Sunday, December 29, 2019

Rising Risk of Financial & Economic Chaos, Part 2

As mentioned in Part 1 that since September, when interest rates were suddenly going up in short-term funding markets, the Federal Reserve has been in a panic to suppress and control short-term rates. Three months later, these efforts have continued and become massive ($1/2 Trillion).

It's possible that with the amount of government and corporate borrowing underway, the overnight 1.5% interest rate is too low relative to the demand for money. Government borrowing is accelerating due to tax cuts and spending. It's even possible that a recession is unfolding now causing government deficits to surge. Hedge funds, who can tap the Repo market (repurchase agreements), may be over-leveraged and desperate for money. Rates are trying to rise, but the Fed won't let it happen. This implies that the Fed may not be able to step away from these markets going forward and likely will have to re-start Quantitative Easing on a long-term basis to buy US debt--which essentially monetizes the US deficit.

This is the stuff of the Weimar Republic. No wonder gold prices are perking up.

The Worldwide Financial/Liquidity Crisis Has Likely Begun
This Repo crisis is the beginning of the next financial crisis. We are in it. Banks were/are not lending to other banks and/or hedge funds probably because of the counter-party risk. And The Fed is not explaining anything about this, presumably to avoid creating a panic. Even in recent press conferences, Jay Powell is not even asked questions about this by reporters, presumably by agreement with the press to keep this all secret. Meanwhile the stock market is soaring into bubble territory due to the tsunami of liquidity.

All of these Repo operations are short term to very short term (overnight). Going into early 2020, most of these liquidity injections are scheduled to reverse. This is an effective tightening if nothing changes. Here's a chart of Repo "roll-off" going forward assuming no further massive liquidity injections:

Starting now and through the first two weeks of January 2020, liquidity may shrink and stock prices correct. Since markets are not allowed to go down now, I suspect that the Federal Reserve will ramp-up Repo money again or begin QE4 (that they promised they wouldn't).

European Banks and the Euro Will Destroy the World
The Europeans never allowed any banks to fail during the GFC in 2008, whereas some 157 banks failed and many mergers were arranged in the US during that recession. So nothing was allowed to fail in Europe. No bad debt was eliminated. So EU bank stocks are at 30+ year lows because everyone knows that they are loaded up with bad loans that are papered-over with "mark to fantasy"ratings. The other reason that the EU is faced with a banking crisis is that negative interest rates has effectively crippled the profitability of banks along with profit-killing regulations.

The actions of the ECB to drive interest rates to negative levels is the most irresponsible monetary "experiment" in the history of the world. It's artificially driven up bond prices to truly absurd levels. There are still some $17 Trillion of debt in the EU that have negative yields. It's the biggest bubble in the world! And there's no way out!

But now there's a chorus of "economists" across the world, especially Europe, who are also increasingly critical of negative yields. It's becoming a consensus. It's because QE and negative rates haven't helped; they've hurt and caused damage to retirees, pension funds, insurance companies and most importantly the banking system (especially Europe). Just a week ago, Sweden raised it's interest rate from -0.5% to 0% because of the damage negative rates are causing: housing market price bubbles, bank and pension troubles were cited.

So, we're one populist revolt in a single EU country like Italy or Greece leaving the EU that could begin a real bond rout. Or it could simply be credit markets revolting due to rising risk. What if the ECB, like Sweden, decides to abandon negative rates now that there is consensus that it's actually crazy?

EU banks are large holders of dicey sovereign bonds like Greece and Italy - countries suffering under the yolk of the Euro currency. Germany has loaned 100s of $billions to Southern Europe as the Euro currency has imposed a non-stop economic depression on the southern countries. This was predicted long ago by Margaret Thatcher. Such transfers are not sustainable. Economic hardship is causing unrest and populist and/or separatist movements all over the world including Europe. Brexit was first, but who's next?  If a country like Italy leaves the Euro currency, it's bonds would drop by about 70% to yield something like 7% from 1.4%. Since European banks are big holders of sovereign bonds, such an event would tip every bank in the EU into insolvency. One hiccup in a EU member's bond market (like Greece or Italy) and say hello to bank failures galore in Europe. Suffice it to say that EU banks are an ongoing problem for the world and probably an existential threat to the world of finance.

The effect could not only include the instant bankruptcy of nearly all EU banks whose effects would spread to the US and World. The ECB itself would be understood to be technically bankrupt. Bank runs could easily erupt since large depositors are at risk of losing their money for bail-ins in the event of an EU bank bankruptcy. A flood of money to the US would ensue. The dollar would rocket higher as US causing crises in emerging market countries that have issued dollar-denominated bonds --which is a huge amount.

In my post titled Declining Global Money Supply Taking World Economy With It, I mention that the real dollar money supply for world commerce was found in the Eurodollar markets of European banks. This market is the dollar supply especially for all of the international and emerging markets and China. Really, it's the money supply to the world. (The US Federal Reserve, for decades, has refused to see this phenomenon showing their utter incompetence -- they really don't know what they are doing.)  But all of this liquidity depends on the soundness and confidence in the EU bank's balance sheets. And we know they are sketchy. For this reason, the Eurodollar market has been in decay, especially since 2008 and after 2011. Shrinking Eurodollars means a shrinking world economy. This is why China is stagnating. It's why all emerging markets are stagnating. It's why world trade is falling. I can't see it getting better --only worse.

How We Got Here
From my post in February 2018 "Extremes in Unsound Money and Unsound Will Lead to Catastrophe,"I said that "In 1970, US debt was $275 Billion. It took 188 years to achieve that. This past week alone, the government sold $258 billion! In the past 6 months alone, US debt has exploded by $1 Trillion. And this is during "good times."

In 1971, Nixon ended the Post WWII Bretton Woods arrangement which ended any semblance of (gold-backed) sound money. As an immediate result, our national debt and inflation began to skyrocket. Central bank activism and "experimentation" increased as they tried to tame the increasingly unstable business cycle---that THEY caused!

The big banks have once again become highly risky hedge funds using your money to gamble on highly leveraged positions in risky derivatives (again) thanks to the repeal of Glass-Steagall in 1991. They act with impunity since they have the government's backing when they fail again.

The rise of the Eurodollar market sprung up in Europe and provided massive liquidity to the world from the late 1980s to 2008. Bankers used an accounting trick to hide their increased leverage (in order to avoid violating bank capital rules). It worked until 2008.  Just 11 years ago, the world had a financial near-death experience as derivatives failed, banks failed and markets failed. The world economy come to a halt as 'finance' failed.

Remember, if finance fails then everything else fails and millions, even billions, of people may die as world supply chains collapse, commerce halts, shortages develop, grocery store shelves empty and people begin starving. Longer term, infrastructure fails-- including even electricity and utilities. I know it's unthinkable, but that's how bad it could get. That's not a prediction, though.

Debt, deficits, trade deficits, financial market and price inflation, repeated bubbles and the resulting instability (burst bubbles) and deep recessions have serially eroded our economy and culture since 1971 really, but especially since 2001. The result, in part, is that our society, our culture, our civic order, our work ethic, our moral bearings have all decayed and diminished. Our social contract has also been torn asunder. It's not just in the US, but all over the world.

China saved the world with it's massive debt-fueled spending spree in 2009 until about 2 years ago. China started "hitting the wall" in about 2013.  I've written many blog posts indicating how China and Chinese companies are now so indebted, that a financial crisis is basically a given. Also see my posts We're Reaching the End of a Long Road and The Path to Recession, Crisis and Global Depression.

US Federal Reserve Is Now Causing the 3rd financial crisis in 20 Years
Central Banks, in their efforts to “save” the world economy since 2009, have created a monster: a dysfunctional, extremely-speculative and highly-leveraged financial sector.  It's clear that 2019 stock market is becoming a big bubble, up some 30% in 2019 with earnings down ~5%.  The monster is awakening again.

After the Federal Reserve's effort to reduce it's balance sheet and raise interest rates in 2018, the US stock market started correcting strongly in December 2018. We learned that EVERY market was crashing with stocks: the high yield and other segments of the debt markets. This is the big problem and is why the Fed can't allow stocks to go down. If stocks go down, EVERYTHING goes down-- including the economy. There is a sense of terror in the government at what they've created. It's either "inflate the bubble" or face calamity (as outlined above). But when Europe (and/or China) goes into crisis, this may really cause panic by the monetary authorities.  The Fed are now fire fighters, with a policy of putting out every fire immediately.  After decades of fire fighting, tinder has been accumulating meaning that risk of an inferno keeps rising. Think Yellowstone in 1988, when the government decided to reverse course and allow some fires after 70 years of a "No Burn" policy.  Result: inferno!

A big fire has erupted again and it's not clear if it can be contained.

The massive liquidity injections that we have seen in Repo this fall have been seen before, first by the Fed in the run-up to Y2K in 1999, and also just before/during the 2008 crisis. Now we're seeing it again. The aftermath in the first two occasions included a 50% plunge (80% in Nasdaq stocks)in 2000/2002 and 60% decline in stock markets and a huge recession in 2008/'09. Central bank interest rates went down 600 bps and 500 bps respectively and was unable to stop the rout. Now, the Fed has a measily 150 bps to lower -- it's probably not enough. Euro has no capability to lower rates at all. China does but they, themselves, are teetering with bank and corporate bond failures proliferating.

The entire world has become a house of cards: China, Europe and even the US. As I mentioned, the size and scope of the current financial bubbles mean that "markets" are an existential threat to the world. One day, there will be that dreaded inferno.

Rather than face the inferno, the "authorities" keep propping up the equity bubble. From the Felder Report, stock market bullish sentiment (based on trader positioning, ie., the measure of Rydex traders’ assets in bear funds and money market funds relative to their assets in bull funds and sector funds --inverted in the figure below) has only been this high on two other occasions during the past 20 years: August 2018, January 2017. Bullish positioning in 2000 was lower than right now!

Remember, in 2000 and in 2008, the Fed cut rates 6 percent and 5 percent, respectively and it didn't stop the bursting bubble. Now they have just 1.5 percent to cut. And we've learned that ALL the risk markets will decline if stocks decline because they are ALL linked. The entire world is linked. The next recession may be a depression. But we've really been in a depression since 2009, one papered-over with financial manipulation and extremes of unsound money and unsound finance.

Central banks and "governments" are destroying markets, our economies, our societies--really everything with their never-ending manipulations and distortions. At some point the inferno will be too big.

Monday, December 16, 2019

Rising Risk of Financial and Economic Chaos

Words like "Armageddon," "financial crisis," and "devastating" are being used by leaders of central banks and economists these days. Mervyn King, former Bank of England governor, says that Central Banks don't have any ammunition to fight the next recession because interest rates are negative, zero or close to zero in most of the world.

From the Guardian in October 2019:
The world is sleepwalking towards a fresh economic and financial crisis that will have devastating consequences for the democratic market system, according to the former Bank of England governor Mervyn King…. King said the resistance to new thinking meant a repeat of the chaos of the 2008-09 period was looming…. He added that the US would suffer a “financial Armageddon” if its central bank – the Federal Reserve – lacked the necessary firepower to combat another episode similar to the sub-prime mortgage sell-off…. King said the world economy was stuck in a low growth trap and that the recovery from the slump of 2008-09 was weaker than that after the Great Depression.… King said it was time for the Federal Reserve and other central banks to begin talks behind closed doors with politicians to make legislators aware of how vulnerable they would be in the event of another crisis.
And McKinsey indicated recently that fully 1/2 of all banks in the world are too weak to survive a recession. That doesn't sound good! From Forbes:
More than half of the world’s banks are too weak to survive a downturn, according to a survey from consultancy McKinsey & Co.
A majority of banks globally may not be economically viable because their returns on equity aren’t keeping pace with costs, McKinsey said in its annual review of the industry released Monday. It urged firms to take steps such as developing technology, farming out operations and bulking up through mergers ahead of a potential economic slowdown.
“Risks to financial stability have continued to build up in Germany,” the Bundesbank warns in its Financial Stability Report
Many yield-starved banks have significantly expanded their lending to “relatively high-risk businesses” while simultaneously reducing their provisions against losses on lending. As the Bundesbank puts it, “there are signs that banks’ lending portfolios now include a higher share of enterprises whose credit ratings could deteriorate the most in the event of an economic downturn.”
Moody's has downgraded its outlook for German lenders from “stable” to “negative” as profitability and creditworthiness deteriorate in a negative interest rate environment.
It's no wonder EU banks are in trouble. Negative interest rates, bank bail-in rules and no possibility of cross-border bail-outs lead the reasons for depositors to flee EU banks. If you intended to destroy your banks and financial system, then the EU is doing everything imaginable to do it. And flee they are:

EU Bank Equities are at 20 Year Lows. Not Good.
The biggest and most important bank in the world, Deutsche Bank, is teetering on the edge of bankruptcy (but has been for awhile):

Repo Madness

It's possible that we will remember September 16, 2019 as the start of the next acute financial crisis. That day, the overnight rate for overnight inter-bank loans (Fed Funds) soared from the targeted 1.5 to 1.75% to 5% or so. It started with problems in the Repo markets that are used by non-banks like hedge funds and other banks for temporary liquidity. Repo distress spilled-over into Fed funds. But, since a sustained rise in Fed Funds rates would crash the financial system, the US Central Bank began an effort to flood the market with liquidity through Repos (very short term loans from overnight to 1 or 2 days to 42 days recently) to satisfy bank/non-bank demand. That Repo demand hasn't calmed down or declined since September, it's accelerated! 

The scale of the Federal Reserve bank intervention is astonishing. It's now more than 1/2 TRILLION dollars (and rising)!  How come the Fed was surprised?  How come there is complete silence about it?  

The big question regarding Fed Funds is why weren't the "dealer banks" (especially the big 4 Wall Street banks but there are 21 others), with whom the Fed gives money (reserves) thru open market operations, lending to other banks? After all, there are big profits for the big banks to lend at elevated fed fund rates if they indeed have excess reserves. But they didn't despite the profit potential of those trades. The Fed had to intervene as the normal liquidity transmission was broken. It still is (in repo)! In fact, the rate of repo operations/interventions have grown enormously!  (Fed funds and Repo are different markets but are both conduits for short-term liquidity. Only Repo is open to Hedge Funds as well as banks) 

This means that the inter-banking transmission system was not working and was/is frozen-up. This is the very definition of a financial crisis. Why? Banks are not lending to other banks possibly because of the counter-party risk of other banks, possibly due to risky banks in Europe or they don't have the money? Either way, the Fed has gone from lender of last resort to lender of FIRST resort especially in Repo. We are left to assume that one or more big banks or financial entities are near bankruptcy--probably in Europe. But The Fed is not saying anything about this, presumably to avoid creating a panic. Even in recent press conferences, Jay Powell is not even asked questions about this by reporters, presumably by agreement with the press to keep this all secret. 

All of these Repo operations are short term to very short term (overnight). Going into next year, all of these liquidity injections reverse.  It'll be very interesting to see what happens.  But as of right now, there is no lessening of liquidity demands. I find it quite worrisome. I think permanent QE is returning next year, perhaps QE forever.  

From GSN Economics: "Central Banks, in their efforts to “save” the world economy since 2009, have created a monster: a dysfunctional, extremely-speculative and highly-leveraged financial sector. All that is needed for it to unravel are rising rates in an some important, if obscure, corner of the capital markets—just like the Repo-markets."

Friday, November 22, 2019

AG Barr: The Left Is Undermining the Rule of Law and Constitution

From a great speech by AG Bill Barr to the Federalist Society found here.  I highly recommend reading the entire speech.  We are lucky as a country to have this man as Attorney General at this time.

"One of the ironies of today is that those who oppose this President constantly accuse this Administration of “shredding” constitutional norms and waging a war on the rule of law. When I ask my friends on the other side, what exactly are you referring to? I get vacuous stares, followed by sputtering about the Travel Ban or some such thing. While the President has certainly thrown out the traditional Beltway playbook, he was upfront about that beforehand, and the people voted for him. What I am talking about today are fundamental constitutional precepts. The fact is that this Administration’s policy initiatives and proposed rules, including the Travel Ban, have transgressed neither constitutional, nor traditional, norms, and have been amply supported by the law and patiently litigated through the Court system to vindication.

Indeed, measures undertaken by this Administration seem a bit tame when compared to some of the unprecedented steps taken by the Obama Administration’s aggressive exercises of Executive power – such as, under its DACA program, refusing to enforce broad swathes of immigration law.

The fact of the matter is that, in waging a scorched earth, no-holds-barred war of “Resistance” against this Administration, it is the Left that is engaged in the systematic shredding of norms and the undermining of the rule of law. This highlights a basic disadvantage that conservatives have always had in contesting the political issues of the day. It was adverted to by the old, curmudgeonly Federalist, Fisher Ames, in an essay during the early years of the Republic.

In any age, the so-called progressives treat politics as their religion. Their holy mission is to use the coercive power of the State to remake man and society in their own image, according to an abstract ideal of perfection. Whatever means they use are therefore justified because, by definition, they are a virtuous people pursing a deific end. They are willing to use any means necessary to gain momentary advantage in achieving their end, regardless of collateral consequences and the systemic implications. They never ask whether the actions they take could be justified as a general rule of conduct, equally applicable to all sides.

Conservatives, on the other hand, do not seek an earthly paradise. We are interested in preserving over the long run the proper balance of freedom and order necessary for healthy development of natural civil society and individual human flourishing. This means that we naturally test the propriety and wisdom of action under a “rule of law” standard. The essence of this standard is to ask what the overall impact on society over the long run if the action we are taking, or principle we are applying, in a given circumstance was universalized – that is, would it be good for society over the long haul if this was done in all like circumstances?

For these reasons, conservatives tend to have more scruple over their political tactics and rarely feel that the ends justify the means. And this is as it should be, but there is no getting around the fact that this puts conservatives at a disadvantage when facing progressive holy far, especially when doing so under the weight of a hyper-partisan media."

Wednesday, November 6, 2019

Blacks, Hispanics, Illegals Dominate Welfare Handouts

From American Renaissance article "Race, Welfare and Media Lies"


Temporary Assistance for Needy Families (TANF) is what most people think of when they say “welfare.” It pays cash directly to users. The amount varies by state. In 2018 (the most recent data available), there were over 2.27 million recipients, who got nearly $17 billion. Here’s the racial breakdown (Table 10):
Race % of Recipients% of Population
American Indian1.5%1.3%
Whites are clearly an absolute minority of recipients: just 27.2 percent of the total. There are more blacks and Hispanics on welfare than whites. On a per capita basis, blacks are 4.8 times more likely than whites to get TANF, and Hispanics are 4.7 times more likely. Asians are only two-thirds as likely.
Interestingly, over 85 percent of TANF recipients are single or divorced, and only 13 percent are married. Conservatives have long argued that marriage reduces poverty.

Food Stamps

The Supplemental Nutrition Assistance Program (SNAP) is better known as food stamps. In 2017, a staggering 42.1 million people got free food at a cost of $68 billion dollars. The racial breakdown (page 22):
Race% of Recipients% of Population
American Indian1.4%1.3%
Unknown/Didn’t Say16.8%NA
Again, whites are an absolute minority of food stamp users. The 16.8 percent of “race unknown or didn’t say” is high, but they are unlikely to be white. An even bigger story is that 8.2 percent of recipients are children of non-citizens. A further 8.6 percent are refugees or non-citizens. We import food-stamp users.


Medicaid is health insurance for poor people. An incredible 74 million people were on it in 2017 (up from 46 million in 2001). It is paid for by a combination of state and federal funds, and on average it accounts for a crushing 22 percent of state budgets. In 2018, Medicaid cost over $592 billion, and the racial breakdown for users in 2017 was as follows:
Race% of Recipients% of Population
American Indian1%0.8%
Again, whites are an absolute minority, though their percentage of recipients for this expensive program is relatively high.

Section 8 and other Public Housing

In 2017, there were nearly 5 million households in the US getting housing assistance through the Department of Housing and Urban Development (HUD). Most of them got Section 8 vouchers or lived in public housing. Blacks are massively over-represented.
Over 1 million people live in public housing. The racial breakdown is as follows:
Race% of Recipients% of Population
American Indian1%0.8%
The “stereotype” of blacks in public housing is not false. There are more blacks than people of any other race in the projects, and on a per capita basis, they are 6.7 times more likely to be in them than whites.
Most of the other housing programs involve Section 8 vouchers. A category marked “All Relevant Programs,” includes Section 8 and includes 2.8 million recipients. Here is the race breakdown:
Race% of Recipients% of Population
American Indian1%0.8%
Blacks are 7.1 times more likely than whites to use this benefit and Hispanics are 2.3 times more likely. Asians are only 77 percent as likely.
There are other welfare programs, but these four are the most important and paint a good picture of who is on the dole. American Renaissance has run articles on this since 1993, all of which show the same racial pattern:
It is clear that blacks and Hispanics take a disproportionate amount of government handouts. Who pays? Nearly half of US households pay no income taxes, but it is hard to get racial breakdowns of who does pay. I have seen several estimates, but none appears to be definitive. Perhaps the most considered estimate is from the blog Alternative Hypothesis, which estimates whites paid more than 75 percent of taxes in 2014.

Sunday, October 13, 2019

An SOS from Sweden

The Globalist/Davos Crowd/Marxist agenda is clear and evident around the world. Like open borders in the US, Sweden and much of Europe is now overrun with low median IQ persons from the Middle East and North Africa. The regions where migrant are from are in a state of collapse because that's what happens when the median IQ of a population is 85 and below. It's the people, stupid! The entire continent of Africa is mired in poverty, oppression, crime, death, war and tyranny. It's only slightly better in South and Central America (median IQs of 80 to 89). In these populations, there are just not enough sophisticated, bright, intellectual opinion leaders that can call out the phony, corrupt socialist and tyrannical leadership who are voted-in and take control of the country. I describe this a cultural clash as being due to differences in median IQ.

Below is a letter of desperation from a man in Sweden sent to Martin Armstrong, who in turn posted it in his blog. It's the same story in Germany and the rest of the EU except for Poland, Hungary and the Czech Republic, who refused the migrant invasion are now the subject of political retribution by Brussels.  Remember, no country was given a vote or a choice in policy. If you speak out against this policy, or site the obvious evidence of the utter failure of it, you will be arrested and charged with "hate speech." Welcome to Orwell's Europe.  

You're beginning to see a descent into 3rd world status of poverty, disorder, crime and chaos in California too as the Marxists invite low skill, low IQ, low to no education migrants into the state.  There are huge financial and social pressures building there, similar to the Swedish story below.  

We're inundated by the phony memes of our day, most often propagated by lower IQ minorities ("the Squad" Hispanics like Jim Acosta, Idiots of the Black Caucus). And no, we're not all the same. No, not all religions are the same. And no, not all races are equal. The White Northern Europeans have been in fact superior in nearly every way. You will be booted off of Facebook, Twitter or any college campus for uttering any of those words since the speech-oppressive culture described in Orwell's 1984 book has asserted itself, (especially in Europe).

Here's the SOS letter from Sweden to Martin Armstrong:
Dear Mr. Armstrong,
Please take a look at Sweden. I know you can not look at every single country but Sweden would be interesting since it is the country were socialism has gone farthest in the world and totally crazy. One of the most well-organized countries in the world with the oldest Central bank and well run global companies have turned into total chaos. Socialism has turned a peaceful country into a crime capital. Rapes are now among the highest per capita in the world. Robbery likewise. We are flooded with immigrants from MENA countries that have no skills. Many can’t even read. They live on welfare and get better paid than people working. Taxes are going through the roof. Police force under extreme pressure. Jails are overfull. Same with healthcare and education.
The municipals are bankrupt. They borrow via Kommunivest to meet the gigantic burden of immigrants. The loans go to welfare paychecks, not to investments. Kommuninvest issues international bonds and then lend to all municipals. International investors do not know how bad the financial situation is for Kommuninvest. It’s the Black Swedish Swan that is going to blow up soon. Mr. Hans Jensevik is the one person in Sweden that has worked with the municipals economy all his life. He is a very respected old-timer. He has even come out with a video warning international investors from buying Kommuninvest bonds!

Government debt is not catastrophic but the municipals are. The Government made the municipals take on the debt when the state unloaded immigrants in all our 290 municipals… Many municipals are now warning they are bankrupt and need emergency finance. So the Government is going to be forced to bail out the municipals very soon.

The state own media dominates TV and radio. Imagine only CNN running TV and radio channels in the US! Competitors only allowed entertainment. State own media pushing agenda on mass-migration, open borders, climate change, pro-euro and hate for Trump. All newspapers are subsisted by Government running the same agenda. Swedish Riksbank is trapped and forced to follow ECB down the drain with subzero rates and more QE. The SEK is tanking. This is not going to end well.

Could you please shed some light and interpret Socrates outlook for Sweden, SEK and OMX30

Thanks for your great work.


Thursday, October 10, 2019

How Your Money Goes "Poof" to "Money Heaven"

By far the biggest financial bubble in the world, and in history, is the rush to buy European bonds causing negative yields. The quantity of bonds with negative yields recently reached $17 Trillion!  Of course this is causing a bond-buying mania in every other market, driving the US 10 Year bond to 1.5%

I warned a friend recently that it’s dangerous and there could be a violent reversal.

Then, in recent weeks, the ECB reverted to more QE to keep the game going. But surprisingly, there has been a chorus of people who, stating the obvious, roundly criticized the decision both on the ECB's monetary committee and in the media that the negative rates are killing the banks and the financial system. This dissent is new. But Draghi did it anyway despite the criticism on his own committee. He didn't even allow the committee to vote!

The Important EU Countries Are Now Against QE and Negative Rates!!
The ECB's QE motion was actually passed with a "relatively narrow majority" which explains why Draghi refused to take a vote as it would show that only Europe's B and C grade nations - such as Italy, Spain, Portugal, Estonia, Malta and Cyprus - were for a restart in debt monetization.

The Whole Scheme Could Fall Apart

There's a chorus of "economists" across the world who are also increasingly critical of negative yields.  It's becoming a consensus. And it's about time! QE and negative rates haven't helped; they've hurt and caused damage to retirees, pension funds, insurance companies and most importantly the banking system (especially Europe).

So, we're one populist revolt in a single EU country like Italy or Greece leaving the EU that could begin a real bond rout. Or what if Germany left the EU?  What if the ECB decides to abandon the QE effort now that there is consensus that it's actually crazy?

It’s mindboggling to think about the chain of events that could unfold. Greece recently priced some bonds with negative yields, which is clearly insane. If any EU country leaves, like Greece, their bond prices would drop 80% overnight to drive their yields to 5%, 6% or maybe 10% from -0.5%.  The same effect if QE is suddenly disavowed, bond prices across the EU would drop very hard--like 40%. This would lead to huge losses in the rest of the world's bonds too!

The effect could include the instant bankruptcy of nearly all EU banks whose effects would spread to the US and World. The ECB itself would be understood to be technically bankrupt. Bank runs could easily erupt since depositors are at risk in the EU in the event of a bank bankruptcy. A flood of money to the US would ensue. The dollar would rocket higher due to money fleeing Europe.

Remember, the world-wide bond market is valued at least $110 Trillion and the world's stock markets are "worth" some $40 Trillion.  Losses in a combined stock and bond rout could be something like 70% or $110 Trillion wiped-out in a very short period.  $110 Trillion in fiat money would go to "money heaven."

Then, for the real disaster, there is a real possibility that once the bond rout gets going, you’ll wake up one morning and the stock futures markets are halted limit down! And then stock markets stay limit down for days or weeks and don’t or can’t re-open! When they reopen, they are down 80%. This is not an insane concept. The entire worldwide Central Bank bubble can get wiped-out within months. Scary stuff!

This is how “excess” money goes “poof”. And, in our fiat world, far too much money/credit has been created and will likely go “poof."  The world would be instantly be plunged into a deep depression especially with Central Banks understood to be bankrupt.

Wednesday, October 9, 2019

50 Years of Failed Climate Apocalypse Predictions

Modern doomsayers have been predicting climate and environmental disaster since the 1960s. They continue to do so today.  None of the apocalyptic predictions with due dates as of today have come true.

What follows is a collection of notably wild predictions from notable people in government and science.

More than merely spotlighting the failed predictions, this collection shows that the makers of failed apocalyptic predictions often are individuals holding respected positions in government and science.

While such predictions have been and continue to be enthusiastically reported by a media eager for sensational headlines, the failures are typically not revisited.
Here is the source for numbers 1-27. As you will see, the individual sources are not crackpots, but scientific studies and media reports on “expert” predictions. The sources for numbers 28-41 are linked individually.
  1. 1967: Dire Famine Forecast By 1975
  2. 1969: Everyone Will Disappear In a Cloud Of Blue Steam By 1989 (1969)
  3. 1970: Ice Age By 2000
  4. 1970: America Subject to Water Rationing By 1974 and Food Rationing By 1980
  5. 1971: New Ice Age Coming By 2020 or 2030
  6. 1972: New Ice Age By 2070
  7. 1974: Space Satellites Show New Ice Age Coming Fast
  8. 1974: Another Ice Age?
  9. 1974: Ozone Depletion a ‘Great Peril to Life
  10. 1976: Scientific Consensus Planet Cooling, Famines imminent
  11. 1980: Acid Rain Kills Life In Lakes
  12. 1978: No End in Sight to 30-Year Cooling Trend
  13. 1988: Regional Droughts (that never happened) in 1990s
  14. 1988: Temperatures in DC Will Hit Record Highs
  15. 1988: Maldive Islands will Be Underwater by 2018 (they’re not)
  16. 1989: Rising Sea Levels will Obliterate Nations if Nothing Done by 2000
  17. 1989: New York City’s West Side Highway Underwater by 2019 (it’s not)
  18. 2000: Children Won’t Know what Snow Is
  19. 2002: Famine In 10 Years If We Don’t Give Up Eating Fish, Meat, and Dairy
  20. 2004: Britain will Be Siberia by 2024
  21. 2008: Arctic will Be Ice Free by 2018
  22. 2008: Climate Genius Al Gore Predicts Ice-Free Arctic by 2013
  23. 2009: Climate Genius Prince Charles Says we Have 96 Months to Save World
  24. 2009: UK Prime Minister Says 50 Days to ‘Save The Planet From Catastrophe’
  25. 2009: Climate Genius Al Gore Moves 2013 Prediction of Ice-Free Arctic to 2014
  26. 2013: Arctic Ice-Free by 2015
  27. 2014: Only 500 Days Before ‘Climate Chaos’
  28. 1968: Overpopulation Will Spread Worldwide
  29. 1970: World Will Use Up All its Natural Resources
  30. 1966: Oil Gone in Ten Years
  31. 1972: Oil Depleted in 20 Years
  32. 1977: Department of Energy Says Oil will Peak in 90s
  33. 1980: Peak Oil In 2000
  34. 1996: Peak Oil in 2020
  35. 2002: Peak Oil in 2010
  36. 2006: Super Hurricanes!
  37. 2005 : Manhattan Underwater by 2015
  38. 1970: Urban Citizens Will Require Gas Masks by 1985
  39. 1970: Nitrogen buildup Will Make All Land Unusable
  40. 1970: Decaying Pollution Will Kill all the Fish
  41. 1970s: Killer Bees!
1967: ‘Dire famine by 1975.’
1969: ‘Everyone will disappear in a cloud of blue steam by 1989.’
1970: Ice age by 2000

1970: ‘America subject to water rationing by 1974 and food rationing by 1980.’
1971: ‘New Ice Age Coming’
Source: Washington Post, July 9, 1971

1972: New ice age by 2070
1974: ‘New Ice Age Coming Fast’
Source: The Guardian, January 29, 1974
1974: ‘Another Ice Age?’

Source: TIME, June 24, 1974
1974: Ozone Depletion a ‘Great Peril to Life’

But no such ‘great peril to life’ has been observed as the so-called ‘ozone hole’ remains:

Sources: Headline
NASA Data | Graph


Monday, October 7, 2019

Everything the Press Gets Wrong about the Ukraine Call

Posted By Scott Adams on September 27, 2019

Here’s a question you haven’t heard anyone ask about the Ukraine phone call story: If the Biden family never existed, would it have still been a good idea for President Trump to put a hold on funds already approved by Congress for Ukraine until the leaders spoke?

Answer: Yes.

The citizens who voted for Trump knew what they were getting. He promised to be a tough negotiator with our allies and adversaries alike. So what would a competent negotiator do when dealing with a new leader — of any country — before their first conversation? If he’s smart, he would “set the table” as Trump sometimes says about negotiating. In other words, you don’t start the conversation with someone important until you have arranged as many variables as you can in your favor. In the Ukraine phone call situation, President Trump effectively transferred power from Congress to himself in terms of “approving” Ukraine’s funds. Then he took a phone call with the new President of Ukraine.

That was perfect negotiating form.

We give our presidents a lot of flexibility in dealing with foreign affairs because it works better to have one “boss” in these situations. Had Trump permanently withheld funds approved by Congress, that would be a system problem on our end. But temporarily putting a hold on those funds before speaking leader-to-leader is just smart presidenting. It creates the impression that the president is the only American the foreign leader needs to deal with. That’s “setting the table.”

Does it matter exactly what Trump was going to discuss, negotiate, or request?

Nope. If the only thing Trump did on the phone call was congratulate President Zelensky on his election victory, it would still be smart to hold the funds until then. We want our president to go into every conversation with foreign leaders fully armed, persuasion-wise. When Trump brings the full weight of the office with him, it sets the table for the current conversations, and every one after that. When Trump withholds funds, pulls out of a deal, or otherwise transfers power from Congress to himself, it makes him a more effective negotiator. It puts him in charge. It is a strong psychological advantage.

Compare that approach to sending a president out weak, dependent on Congress to wipe his nose. Those are not similar table settings. Trump knows the difference. So does everyone who read his book, The Art of the The Deal.

We’ve heard Trump say he was concerned about corruption in Ukraine, and that was why he put a hold on the funds. I’m sure that was at least a part of his concern. Probably every American has that same concern about foreign aid in general. But as I said, it doesn’t matter what reason he gives the American public. Regardless of corruption in Ukraine, it was still smart to withhold funds until after the leaders spoke, because it made Trump the only person Zelensky needs to satisfy. That’s what we want from our presidents. We want them going in strong, with the full weight of their office and influence, to every interaction with foreign leaders, every time.

But what about Trump asking Zelensky for help looking into Hunter Biden’s business dealings? Isn’t it inappropriate for a president of the United States to ask a foreign leader to help him win reelection? If that’s ALL it was, it would absolutely be inappropriate. But was that all it was?

Suppose a candidate for president of the United States is leading in all the polls and he has publicly known conflicts of interest with a foreign country, such that blackmail-like influence was a real risk. Or at least it looks that way on the surface. What kind of priority should a sitting president put on that situation?

Answer: Top priority  Continued....

Tuesday, October 1, 2019

Alinsky's How to Create a Socialist State

Remember, Hillary Clinton did her college thesis on Saul Alinsky's works and we know Barack Obama was a fan of Alinski as well.

GNS Economics: The Path to Recession, Crisis and Global Depression

From 12th September 2019:
There is renewed hope in the markets after central banks, most-recently the ECB and China, have added easing measures. The working narrative is that these will, once again, renew global growth and allow governments, corporations and consumers to go even more deeply into debt. But will the increase in liquidity work this time around?

Several arguments can be made indicating that the answer is “no”. It’s likely that this ‘liquidity pulse’ may provide a temporary boost to the markets, but not the real economy. This is an extremely hazardous combination.

The end of the cycle

As we explained in our June forecasts, the nascent economic downturn did not start as a result of trade issues, but rather from the diminution of massive Chinese debt-stimulus, which ran from around late 2015 till July 2017. This stimulus was conducted through the shadow-banking sector and especially through the local government financing vehicles, or “LGFVs”. During 2016, the size of the shadow banking sector tripled.

Funds from the shadow-banking sector were directed towards infrastructure investments and housing, supporting both the Ponzified Chinese economy and its related housing bubble. The effect of this debt-binge is clearly visible in a sharp rise in the Chinese leading economic indicator from late 2015 through the summer of 2017 followed by a rise in the indicators of other countries (see Figure 1). In essence, China pulled the world economy back from the brink of recession.
Figure 1. The amplitude adjusted composite leading indicator of the OECD for China, Germany, euro area and the United States. Source: GnS Economics, OECD

Why did China stop the stimulus? For two simple reasons. First, China has inflated a massive debt bubble used to finance unproductive investments, which has secondly resulted in the stagnation of China’s productivity growth (see Figure 2).
Figure 2. The growth of total factor productivity in China. Source: GnS Economics, Conference Board
The Chinese leadership was almost-certainly acutely aware in 2017 that the relentless pace of debt growth was leading the country to a debt crisis. So, after the 19th Congress of the Communist Party of China in October 2017 (actually around two months earlier) they hit the brakes, and the world economy started to slow. This is clearly visible in the leading indicators above.

Early this year, Chinese leaders again panicked and started to push more debt into the economy. During H1, the debt-to-GDP ratio rose by 5.8 percentage points to 249.5 percent after falling for most of 2018.

What is notable is that, unlike in 2015/2016 when the economy quickly responded to the stimulus, the rebound has been lacklustre this time around. The combination of fiscal, credit and monetary stimulus early this year produced only mediocre growth of 6.2 percent in Q2, the slowest since 1992, and private data implies that the economic situation is worse that the official figures show.

China seems to have reached the point where a moderate (normal) stimulus does not support the real economy anymore, and a flat-out debt-binge, รก la 2015/2016, would flare up a debt crisis. This, quite simply, means that the global business cycle is at its end.

Central planning, squared

Throughout this cycle, central planners have tried to postpone the downturn by all possible means. This marks the current expansion as the most manipulated business cycle, ever. This is actually rather understandable if one considers that the fate of the global banking system, the Eurozone, the legitimacy of Communist Party of China and even the very existence of central banks themselves possibly hangs in the balance.

Now, with the lead of the ECB and the Fed, central banks are again attempting to provide more stimulus. In their desperation, they are trying to wrestle the global economy back to growth with more easing. But they overlook that:
  1. China has been driving this cycle, and its economy is stagnating.
  2. The world is already “drowning” in debt.
  3. Unconventional methods, like negative interest rates, are wreaking havoc in the banking sector and the real economy.
The first point makes it impossible for any monetary easing to sustain the current economic expansion. The second makes any fiscal stimulus highly questionable (while it may help for a short while).

The third is the most crucial one. The European banking sector is especially unlikely to survive deeper negative rates, as several major European bank chiefs made a very clear in their recent extraordinary public communiques. We also already know that the asset purchase programs (“QEs”) increase the fragility in the banking system.

Central banks are undermining the foundations of the economy with more stimulus, especially in Europe. The ”open-ended” QE of the ECB will keep eroding financial stability in the Eurozone and the ”two-tier” system is unlikely to fix the profitability issues of banks. One might argue that the ECB is, in effect, demolishing Europe with its “bazooka”.

Recession, and the crisis, are coming

The re-escalation of the trade war since May has deadened corporate sentiment across the globe. Therefore, it has acted as an accelerator for the downturn, and even if trade disputes can be settled quickly, which is unlikely, the damage may already have been done. Moreover, as we have contended for over two years, the real issues behind the global slowdown are more malevolent than simple trade disputes.

The ‘unconventional means’ of central banks have, quite simply, sabotaged the engine that drives economic growth, while massive and increasingly-unproductive debt stimulus by China has hollowed-out the global economy. If China and central banks manage to resuscitate the asset markets, but not the real economy, which is unfortunately quite probable, the end-result cannot be anything less than a crash, as in 1929.

Thus, while additional stimulus may provide some relief or even short-term euphoria for the markets, it will only be a mirage, a “Bull Trap”. After a brief uptick, the global economy will continue to sink, until the fragile European banking system breaks and global stock markets and economy follow. And then, collapse.