Special Guest: Tim Price – PFP Group

Tim recalls the words we last heard in the dark days of 2008:

“When you’re a distressed seller of an illiquid asset in a market panic, it’s not even like being in a crowded theater that’s on fire. It’s like being in a crowded theater that’s on fire and the only way you can get out is by persuading somebody outside to swap places with you .”

This is precisely what occurs when the regulatory pressures and un-natural forces of FINANCIAL REPRESSION finally ends

“Financial Repression is government stealing from savers and the future!”

“The single biggest problem of our times economically, is that for the last 40 years there has been an unsustainable buildup of credit expansion throughout the developed world … and we have reached the end of the road new. Every policy by governments and their agents (the central banks) is too a) Kick the Can Down the Road and B) to steal from savers to keep this bandwagon rolling!”

THREE ALTERNATIVE APPROACHES TO ATTEMPT A RESOLUTION:

Tim believes Japan is presently the ‘dress rehearsal’ and the rest of the world will be the main event.

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.

Bill Gross, the 69-year-old billionaire co-founder of Pacific Investment Management Co., told Bloomberg Radio – AUDIO

Click to Play

Feeble returns on the safest investments such as bank deposits and fixed-income securities represent a “financial repression” transferring money from savers to borrowers, says Bill Gross.

Workers 65 and older, struggling with years of depressed yields, are the only group of Americans who are increasingly employed or looking for jobs, according to Labor Department participation-rate data.

Federal Reserve interest-rate policy that aims to cut borrowing costs. “I hate to be gloomy, but, yes, for the next 10 years, the oldsters, and I’m in that camp, are going to be disappointed in terms of the policy rate.” About 75 million baby boomers, born from 1946 to 1964, are starting to retire and face meager returns as a byproduct of the Fed’s decision to hold its benchmark rate near zero since December 2008. Policy makers also have quadrupled the central bank’s balance sheet to a record $4.22 trillion to drive down borrowing costs.

LETTER: FEDERAL GOVERNMENT ‘AGGRESSIVELY ENGAGED’ IN FINANCIAL REPRESSION 11-02-14

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.

“I side with Hussman and have been in his camp for a number of years. Make calls like this and you look foolish until the bust happens. To paraphrase John (I cannot find the exact historical quote) ‘The choice is whether one looks foolish during the runup, or during the inevitable decline.’ .. Fed policy certainly represents financial repression at its finest. It’s very much behind the income inequality that Fed Chair Janet Yellen moans about all the time .. Forcing stock, bond and other asset prices higher only helps those who hold stocks, bonds and assets (the wealthy, not the poor) .. When stocks rise, it also drives CEO pay higher and higher via performance incentives and stock options. That money is not taken back when stocks crash. The irony is stunning. If Yellen wants to understand the central cause of income inequality, all she has to do is look in a mirror.”

– Mish Shedlock

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.

CATO’s Dan Mitchel essay identifies the developments & evolution in thinking by politicians & the general public toward confiscating or taxing wealth .. emphasizes politicians want more money & deal with wealth inequality concerns .. on the consequences of wealth taxation/confiscation ..  concludes: “A wealth tax is a very misguided idea. And that’s true whether it’s a permanent levy or a one-time cash grab by politicians .. The wealth tax will probably be a real threat in the not-too-distant future. America’s long-run fiscal outlook is very grim because of a rising burden of government spending, and other nations are in even worse shape .. When fiscal policy begins to deteriorate, even semi-rational politicians will join their leftist colleagues in a desperate search for more revenue. In a political world where inequality is a driving force and in an economic world where other tax sources have been exhausted, people with assets will have real reasons to worry.”

LINK HERE to the source 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.

Peak Prosperity’s Chris Martenson* essay on the fear, panic & desperation of the central bankers of the world’s indebted countries, with a particular focus on the Federal Reserve & the Bank of Japan .. emphasizes how they are watching with trepidation as their policies & metrics fail to respond .. “They are so far over the tips of their skis right now that there’s nothing they won’t do. They’ve summarily thrown granny under the bus because they have this idea that negative real interest rates are the cure. The cure for what? The massive amounts of debts and imbalances their prior policies caused. So savers are punished in the pursuit of policy. You know, ‘for the greater good’ and all that .. They’ve spurred the greatest wealth gap ever in U.S. history, greater even than at the extremes of the Great Depression, apparently without the slightest concerns for Plutarch’s ancient admonition that ‘An imbalance between rich and poor is the oldest and most fatal ailment of all republics.'” .. in Europe, central bankers have forced negative nominal interest rates on savers .. “The Federal Reserve, theBank of Japan (BOJ), and the ECB have decided that they want you to take your money out of your bank account and place it into the stock market” or they encourage policies to encourage you to spend your money .. every hard asset has been price suppressed except for houses – which asset requires you to borrow from banks & that is considered good for the economy .. Martenson explains how financial repression is being used by central banks & governments to help governments manage & pay down their debt – “Negative real rates serve to confiscate purchasing power from the general population and transfer it to other parties. Those parties include the big banks.” .. the essay focuses on the insanity of the Bank of Japan’s recent actions – throwing the equivalent of $3 Trillion of thin-air money .. “Whether we call this the largest bond bubble in history, ‘reckless’, ‘mad’ or ‘insane’, Japan has truly jumped the monetary shark. There’s no way back and no way forward that will be pain-free and this terrifies the BOJ. The best advice I have is that when you see your central bank panic, you should panic too and avoid the rush.”

LINK HERE to the source 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.

Yra Harris provides several considerations on why Japan is now becoming even more aggressive on QE .. notes that Japan seems to exert pressure after international meetings: “The IMF and G7 and G20 ended in mid-October so either the Japanese wanted to avoid criticism about depreciating its currency or it received the GREEN LIGHT from the G7 members to get more aggressive on its QE efforts. Readers of NOTES FROM UNDERGROUND can revisit a blog post from October 15, 2012 when I noted that the G7 communique seemed to give the Japanese authorities a ‘wink’ in its efforts to weaken an overvalued YEN.” .. Yra Harris lists other factors as well on why the big push on QE now: a belief that it will work synergistically with implementing higher consumption taxes to drastically reduce the massive public debt .. also another hope is taking actions similar to what Bernanke did to encourage risk asset buying from financial repression: “The Government Pension Investment Fund (GPIF), Japanese insurance firms, banks and annuity investors will have offloaded JGBs to the ultimate buyer of last resort, THE BOJ. It seems Governor Kuroda has initiated Bernanke’s PORTFOLIO BALANCE CHANNEL and it’s pension funds are disposing of riskless assets and undertaking the purchase of domestic and foreign equities, as well as foreign bonds, an ‘all in’ play by the BOJ. Bernanke used financial repression to motivate private investors to take on more risk while its public sector entities buying equities in Japan.”

LINK HERE to the source 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.

Podcast discussion on how the Federal Reserve is destroying consumer savings, how central banks will be to blame for the coming bond collapse, how trying to keep gold & silver prices ‘corralled’ is part of the official plan.

LINK HERE to the 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.

Special Guest: John Butler – Amphora

“The whole point of financial repression is to make it difficult or impossible for an investor to protect themselves”

John feels Financial Repression “is now extremely broad based (globally) and in fact you have to look very closely to find countries not actively pursuing some mix of Financial Repression policies.”

A NEGATIVE SUM GAME

Butler has argued in his Amphora Report that competitive currency debasement is “is not a zero sum game but rather a negative sum game because policy makers don’t realize that by trying to devalue against each other, unseen they are undermining the very credibility of unbacked fiat currencies generally.”

Increasing the BRICS are “becoming increasingly wary of where all this is going and as a consequence are diversifying not only their fiat currency reserves but are diversifying into gold, oil fields and real assets generally.”

HOW INVESTORS PROTECT THEMSELVES

“The only free lunch in economics is DIVERSIFICATION. The problem is that in a world of Financial Repression, the way you diversify yourself is very different than a world where financial represion is not an issue.”

“There is no way out but Currency Debasement”

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: Chris Martenson PhD – PeakProsperity

FINANCIAL REPRESSION

“When governments get into too much debt there are only so many ways to get themelves out from under the debt.” There is:

1. Austerity,
2. Default on the Debt or
3. Financial Repression

In reality, the third is the only politically viable solution. Financial Repression ” the cornerstone involves taking a little from everybody and giving it to a couple of favored parties”. To do this involves three basic elements:

THE COMING CRISIS

True wealth NEVER gets destoyed, it only gets transferred!”

Chris points out that wealth is never destroyed. but rather it is the claims on wealth which are destroyed during a crisis. “A profound currency accident is coming” according to Chris where he “would not be surprised to see the Yen be completel obliterated just like the the Zimbabwe dollar.” His strong recommendations are:

Wealth can no longer be stored in paper currency or “paper” claims in a Fiat Currency System.

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.

“Whether or not BoJ governor Haruhiko Kuroda’s ‘shock and awe’ will provide the necessary uplift to the economy remains to be seen but he has certainly committed himself to ‘financial repression’ more than any other nation. Furthermore, with the Fed ending its QE program, Japan is at the forefront of leading the currency wars.”
– Sean Darby, strategist at investment bank Jefferies

LINK HERE to the source 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.

In his latest letter, Tim Price stresses the price distortions in the financial markets .. emphasizes that although Federal Reserve asset purchases have abated (for now), central bank financial repression “will go on” .. on investments, Price sees bond prices as being “grotesquely expensive”, continues to like only quality listed businesses trading at or well below a fair assessment of their intrinsic worth .. “Pretty much everything else amounts to nothing more than paper, prone to arbitrary gusts from some very powerful, and very windy, bureaucrats. We note also that former Fed chairman Alan Greenspan, no doubt looking to polish his legacy, managed to front-run the Fed’s QE announcement by pointing to the merits of gold within a government-controlled, fiat currency system. Strange days indeed.”

LINK HERE to the source 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 source 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.

“There is a very simple lesson that when the markets finally break through the manipulation they move to price in deflation and not inflation. This is key because it means financial repression has failed.”Analyst Russell Napier

The Economist’s Buttonwood column described it as:

“Letting go of Daddy’s hand,” and cautioned, “[W]e may indeed get to see QE4 rolled out. Daddy might have let go of the market’s hand for the moment but he’s still close by.”

“That coinage nicely speaks to the juvenilisation to which markets have been reduced during six long years of:

• Financial Repression,

• Interest Rate Manipulation, and

• The Unprecedented Expansion of central bank balance sheets.

Only the asset purchases have abated (for now): the Financial Repression, one way or another, will go on. Whether the asset purchases have really disappeared or merely been suspended will be a function of how risk markets behave over the coming months and years.

And

“Although our crystal ball is no more polished than anyone else’s, we would not be surprised to see petulant markets rewarded with yet more infusions of sweets. Our fundamental views are clear:

• Bonds are already grotesquely expensive, yet may become even more (we’re not investing in “the usual suspects” so we don’t much care).
• Most stock markets are pricey – but in a world beset by QE (and prospects for more, in Europe and Asia) which prices can we really trust ?“

LINK HERE to the source 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.

On November 1st, the first European bank has passed along these negative interest rates to its retail customers.

So if you maintain a balance of more than 500,000 euros at Deutsche Skatbank of Germany, you now have the privilege of paying 0.25% per year… to the bank.

We’ve already seen this at the institutional level: commercial banks in Europe are paying the ECB negative interest on certain balances.

And large investors are paying European governments negative interest on certain bonds.

Now we’re seeing this effect bleed over into retail banking.

It’s starting with higher net worth individuals (the average guy doesn’t have half a million euros laying around in the bank). But the trend here is pretty clear – FINANCIAL REPRESSION is coming soon to a bank near you.

It almost seems like an episode from the Twilight Zone… or some bizarre parallel universe. That’s the investment environment we’re in now.

Bottom line: if you’re responsible with your money and set some aside for the future, you will be penalized. If you blow your savings and go into debt, you will be rewarded.

If we ask the question “cui bono”, the answer is pretty obvious: heavily indebted governments benefit substantially from zero (or negative) rates.

Case in Point:

the British government just announced that they would pay down some of their debt that they racked up nine decades ago.

In 1927, then Chancellor of the Exchequer Winston Churchill issued a series of bonds to consolidate and refinance much of the debt that Britain had racked up from World War I and before.

This debt is still outstanding to this day. And the British government is just starting to pay it down– about $350 million worth.

Think about it– $350 million was a lot of money in 1927. Thanks to decades of inflation, it’s practically a rounding error on government balance sheets today.

This is why they’re all so desperate to create inflation… and why they’ll stop at nothing to make it happen. (It remains to be seen whether they’ll be successful, but they are willing to go down swinging…)

What’s even more extraordinary is how they’re trying to convince everyone why inflation is necessary… and why negative rates are a good thing.

On the ECB’s own website, they say that negative interest rates will “benefit savers in the end because they support growth and thus create a climate in which interest rates can gradually return to higher levels.”

I’m not sure a more intellectually dishonest statement could be made; they’re essentially telling people that the path to prosperity is paved in debt and consumption, as opposed to savings and production.

LINK HERE to the source 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.

(NBER #16893 – Page 35)

“THE LIQUIDATION OF GOVERNMENT DEBT”

“The saving (or “revenue”) to the government or the “liquidation effect” or the “financial repression tax” is the real (negative) interest rate times the “tax base,” which is the stock of domestic government debt outstanding.”

Working Paper 16893, National Science Foundation Grant No. 0849224

ESTIMATE 3-4% of US GDP Y-o-Y

“Such annual deficit reduction quickly accumulates (even without any compounding) to a 30-40 percent of GDP debt reduction in the course of a decade”

“Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of “financial repression.” Financial repression includes:

1. Directed lending to government by captive domestic audiences (such as pension funds),
2. Explicit or implicit caps on interest rates,
3. Regulation of cross-border capital movements, and (generally)
4. A tighter connection between government and banks.

“In the heavily regulated financial markets of the Bretton Woods system, several restrictions facilitated a sharp and rapid reduction in public debt/GDP ratios from the late 1940s to the 1970s. Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation. Inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historic standards). For the advanced economies in our sample, real interest rates were negative roughly ½ of the time during 1945-1980. For the United States and the United Kingdom our estimates of the annual liquidation of debt via negative real interest rates amounted on average from 3 to 4 percent of GDP a year.“

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 source 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 source 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 source 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.

A generation of development economists owe Ronald McKinnon, who died earlier this month, a huge intellectual debt for his insight – introduced in his 1973 book Money and Capital in Economic Development

“that governments that engage in financial repression (channeling funds toward themselves to reduce their debt) hamper financial development”. Indeed, McKinnon provided the key to understanding why emerging economies’ financial sectors were underdeveloped.

At the end of his life, McKinnon was working on a related – also potentially groundbreaking – concept: a dollar-renminbi standard. In his view, such a system would alleviate the Financial Fepression and fragmentation that is undermining global financial stability and growth. The question is whether the powers that be – particularly in the United States, which has long benefited from the dollar’s global domination – would ever agree to such a cooperative system.

The notion that the dollar’s global dominance is contributing to Financial Repression represents a significant historical shift. AsMcKinnon pointed out, the dollar became a dominant international currency after World War II because it helped to reduce financial repression and fragmentation in Europe and Asia, where

LINK HERE to the source 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 source 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.