italy, Greece, or any country leaves the eurozone, someone will have to eat those imbalances .. How would the ECB would allocate those losses? Government, depositors, or bondholders will be bailed-in directly. Alternatively, the ECB will violate the Maastricht treaty and print the money to cover the losses. In that case, the euro will take a hit. Nothing in Europe is safe!”

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.

Recent research released by both the Pew Research Center and Gallup  warn of an accelerating erosion in confidence in our government, politicians and the political process. It is clear to most that we have a growing “Crisis of Trust” which is signaling a “Failure of Leadership” as governments steadily exert increasing power and authority over our lives!

FOUR YEARS AGO WE BECAME SERIOUSLY ALARMED!

In the fall of 2012 having become seriously alarmed, we wrote our annual thesis paper entitled “STATISM” and laid out the frightening direction of US political leadership. We had initially hoped it was a cyclical pattern which had reached a cyclical bottom.

WE FOCUSED, MAPPED & TRACKED IT

Our subsequent research efforts have resulted in a large supporting  video library of expert guest interviews at Macro Analytics  embellishing on each of the sequentially emerging boxes in the following road-map and additionally the creation of the Financial Repression Authority to understand how our sacred public freedoms were being unwittingly surrendered through financial bondage.

The detailed research included a focus on the driving linkages between the identified stages as the developed economies (and the US in particular) accelerated towards more centralized government control of almost all facets of our lives.

WHERE WE FIND OURSELVES TODAY

The facts are overwhelming and indisputable for anyone taking the time (which we did) to do their ‘due diligence’.  Time and space which we don’t have here.

As we now agonizingly watch the US Presidential Primary Campaigns, cognoscente of what we previously witnessed in the UK (Jeremy Corbyn), Italy (Beppo Brillo), France (Marie Le Pen) and a raft of other political hot areas, we see a now unquestionable deteriorating shift. A shift firmly rooted in a Crisis of Trust and a direct result of a Failure of Leadership.

ONE CRISIS WAY FROM A MONUMENTAL “TOTALITARIAN” MISTAKE

The Financial Repression Authority is presently concerned that a Geo-political event, conflict or crisis could soon  abruptly catapult the developed economies into a mistaken political direction and a deeper cyclical low. A cycle which is presently already on a dangerous trajectory.  Paul Craig Roberts (a former US Assistant Treasury Secretary) just frustratingly penned “The Rule Of Law No Longer Exists In Western Civilization” outlining the seriousness of criminal and immoral actions by the US government. He illustrates that the dictatorial methods  and unlegislated executive orders by the current President to overturn the Second Amendment are now the political leadership ‘order of the day’ and writes: “He (Obama) has the corrupt US Department of Justice, a criminal organization, looking for ways for the dictator to overturn both Congressional legislation and Supreme Court rulings.”

CONCLUSION

Paul Craig Roberts  and the Financial Repression Authority (FRA) sadly concludes – “Out of Evil comes Dictatorship”

As the insightful Canadian national anthem warns so well, we must all “Stand on Guard for Thee!”

Never more than today.

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.

Greg Hunter interviews Ellen Brown who warns that people are more at risk in the U.S. to lose their savings because the 5 biggest banks have nearly $250 trillion in derivatives. In a financial calamity that could cause mass bankruptcies, recent legislation says the derivative holders will be paid first. Brown explains: “The have super priority over everything. . . . All the creditors’ money will be taken in a bail-in. A bail-in is the opposite of a bankruptcy. In a bankruptcy, the bank is liquidated in order to pay off the creditors. In a bail-in, the creditors’ money is taken in order to keep the bank alive. So, we get to die while the bank lives instead of the reverse. They specifically say ‘creditors’ which means shareholders and bond holders, but what most people don’t realize is depositors are also considered creditors. When you put your money in a bank, it becomes the property of the bank, and all you have is an IOU.” .. it’s financial repression .. 24 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.

A MASSIVE ‘TAX GRAB’ MUST BE EXPECTED

The Financial Repression Authority sees the massive government tax grab already quietly underway accelerating in 2016 in most of the developed economies.

This ‘grab’ will be a desperate political act driven by underfunded, and in a significant number of cases, unfunded public pension which will unfold at all three levels of government, Federal, State and City /Local government. It will be disguised by different focal emphasis and appear to evolve in an uncoordinated manner – but it will occur!

To spot its telltale fingerprints we should expect the following words to become  much more prevalent in the “public narrative” throughout 2016 and to see EACH of these which we explore in this article to increasingly and significantly extract money from taxpayer wallets:

• Capital Gains Tax,
• Property Tax
• Global Wealth Tax (PFIC, FATCA, GATCA),
• Civil Forfeiture Fines,
• Means Testing,
• Licensing Fees,
• Usage, Tolls & Emergency Services Fees,
• Inspection Fees,
• Processing Fees,
• Fines (Police and Agency)
• Ticketing,
• School Activity, Equipment & Supply Fees,
• Inheritance Tax,
• Social Security Taxation Rate

The Wealth Effect is believed by the government to have pushed up taxpayer US Household Net Worth  by $30 Trillion or 55% from the Financial Crisis low.

The US government is coming after that money!  They see it as a “Honey Pot” that can’t be resisted.

The following is how the Financial Repression Authority expects the government to undertake this ‘grab’. However, never under estimate the government’s abilities to come up with new schemes to finance its insatiable largesse.

Let’s start at the bottom of the political machine by examining what City and Local governments are doing and planning and work ourselves up to the head of this gluttonous and uncontrollable monster.

City & Local Taxation – Property Tax, Fees & Fines

City and Local government have massive problems with underfunded Pension obligations. Costs for road and water services which have not received adequate financing are also coming due. Administrative, police, fire and teachers’ salaries are all relentlessly climbing along with generous benefits which have long ago been jettisoned by the private sector.

Unlike the Federal government, city and local government cannot “print money” but must cover their costs by primarily Property Taxes or by issuing more debt in the form of muni bonds. The problems have gotten so bad that cities like Chicago have recently been brought to court for inappropriately using bond issues to pay operating costs associated with meeting public pension obligations versus badly needed infrastructure repair. These desperate actions are symptomatic of the pressures forcing the following actions:

• PROPERTY TAXES will increase dramatically. Chicago and New Jersey property taxes have reached the point where people are being forced to relocate. Pensioners on fixed income are being forced to take out reverse mortgages to pay property taxes and keep their homes. Residential property taxes in many areas are routinely $15-22,000 on what would be considered the standard home in the area.

• FINES are on the rise as Police departments for example are increasingly expected to achieve income to match expenses where cities such as New York employ “revenue generating ticketing’ or where Virginia issued 6996 traffic tickets in one weekend in an effort to raise revenues for the state government.

Now even a minor violation as reported by our FRA guest Michael Snyder can put a massive hole in your wallet.  For instance, driving as little as 15 miles an hour over the speed limit in Virginia can get you a reckless driving charge that can carry a fine of up to $2500. So why the hefty fines? Well, the law increasing the traffic fines in Virginia clearly admitted why they are so high. “The purpose of the civil remedial fees imposed in this section is to generate revenue.” (Virginia Code 46.2-206.1)”

The Investigative Reporting Program at UC Berkeley with California Watch discovered that impounds at “sobriety” checkpoints in 2009 alone generated approximately 40 million dollars in towing fees and police fines. “Red-Light cameras” have become huge revenue raising tools in many areas of the country.  In Los Angeles, revenue from red-light cameras has doubled from $200,000 a month in 2007 to $400,000 a month at the end of 2009.

Expenses are accelerating due to Federal expectations of preparedness for the War on Terror and the epidemic levels of horrific Public Shootings. The police and first responders have an increasing fiduciary responsibility, however the funding is not coming with it.

The Daily Bell (Local Government Larceny) & NY Times ( ‘Black Lives Matter’) recently both explored the link between the need for local municipalities to generate revenue in the face of rising pension fund needs & budgetary pressures, with the increase in numbers of interactions creating frictions & “Ferguson Missouri” type outcomes.

“The intense spotlight placed on Ferguson, Missouri in the last year exposed a small-town government engaged in petty larceny on a grand scale. Duly elected officials supervised a police force that regularly shook down visitors and residents to generate municipal revenue. The area’s demographics ensured the victims were mostly poor and black, but similar official theft occurs in white-majority towns all over the nation .. Local governments all over the U.S. are not nearly as accountable to voters as they want us all to believe. They serve as the training ground for politicians who rise to higher office. That’s why higher levels of government are certainly no better and often much worse. People who run for local offices often start with noble ideals. Their ideals rarely survive once elected. A little power creates a little corruption – and usually leads to more.”

Martin Armstrong reports the extent to which this is now reaching as police are going after teenagers who just want to make some pocket money shoveling snow and it isn’t just an isolated incident.  “The police even in Philadelphia are targeting kids as they are in New Jersey. Many towns demand a license with paperwork and fees of $50+ to be paid to shovel snow!”

• EMERGENCY SERVICES are on the rise in a major way. An ambulance call to a private residence can easily be $4-5K. These costs are often not covered by medical insurance as they are seen as public services or matters of policy deductibles. The tax payer is caught between the two and the squabble results in crippling costs to the unprepared tax payer.

• USAGES FEES in schools are nothing new to already financially strapped parents, but worse is to come. Fees for extracurricular activities and equipment has been in place for awhile now but are rising significantly. Parents are forced to take out loans when their young student makes the regional, state or national levels of competition because of the costs the parent are expected to saddle. There is nothing any longer in the school system that is not being billed to the parent for and this will only increase. Parents have no choice.

• INSPECTION FEES are yet another example of how public services are being billed. From Building inspectors to almost any form of government compliance officer is now billing some or all of their activity to the public. These fees seem like “token amounts’ but are becoming areas of new found revenue. Police, and EMS’  “detail’ availability for construction activity and special events are all now routinely billed to the organizations involved and are becoming major construction expenses. These costs must obviously be passed on and are nothing more than a “stealth taxes” to the unsuspecting public.

The list is much more extensive than we are showing here and would take up too much space to show the forms that “new taxation” techniques are taking. In New England for example many towns are now offering nominal tax rebates for seniors and unemployed who volunteer to do community service work that was previously provided by town workers. Some would suggest this is a tax savings but in reality it is taxpayers doing work for the town for free when previously it was part of their local tax (which has only increased even with the rebate).  Is this not in really just another form of taxation?

State Taxation – Usage Fees, Licenses & Ticketing

The taxation problem only gets worse as government budget shortfalls get worse. Many of the methods used at the City and Local government carry over to the State level (i.e. Ticketing, Inspection and Fines). The States have additional methods:

• SALES TAX is the purview of state government and it has been increasing in most states. Illinois recently moved the Sales Tax to 6.25% but the real total  can be an extraordinary 9.75%. Illinois is not unique and more states can be expected to soon follow their lead.

• LICENSING is on the rise for almost anything that involves a government approval. With 88,000 pages of Federal bills in 2015 alone, many of these pages require new license fees to be paid. As an example of the degree it has reached, a dog being transported across state lines now requires quarantine and inspection. All of course billable for those even aware of such a law. Mandatory veterinary services (i.e vaccinations) government reporting can result in a new unsuspecting dog owner receiving a fine notification from the state for not having quarantined or had the dog inspected.

• TOLLS are on the rise to fund badly needed Infrastructure. At first glance this does not seem unreasonable or unexpected. Uproar in Rhode Island recently brought to light the taxation game going on. Monies from the American Recovery and Reinvestment Act of 2009  were given to the state to build a major state bridge. The state then placed a toll on the new bridge. The people fought it in court as “double dipping” and the state was finally forced to back off. As increasingly US public infrastructure is moved to private corporations this is nothing more than taxation in a different fashion as state taxes are not reduced for the gains on the private sales but rather the tax payers only see tolls or fees arise from what was formally covered by their state tax.

Federal Taxation – Global Wealth Taxation

• GLOBAL WEALTH TAX is presently having the mechanics for its implementation being put in place. In their October 2013 Fiscal Monitor Report to kick this off, the IMF painted a dire picture for advanced economies with high debt that fail to balance their budgets. The report builds a case for draconian measures including the direct confiscation of assets. On page 49 of the IMF’s report they state:  “The 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. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair) .. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax—on bondholders—that also falls on nonresidents) .. reducing debt ratios to end-2007 levels would require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth.”

Forbes in their report “The International Monetary Fund Lays The Groundwork For Global Wealth Confiscation”  point out some of the IMF taxation guidance: “”IMF economists know there are not enough rich people to fund today’s governments even if 100% of the assets of the 1% were expropriated. That means that all households with positive net wealth—everyone with retirement savings or home equity—would have their assets plundered under the IMF’s formulation.” This is where the bankruptcy of the debt-mired western world is taking us – “capital controls and exit restrictions so the proverbial four wolves and a lamb can vote on what’s for dinner.”

The IMF report says “There is a surprisingly large amount of experience to draw on, as such levies were widely adopted in Europe after World War I.” The Forbes essay: “And we all know how well that worked out.”

For those who want to know more they need to study PFIC, FATCA and GATCA, all explained in Financial Repression Authority videos by those in the know.

• INHERITANCE TAX can be expected to return with a vengeance. With inequality in America so blatant that both Democrat and Republican parties are presently talking about it in their primary campaign rhetoric. The public will likely accept this tax of the “rich”. However the rich will find clever ways around it while the public will simply surrender its greatly reduced life savings which they were hoping their children could use to get themselves out of debt.

• MEANS TESTING is already gaining significant public “narrative” and so we should fully be prepared for means testing for Medicare and Social Security as the Baby Boomer bulge fully arrives over the next two years.

• CIVIL FORFEITURE is a major new tax device which allows the government to take people’s property, even if a person has not been charged with a crime. What does it take for law enforcement to take property? Nothing more than a “preponderance of evidence” that the property was connected with criminal activity. Jared Meyer of Economics21 explains: while most people think about forfeiture as taking the property of drug dealers or other criminals, the government has used civil forfeiture to take vast amounts of property from entirely innocent individuals.

The use of the civil forfeiture power has exploded in recent years:

• In 2001, $407 million was seized under civil forfeiture laws; in 2012, a whopping $4.3 billion was seized.
• From 2001 to 2012, law enforcement has taken $2.5 billion in cash from 62,000 Americans, all without warrants or indictments.

Meyer offers examples of forfeiture victims:

• When Roderick Daniels was pulled over for going two miles over the speed limit in 2007, police seized $8,500 in cash that he was carrying. Daniels had planned to purchase a car with the money.
• George Reby was pulled over in Tennessee for speeding and had $22,000 taken from him by a police officer. Again, Reby intended to purchase a car with the money.
• When small business owner Carole Hinders made multiple cash deposits of less than $10,000 into her bank account, the government suspected money laundering and took $33,000 from her.

What happens to the seized property, be it cash, cars, jewelry or something else entirely? When the federal government does the seizing, Meyer writes that the funds go to the Department of Justice (DOJ). The DOJ has an Asset Forfeiture Fund, which then distributes the proceeds for various law enforcement needs.

In the past few years, Washington DC police officers have made more than 12000 civil asset seizures under city & federal laws. In a “Stop and Seize” investigative series by the Washington Post in November 2014 they cover the fact in their sixth installment that “D.C. police plan for future seizure proceeds years in advance in city budget documents  … D.C. police have made plans for millions of dollars in anticipated proceeds from future civil seizures of cash and property, even though federal guidelines say ‘agencies may not commit’ to such spending in advance”.

VIDEO

Martin Armstrong cites: “Worse yet, cities need money desperately. They are now including civil asset forfeitures as part of their budget. In other words, police are under orders to confiscate your money for any excuse possible. This was the end phase of the Roman Empire. The army began sacking Roman cities on the pretense they stood against whoever the proclaimed to be emperor. Rome weakened itself and cannibalized its own civilization. This is what government is doing now in the USA.” He strongly warns: “never pick up a hick-hiker in trouble for if they have any drugs, even marijuana, there goes YOUR assets!”

The law lets the  I.R.S.seize accounts on suspicion, no crime required!  A NY Times article frighteningly highlights the growing phenomenon in the U.S. of civil asset forfeitures .. “Using a law designed to catch drug traffickers, racketeers and terrorists by tracking their cash, the government has gone after run-of-the-mill business owners and wage earners without so much as an allegation that they have committed serious crimes. The government can take the money without ever filing a criminal complaint, and the owners are left to prove they are innocent. Many give up.”

This is happening across America but especially in Texas, Tennessee, Michigan where it was reported that “a town of 150 people called Estelline Texas earns more than 89% of its gross revenues from traffic fines and forfeitures.

• CAPITAL GAINS TAX has become a strong political talking point after 6 years of unprecedented financial market performance. Political strategists know this must occur before we have the next market draw down. Taxes are 100% payable on Capital gains when they are earned but there is only a $3000 per year cap on write-offs on losses. Effectively the governments only wins and you can only lose on market investments.

• SOCIAL SECURITY TAXATION is something the Baby Boomer generation will soon learn about. They are under the impression they will pay minimal tax on their Social Security. What they don’t know is that over $33,000 in taxable income makes your Social Security payments eligible for a 50% tax. Over $44,000 and your Social Security tax payments become 85%. This has been quietly slipped into the tax code and no doubt will increase going forward. With Social Security indexed by a fictitious CPI, more and more Baby Boomers are required to work. This “extra money will only push them into this increasingly predatory tax position. To have a livable income baby boomers who are be pressured to stay working in greater numbers, may be forced to pay nearly all their Social Security to tax to survive.

To put all the above in perspective regarding  the degree of taxation we should fully expect, my friend and Macro Analytics Co-Host Charles Hugh Smith wrote this “template letter”.  It somewhat cynically outlines what we should soon expect from the government to help fulfill its escalating pension & healthcare promises to current & to retired government employees:

Dear Resident:

As you may have read, the costs of fulfilling our pension and healthcare promises to our retired and current employees have soared. As a result, pensions, healthcare and the annual interest due on city bonds (money we borrowed in the past) now consume all tax revenues.

Without additional funding, we will have to lay off all current employees and close City Hall, the libraries, the fire and police departments, parks and recreation, and the rest of the city departments.

To avoid this, we are asking you to approve increases in fees for use and the sale of new bonds to raise desperately needed funding.

The proposed fees for use:

1. A 50% annual increase in city garbage collection fees for the next decade, after which we anticipate an annual increase of 45% until 2096.
   2. Building permits for any project under $5,000 will cost a minimum of $5,000. Fees for larger projects will start at $10,000 and rise on a sliding scale based on the value of the project.
   3. Homeowners and contractors caught attempting to evade the building permit process will be fined a minimum of $5,000 or 200% of the estimated cost of their project, whichever is higher.
   4. All street parking in the city will require an annual parking permit of $1,200 per vehicle per year.
   5. Day use of all city parks will now cost $10 per family per day. Reserving BBQ grills and tables will cost $100.
   6. Internet and wifi service in the city will be taxed $1,000 annually per household.
   7. Residents will be taxed $100 each annually, payable on the first of January, for consuming the city’s air.
   8. Parking violations will be increased from $35 per violation to $500 per violation.
   9. Asking city staff for information about city regulations will cost $10, payable before the question is asked.
   10. All residents will pay a sidewalk usage fee of $100 annually.
   11. A hotel tax of 100% of the cost the room will be imposed from January 1, 2016, including private AirBnB rentals of rooms and apartments.
   12. Every home-based business must obtain a city business license annually for a sliding-scale fee that starts at $1,000. Anyone caught evading this tax will be jailed as a financial terrorist bent on depriving city employees of their livelihoods.
   Residents who cannot afford the new fees can deed their homes to the city, and pay rent to live in the home they once owned.

Unfortunately, the new fees for use will only pay a fraction of the salaries of our employees and managers, and so we also need your approval of new bonds:

BOND A: $30 million to keep the libraries open for two years.
BOND B: $30 million to keep City Hall open for two years.
BOND C: $30 million to fill the gargantuan potholes in city streets for two years.
BOND D: $30 million to keep the city parks open for two years.
BOND E: $30 million to keep the city Public Affairs department funded for two years, so they can continue explaining why the city is broke and why it’s such a great place to live.
BOND F: $30 million to hire retired employees pulling down $8,000 a month in pensions and benefits for $100,000 per year salaries as “consultants.”
BOND G: $30 million to fund a public-relations campaign for two years extolling the city’s “green initiatives” and selling the city’s potential to global corporations.
BOND H: $30 million to fund tax breaks for global corporations that open an office in the city.
BOND I: $30 million to fund studies on how to raise more revenues from fees for use.
BOND J: $30 million to fund more appeals like this for increased fees for use and the issuance of more bonds to fund everyday city functions.
BOND K: $30 million to purchase a surplus M1 Abrams tank for crowd control and to root out financial terrorists depriving the city of the revenue it deserves.

With your support, the city managers expect revenues to cover expenses by 2096, assuming the city’s functions have been fully automated and there are only 12 employees left managing the servers. Until then, please support our efforts to grow the city out of its budgetary hole.

Don’t say you weren’t warned!

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 Economic Collapse highlights the new bail-in system now in effect in Europe .. “This new system is based on the Cyprus bank bail-ins that we witnessed a few years ago. If you will remember, money was grabbed from anyone that had more than 100,000 euros in their bank accounts in order to bail out the banks. Now the exact same principles that were used in Cyprus are going to apply to all of Europe. And with the entire global financial system teetering on the brink of chaos, that is not good news for those that have large amounts of money stashed in shaky European banks.” .. details some of the verbiage from the announcement .. considers the possibility of bank bailins in the U.S.. it’s financial repression.

LINK HERE to the article

LINK HERE to European Parliament News

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.

“At the beginning of the financial crisis, there was much talk about financial repression — the ways in which policymakers would seek to control the use of our money to deal with out-of-control public debt .. We’ve seen capital controls in the periphery of the eurozone … Interest rates everywhere have been at or below inflation for seven years — and negative interest rates are now snaking their nasty way around Europe .. This makes debt interest cheap for governments .. and it forces once-prudent savers to move their money into the kind of risky assets that are supposed to drive growth.” – Merryn Somerset Webb in The Financial Times
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.

“The Fed has been largely slanted towards subsidizing and supporting debtors at the expense of savers .. since the financial crisis. They’ve been running away from the problem of debt is what it comes down to, and now, as you noted, this year could be plenty interesting, 2016.”

LINK HERE to the transcript

“ZIRP (zero interest rate policy) and QE (quantitative easing) as practiced by the Fed and ECB are not boosting, but instead depressing, private sector economic activity. By using bank reserves to acquire government and agency securities, the FOMC has actually been retarding private economic growth, even while pushing up the prices of financial assets around the world. ZIRP has reduced the cost of funds for the U.S. banking system from roughly half a trillion dollars annually to less than $50 billion in 2014.
This decrease in the interest expense for banks comes directly out of the pockets of savers & financial institutions.
While the Fed pays banks 25bp for their reserve deposits, the remaining spread earned on the Fed’s massive securities portfolio is transferred to the U.S. Treasury – a policy that does nothing to support credit creation or growth. The income taken from bond investors due to ZIRP and QE is far larger. No matter how low interest rates go and how much debt central banks buy, the fact of financial repression
where savers are penalized to advantage debtors has an overall deflationary impact on the global economy.
Without a commensurate increase in national income, the elevated asset prices resulting from ZIRP and QE cannot be validated and sustained. Thus with the end of QE in the U.S. and the possibility of higher interest rates, global investors face the decline of valuations for both debt and equity securities.”

LINK HERE to his presentation to the Bank of France
link here to an alternate overview

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.

A “WITCH’S BREW” BUBBLING IN BOND ETFs

We believe the Credit Cycle has turned and with it will come some massive unexpected shocks. One of these will be the fall out in the Bond Market, centered around the dramatic growth explosion in Bond ETFs coupled with the post financial crisis regulatory changes that effectively removed banks from making markets in corporate bonds.  It is a ‘Witch’s Brew’ with a flattening yield curve bringing it to a boil.

2000 – Flat to Inverted Yield Curve

2007 – Flat Yield Curve

TODAY – Signalling a Flattening at Seriously Lower Bound!

PRESSURES FLATTENING THE YIELD CURVE

In the last six weeks, the spread between the Ten Year and the Two year treasuries has flattened exactly 25 basis points, which is EXACTLY the same amount that the Fed just moved the Fed Funds target rate this past Wednesday. With investors starved for yield many are being forced further out on the yield curve taking rates down further and pushing prices up.

Dan Norcini at http://traderdan.com lays it out pretty clearly:

This horrific predicament, compliments of our masters at the Central Banks, is forcing money to chase yield meaning that it is going further out along the curve to the long end. The more money that enters any bond market, the LOWER yields go since bond prices move inversely to the yield. When demand for anything increases, its price rises. Bonds, bills, notes, are no exception. As the money flows increase into the long end of the curve, at a faster rate than the money flows might be increasing into the shorter end of the curve, the price of the longer dated bonds rises faster than the price of the shorter dated bonds ( bills, notes,. etc). That means a flattening curve.

Secondly, and something that is extremely relevant to what is going on here – FOREIGN INVESTORS are sending monies overseas to chase yield as well. Think of where interest rates are in both Japan and in the Eurozone compared to comparable dated government debt here in the US. Those foreign flows do two things. They boost the price of the longer dated Treasuries as well as boosting demand for US Dollars.

This phenomenon tends to support both the Dollar’s value on the foreign exchange markets as well as keeping prices for those longer dated Treasuries well supported. Again, bond prices move inversely to yields thus the more money flows into the longer dated treasuries, the more those yields tend to move lower.

Look at what the result of both of these above factors have done to the yield on the Ten Year Treasury. Its yield was 2.170% on the last day of 2014. Today, its yield is 2.19%. We are only a short two weeks away from ending this year and we are basically back to where we started this year. We have essentially gone nowhere on yields.

What is perhaps even more alarming is that the curve is flattening further. The low point on this spread occurred in early February of this year when it reached 1.19%. Today, it closed at 1.22%. We are talking about a mere 3 basis points from the curve having flattened to a 2015 low!

Clearly, this is NOT A VOTE FOR STRONG ECONOMIC GROWTH laying ahead.

Perhaps this is the reason that the equity markets are beginning to show signs of wobbling.

What some analysts have been saying is that once the Fed started to raise rates, the stock market would come under pressure because the move would be a signal that the Fed has begun the process to slowly drain the liquidity that has fueled its monster seven year rally. I personally take issue with that in the sense that the Fed has not made any move towards actually reducing liquidity that I am aware of. After all, while they did increase the short term target rate by 1/4%, one can hardly say that the interest rate environment is not accommodative. Furthermore, the size of its balance sheet remains the same as it has been in some time nor have I seen any talk coming from the Fed that it intends to reduce that balance sheet.

Here is a chart of the Fed Balance Sheet beginning in October of 2013 ( I chose this month at random). Notice how constant the line has remained over the last year. As you can see, there has been no shrinking of the Balance sheet.

What I think appears to be causing concerns in the stock market is the fact that the yield curve is signaling that economic growth is not going to be increasing. That has gotten some stock investors nervous that perhaps stocks are overvalued. After all, it is hard to make the case that the equity markets should be hitting new lifetime highs when the yield curve is collapsing.

THE “WITCH’S BREW”

Many Including Morningstar Have Hyped “The Great New Yield Opportunity”

Thanks yet again to innovation in the realm of exchange-traded funds, the walls have come down and individual investors now have efficient access to tools that enable them to implement a strategy that only the big boys on the block could implement. Without the benefit of such scale and low relative trading costs, the cost hurdle was far too high for most individual investors and advisors trying to implement this strategy using individual bonds.

Then came along a new breed of fixed-income fund that combines the diversification and accessibility of an ETF with the precision of an individual bond. While an index, for example, typically maintains a fairly stable maturity range, these ETFs have specified maturity dates upon which cash is distributed back to investors. That means, just like an individual bond, the duration of these ETFs will steadily decrease as it approaches maturity.

…..

These ETFs are typically pitched as a way to build bond ladders in order to match cash flows with future liabilities. But thanks to their precise exposure and individual bondlike characteristics, defined-maturity ETFs–which are relatively cheap to trade–are also great tools for executing customized “roll down” strategies to enhance fixed-income total returns.

Even for relatively large investors, the wide bid-ask spreads and dealer mark-ups or commissions incurred when buying and selling individual bonds present a high hurdle. Moreover, the minimum investment that would be required could be another barrier to entry. Often, investors will be dealing in “odd lots,” which typically trade at wider spreads, as they are considered less liquid.

One of the attractive traits of an individual bond is the visibility of its cash flows and knowing exactly how much principal is due to you at maturity. Contrast that against a bond index, which does not mature and will see slight variations in its cash flows as it rebalances or reconstitutes over time. In the case of an actively managed portfolio, the payout will fluctuate as the portfolio manager buys and sells bonds. While there are several ETFs that target a relatively narrow portion of the yield curve, they still lack the precision and flexibility of defined-maturity bond ETFs.

This is another example of ETFs democratizing the investment landscape. Armed with these innovative solutions, investors have yet another arrow in their quivers to manage their fixed-income allocation amid a low-interest-rate environment. Be sure to monitor the steepness of the yield curve when executing the strategy, and keep in mind that the “roll down” strategy will lose a lot of steam if the yield curve flattens more than expected. As great as it sounds on paper, this strategy is still not a free lunch. The buy-and-hold investor sees price volatility steadily decease as his bond nears maturity. However, the price volatility in the “roll down” strategy stays relatively high, given that it reinvests in longer maturities, which tend to experience larger price fluctuations. The premium earned via the strategy can be considered compensation for assuming slightly longer duration and higher levels of volatility.

What has been sold to many investors, speculators and even desperate Fund Managers is using Bond ETFs to play the old “Roll Down the Yield Curve” Strategy. Here is how it works in case you are not familiar with the strategy.

ROLLING DOWN THE YIELD CURVE

The strategy of “rolling down the yield curve” targets investing in bonds at the steepest part of the curve. After a year or two, the bond is sold and the proceeds are reinvested back up the curve into higher-yielding, longer-maturity bonds. By selling the position well ahead of the actual maturity date, the strategy aims to capture the price increase that results when a bond’s yield drops as it “rolls down” the curve (that is, it moves closer to maturity). From there, the process repeats.

To illustrate, we can look at an example based on the yield curve in Exhibit 1. Consider an investor who buys a five-year Treasury paying a 1.5% coupon rate at par value. Fast forward two years, and that original five-year Treasury still yields 1.5%, but at that point it would have three years left to maturity. As can be seen in the yield-curve chart, the Treasury yield at a three-year maturity is 1.05%. Therefore, the price of the originally purchased five-year Treasury (which now also has a maturity of three years) would increase in order to ensure that its yield to maturity aligns with the current yield curve. (Note that, for the sake of simplicity, this example assumes that the yield curve remains stable over the observation period.)

If the Treasury paid a 1.5% coupon at a face value of $100, then after two years the price would have actually risen to $101.35 so that its yield to maturity matches the prevailing market. Recall that the three-year Treasury has a coupon yield of 1.05%. The original five-year Treasury in this example maintains its annual coupon yield of 1.5%, but then faces annual price declines of about $0.45 over the remaining three years until it matures. The yield to maturity balances out to 1.05% after factoring in those future price declines, which of course is equivalent to the yield to maturity that an investor could earn at that time from buying a newly issued three-year Treasury at par.

A buy-and-hold investor who bought at $100 would collect 1.5% per year in coupon payments and receive $100 at maturity. That comes out to a total of $7.50 in interest payments. The “roll down” strategy described in our example, on the other hand, could generate $10.90 in total returns during the same period thanks to locking in price gains and reinvesting into higher-yielding bonds.

YRA HARRIS WARNS “ALL HELL MAY BREAK LOOSE!”

Legendary trader Yra Harris who we recently interviewed at the Financial Repression Authority has been pounding the table for some time but just issued this warning:

The flattening of the yield curves in 2016 may lead to all hell breaking loose. WHAT DID I MEAN BY THIS? Grab a glass of scotch or Chuckie B., or some medicinal California and think about what I am going to say. (And, to paraphrase Danny Devito in the War of the Roses, when a person who charges $5,000 an hour offers free advice you might want to listen [humor intended].) In July 2012–the 24th to be exact–the U.S. 2/10 curve was flattening when it appeared that Europe was in a deep crisis. The two-year yields on EU sovereign debt were rapidly rising as the market feared about the viability of the EU and the EURO currency.

The European 2/10 curves were also flattening and when ECB President Mario Draghi issued his famous, NO TABOOS AND WE WILL DO WHATEVER IT TAKES to preserve the EU and the euro, the two-year yields began dropping and the 2/10 curves reversed course and began to steepen. The July 24 low was 117.25 positive slope. This was also the low made in January 2015 when the ECB and the SNB were busy revealing their plans about the EUR/CHF peg and the ECB‘s new QE policy (again, 117.25). As the year comes to an end, the flattening of the U.S. 2/10 curve continues and today we made an intraday low of 119.80. Now I will warn again that because of the lack of liquidity the last few weeks of the year prices can be easily manipulated and/or distorted.

BUT IF THE MARKETS RESUME FLATTENING IN RESPONSE TO GLOBAL ECONOMIC WEAKNESS AMID CHINESE SLOWING OR SOME GEO-POLITICAL EVENT ALL HELL WILL BREAK LOOSE. WHY? Last time the yield curves dramatically flattened in 2007 or 2012 in Europe the central banks, like John Mayall, HAD ROOM TO MOVE. When the U.S. curve inverted in early 2007, the rate was at 5.25% so the FED could swiftly cut rates in response to an incipient crisis. In Europe,the yields on the two-year notes of the so-called PIIGS were more than 7.0% and thus a dramatic drop in rates could be a positive signal to the markets.

WITH INTEREST RATES AT ZERO IN ALL THE DEVELOPED ECONOMIES WHAT WILL THE KEY POLICY MAKERS DO? A FLATTENING CURVE AT THIS JUNCTURE WOULD PUSH THE FED INTO NEW TERRITORY AND PUT FEAR INTO THE MARKETS.Thus, “ALL HELL WILL BREAK LOOSE” is an inference that the flattening of the curve at the zero  bound will signal that the central banks have lost “control.” Will it be on the first close below 117.25? Most probably not but it is certainly an area for investors and traders to be very aware of. That was my point and it needed explanation beyond the allotted time of the Santelli spot. I await any questions or responses.

CONCLUSION

What Yra doesn’t say is we now have $2.2 Trillion of troubled High Yield bonds peddled to yield starved investors since the financial crisis, which matches 2/3’s of the $3.5 Trillion increase in the Federal Reserves balance sheet during the same period. Additionally, there are well north of $60 Trillion of Bond ETFs out there with anyone guess on how many fast money speculators are playing the “Rolling Down the Yield Curve” Strategy now up against the warning Morningstar so clearly disclaimed: “the roll down strategy will lose a lot of steam if the yield curve flattens more than expected.”

With serious liquidity issues clearly evident it should be interesting as a potential positioning scramble ensues. It somewhat reminds me of someone potentially shouting “FIRE” in a theater, except this times the theater doors will be barred and the only way out will be to have someone outside take your seat inside! ETF holders may find it easier to sell that old bridge over the East River in Brooklyn than get their money out of their ETFs.

Maybe what we will actually soon hear is someone shouting “CUSTODIAL RISK!”

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.

THIS CHART IS REGULARLY IN GORDONTLONG.COM’S MONTHLY MATA REPORT

THE QUESTION TO CONSIDER IS HOW YOU WILL MAKE MONEY WHEN THE CRACK-UP BOOM ARRIVES?

… OR HAS IT ALREADY ARRIVED?

1- VENEZUELA

As Zero Hedge Reports: Consider Venezuela

It’s that time of year again. When hindsight is 20/20 and coulda/woulda/shoulda gives way to reality. With the US equity market barely able to keep its head above green water, a look around the world shows investors could have done a lot better (or not).

In fact, as Handelsblatt shows, the best investment in the world in 2015 would have been – drum roll please – Venezuelan stocks!

Note – these returns are from a EUR-denominated persepctive

So – that proves it – buying stocks during hyperinflation “works” and protects your purchasing power, right?

Not so fast! While Venezuela’s official spot Bolivar rate has been flat at 6.2921 all year as Maduro dreaded the admission that his nation is in utter collapse, the “real” exchange rate – or ‘Dolar Libre’ Rate – has been crashing…

Which means, if you wanted to “invest” in Caracas Stocks last year (by moving your USD into Bolivars, buying stock, then moving your “gains” back into USDs to bring home and celebrate), things look a lot different.

From a 287% gain, you would have actually lost 22% of your initial USD stake!

So sorry, hyperinflation does not pay after all!

Still, The Fed, ECB, BoJ, PBOC will keep playing the ‘inflate’ and debase game until they are all proven wrong.

2- BRAZIL

Let’s also consider Brazil. Brazil was an investment darling as hot money flooded into Brazil prior to the 2008 Financial Crisis and the Commodity boom exploded with China’s emergence as a global manufacturing giant.

However, things haven’t been so good since the Financial Crisis and 2010 as China began to slow. Recently things have only gotten worse as government corruption and failed policies surface.

Following recent strength on the heels of hope for a new finance minister, news that Ruosseff has sent the minimum-wage-hike Bill to Congress appears to have crushed the hype of any fiscal rectitude and sent Real tumbling. Down over 4% – the most since September 2011 – BRL is back above 4.00 per USD, giving up all the recent gains.

Broad weakness in EMFX…

Seems to have been exacerbated by:

A Bill that could cost BRL 4.77 billion, wrecking hopes of any improvment in the fiscal situation. As Bloomberg reports,

Brazil’s bigger-than-estimated minimum wage increase and potential credit expansion make it harder for govt to control around 11% on year inflation and cut budget gap, Marcelo Schmitt, portfolio manager at investment firm Sul America, says in a phone interview.

These initial policy steps after Barbosa replacing Levy as finance minister are concerning, says Schmitt.

And so…

This is the biggest drop in BRL since September 2011.

Charts: Bloomberg

HOW HAVE BRAZILIANS DONE AFTER THE BIG RUN UP WHEN DENOMINATED IN “BOGUS” USD?

THE DEVASTATION – FROM 65 TO 20!

A CASCADING CRACK-UP BOOM

The Crack-Up boom is already underway in many of the peripheal nations of the world. It is more about a cascading series of events. The story in all the peripherals is similar to both Venezuela and Brazil. The only way to make Money in the Crack-up Boom is in the US$, remembering the US Dollar will be the last to fall while globalized Crack-Up Boom is underway. However, the US$ will eventually fall.

It may be subtle but what is happening is Emerging Market Wealth is being pillaged around the world via “Exorbitant Privelege” and a fictitionally valued US$. This is the greatest “Debt for Equity” Swap in history. M& A activity has exploded as overvalued US stocks (due to buybacks and borrowing to pay dividends) is used as “currency” in this M&A binge.

The real question is where is the crack-up boom occurring today and most importantly, how will you keep your wealth after the Cascading Crack-up Boom ends and the US Dollar inevitably collapses?

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 REPRESSION POLICIES MIRROR

AN ACCELERATING “CRISIS OF TRUST”

Since the Dot.com Bubble burst the US has accelerated its Macro-Prudential Policies of Financial Repression. PEW Research just released a study which tracks the deterioration in the confidence citizens have in their government.

We have a Crisis of Trust in America and as the charts below show, it has only accelerated with government policies of Financial Repression.

Just 19% of Americans say they “can trust the federal government always or most of the time”. 

• That’s among the lowest levels in over 50 years.
• The long-term erosion of public trust is mirrored by a steep decline in the belief that the government is run for the benefit of all Americans.

Less than a year ahead of the presidential election, there is widespread discontent with the federal government. A new Pew Research Center report finds deep distrust in government and considerable cynicism about politics and elected officials alike. But despite these negative assessments, majorities believe government does a good job on many issues and want it to have a major role on a wide range of policy areas.

Here are five of PEW’s key takeaways from the report:

1 The public’s trust in government remains at historic lows. Today, just 19% say they trust the federal government to do what is right always or most of the time, which is little changed from recent years. Fewer than three-in-ten Americans have expressed trust in government in every major national poll conducted since July 2007 – the longest period of low trust in government seen in more than 50 years.

While Democrats are more likely than Republicans to say they trust the government, trust remains low across partisan lines: Just 11% of Republicans and Republican-leaning independents say they trust the government, compared with 26% of Democrats and Democratic leaners. (For more on the public’s trust in government, see this interactive.)

2 As in the past, the public’s feelings about government run more toward frustration than anger. Currently, 57% are frustrated with the federal government; 22% are angry, while 18% are basically content.

Far more Republicans (32%) than Democrats (12%) say they are angry with the government. But higher shares in both parties expressed anger toward government in October 2013, during the partial government shutdown.

While anger at government has been higher among Republicans than Democrats during Barack Obama’s administration, the situation was reversed during George W. Bush’s presidency: In October 2006, 29% of Democrats said they were angry with government, compared with just 9% of Republicans.

3 Despite their widespread cynicism, most Americans give government good ratings in a number of areas. Half or more say the federal government is doing a “very good” or “somewhat good” job in 10 of the 13 governmental functions tested in the survey.

However, the federal government receives particularly low marks in two key areas: Managing the nation’s immigration system and helping people get out of poverty. Nearly seven-in-ten (68%) say the government does a very or somewhat bad job in managing the immigration system; just 28% say it is doing a good job. Ratings are nearly as negative when it comes to the federal government’s efforts to help people get out of poverty: 61% say the government is doing a bad job in this area, while 36% give it a positive assessment.

Majorities say the government should have a major role in dealing with 12 of 13 issues included in the survey.

4 Americans are harshly critical of elected officials. The public views politicians as more selfish and considerably less honest than ordinary Americans. Just 29% say that “honest” describes elected officials very or fairly well, a much smaller share than those who describe the average American as honest (69%).

Most people do say the term “intelligent” describes elected officials very or fairly well (67%). However, just as many view the typical American as intelligent. And when asked if elected officials or ordinary Americans could do a better job of solving the nation’s problems, 55% say ordinary Americans could do better.

While negative opinions of politicians are not new, the perception that elected officials don’t care about what people think is now held more widely than it has been in recent years. Today, 74% say this, compared with a narrower 55% majority who said the same in 2000.

5 Congress is not the only institution the public sees as having a negative influence on how things are going in the country today. Majorities see the national news media (65%) and the entertainment industry (56%) as having a negative impact on the country. By contrast, overwhelming majorities see small businesses (82%) and technology companies (71%) as having a positive impact.

There are substantial partisan and ideological divides in the views of several of these institutions. For example, nearly seven-in-ten liberal Democrats (69%) say colleges and universities have a positive impact on the country, compared with just less than half (48%) of conservative Republicans. Conversely, fully three-quarters of conservative Republicans say that churches and religious organizations have a positive impact on the country, while just 41% of liberal Democrats agree.

The Thompson-Reuters TRust Index of confidence in the top 50 Global Financial Institutions shows an also very worrying trend deterioration!

CRISIS OF TRUST

As we laid out in the 2013 Thesis Paper “Statism“, a Crisis of Trust has a profound impact on the economy and if left unresolved politically for a protracted period will lead to economic stagnation.

In last year’s 2015 Thesis Paper: “Fiduciary Failure” we spelled out the crippling level it has now reached in the US. It has only gotten worse and we detail in the 2016 Thesis Paper: Crisis of Trust in The Era of Uncertainty how it is now infecting the global economy.

Sign-up now for your 2016 Thesis Paper: Crisis of Trust in The Era of Uncertainty

at 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.

“Helicopter money drops (what else?)”

Our conclusion is that, in a financially-challenged economy like the Eurozone, with policy rates close to the ELB, and with excessive leverage in both the public and private sectors, balance sheet expansion by the central bank alone may not be sufficient to boost aggregate demand by enough to achieve the inflation target in a sustained manner.

This is more than an academic curiosity. Japan has failed to achieve a sustained positive rate of inflation since its great financial crash in 1990. The balance sheet expansion of the Bank of Japan since the crisis has been remarkable but ineffective as regards the achievement of sustained positive inflation and, since 2000, the inflation target. The balance sheet of the Swiss National Bank has expanded even more impressively, again with no discernable impact on the inflation rate.

* * *

We do expect the ECB’s asset purchase program will expand considerably further, with the Eurosystem’s balance sheet reaching €4,000-4,500bn over the next year or two. But we doubt that even this will be enough to achieve the inflation target of close to but below 2% on a lasting basis. It might take even greater ECB balance sheet expansion to achieve the target.

But the larger central banks’ balance sheets get, the louder will become the voices of those that criticize the power vested in unelected and mostly unaccountable central banks. In addition, it is worth remembering that the laws and regulations that underwrite and circumscribe central bank actions were written at a time when their current range of actions, let alone the potentially even larger future ones, seemed exceedingly unlikely and maybe even (in the case of the ECB) inconceivable. Political concerns likely played a role in the SNB’s decision to rely less on its balance sheet and more on negative rates when managing its currency (and indeed allowing a sharp appreciation of the Swiss franc and greater exchange rate volatility). The ‘Audit the Fed’ movement is likely to be followed by ‘Audit the ECB’ movements and eventually by explicit limits on central bank actions as their balance sheets grow to politically unacceptable levels. We do not say that moment is near, but to dismiss the idea that political limits to the size of the central bank balance sheet exist seems naïve.

Moreover, even if the ECB were to expand its balance sheet sufficiently to achieve the inflation target in the next few years (say, to €5tn or €6tn), the monetary policy toolkit would then seem to be rather empty, with little option for stimulus if and when the next downturn hits (as it inevitably will). Experience teaches that downturns do happen – either for internal or external reasons – and sometimes happen when output gaps have not been closed. What happens then? Draghi’s answer seems to be: perhaps a balance sheet expansion to €10tn or €15tn. We are doubtful that such a course of action would be both perceived to be politically legitimate and economically effective.

* * *

The case for helicopter money is therefore partly to ensure the euro area (and some other advanced economies) reflate powerfully enough to escape the liquidity trap, rather than settle in a lasting rut of low-flation and low growth, with “emergency” levels of asset purchases and interest rates becoming the norm.

* * *

In orderly markets and with the policy rate at the ELB, the central bank can talk loudly, but on its own – without the fiscal support required to turn its monetized balance sheet expansions into helicopter money drops – it carries but a small stick.

* * *

If, as seems possible, the ECB will increase, in H1 2016, the scale of its monthly asset purchases from €60bn to, say, €75bn, and if these additional purchases are concentrated on public debt, the euro area will benefit from a ‘backdoor’ helicopter money drop –something long overdue.

CONCLUSIONS

This supports FRA’s views on the coming policies on OMF (Helicopter Money).

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

BoAML’s analysts are warning about the degree of Mispriced Risk and Central Bank Risk Manipulation according to a report by Zero Hedge:

Essentially central banks, by unfairly inflating asset prices have compressed risk like a spring to unfairly tight levels.  Unfortunately, the market is aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade.  By manipulating markets they have also reduced investors’ inherent conviction by rendering fundamentals less relevant.

This then creates a highly unstable (fragile) situation that breaks violently when a sufficient catalyst causes risk to rise – overly crowded positioning meets a market with little conviction.

Catalysts can range from a “valuation scare” similar to Oct-14 or Aug-15 to a prominent investor stating that assets (e.g. bunds) are not fairly priced and are the “short of the century”.

The unwinds from these crowded positions are violent, but almost equally violent in some cases are the reversals, which are driven from investors crowding back in when they realize central banks are still there providing protection.

From this vantage point, it becomes clear that the biggest visible risk to financial markets is a loss of confidence in this omnipotent CB put.

READ FULL ARTICLE WITH GRAPHICS

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.

Peak Prosperity’s Chris Martenson interviews Daniel Amerman who sees the Federal Reserve announcement as another confirmation of continued financial repression to control the burden of debt & allow a transfer of wealth from savers to the government .. “I just read the statement from the Federal Reserve and what they clearly showed was this was not normal. And, one of the clear ways that they showed it is that they made crystal clear that they would be keeping their current holdings of U.S. government and agency debt in roughly the 2.4 to 2.5 trillion dollar range . If you want to drive interest rates up, you want to tighten the system and you might remove money from the system let’s say by selling many of those assets. And, they’ve made clear on the front end that they’re not doing that .. What governments typically do, their most popular choice when they get deeply into debt is they increase their control over the markets so they knock out the interest rate risk for themselves, they push rates way down as they’ve done to historical lows. There’s more to it than that (we’d need another full hour more to talk about financial repression), but basically, they transfer wealth from savers to the government in the process of paying down the debt, in a process that most people don’t understand.”

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.

Making the analogy of the U.S. economy to Star Wars, Charles Hugh Smith* sees the Federal Reserve as the Dark Side, inflicting fatal wounds on the economy through financial repression of massive floods of money .. it has not boosted real economic productivity, rather it has fueled speculation which in turn has brought widening wealth/income inequality & devastating boom/bust business cycles .. “By slashing rates to zero, the Fed ruthlessly eliminating safe returns for savers, pension funds, insurers and the millions of people with 401K retirement nesteggs. In effect, the Fed-Farce has pushed everyone into risk assets–and then played another Dark Side mind-trick by masking the true dangers of these risky assets. As oil-sector debt blows up, as junk bonds blow up, and emerging markets blow up, we are finally starting to see the real costs of going over to the Dark Side of endless credit expansion and throwing the gasoline of near-zero interest rates on the speculative fires of financialization .. The Fed’s hubris has led it to the Dark Side, and now its Death Star of impaired debt, phantom collateral, speculative frenzy and bogus mind-tricks is about to blow up.”

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.