"All the Trumans – the economists, fund managers, traders, market pundits –know at some level that the environment in which they operate is not what it seems on the surface…. But the zeitgeist is so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end."
Klarman is here referring to the waning days of this third and greatest financial bubble of this century. But David Stockman's take is that the crack-up boom now nearing its dénouement marks not merely the season finale of still another Fed-induced cycle of financial asset inflation, but, in fact, portends the demise of an entire era of bubble finance.
In his 712-page tour de force, The Great Deformation, David Stockman dissects America’s descent into the present era of “bubble finance.” it’s hard to refute Stockman’s perspective on the Fed’s role in the housing bubble. But that won’t stop some from trying, and especially the many academic economists beholden to the Fed. Research papers have stealthily danced around the Fed’s culpability for our crappy economy, as we discussed here. More importantly, if Stockman is right about bubble finance, there’s more mayhem to come. Consider that denying failure and persisting with the same strategy are two sides of the same coin. Just as investors avoid the pain of admitting mistakes by holding onto losing positions, Fed officials who claim to have done little wrong are also more committed than ever to propping up asset markets with cheap money. For those concerned about another policy failure, a key question is: “As of today, where do we stand with respect to bubbles and bubble finance?”
1974 Enders To Kissinger: "We Should Look Hard At Substantial Sales & Raid The Gold Market Once And For All"Submitted by Tyler Durden on 11/30/2013 15:57 -0400
Four years ago we exposed what appeared to be a 'smoking gun' of the Fed's willingness to manipulate the price of gold. Then Fed-chair Burns noted the equivalency of gold and money, and furthermore pointed out that if the Fed does not control this core relationship, it would "easily frustrate our efforts to control world liquidity." Through a "secret understanding in writing with the Bundesbank that Germany will not buy gold," the cloak-and-dagger CB negotiations were exposed as far back as 1975. Recently, we exposed Paul Volcker's fears of "PetroGold" and the importance of the US remaining "masters of gold." Today, via a transcript of then Secretary of State Kissinger's 1974 meeting we see how clearly they understood that demonetizing gold was a critical strategy to maintaining a dominant power position in the world, and "raiding the gold market once and for all."
With Ben Bernanke's tenure closing, many financial TV pundits delight in touting the stellar performance of Ben Bernanke as Federal Reserve Chairman with just a couple months left in his term. Before the re-writers of history begin spinning performance, we thought why not compare Mr. Bernanke against all the other Federal Reserve Chairman to determine which Chairman deserves recognition. Bernanke's overall score across all factors was the lowest (let the spin begin counterfactualists). The data suggests that Mr. Bernanke ranks last in performance between the two mandates since 1948. Quite an accomplishment considering what events transpired during the last 60+ years; Korea & Vietnam, Oil Shock, high interest rates, etc...
Policy officials believe that growth and inflation would fix the problem of large debts, but growth fueled by public spending that is financed by debt or central banks is not sustainable. Like most Ponzi schemes, it doesn’t end well. Reducing total debt was always a better solution, but it would have resulted in even slower economic activity and lower living standards. However, in the long run, the system would have been purged of unsustainable excesses. ‘Short term pain’ for ‘long term gain’ is often shunned for fear of electoral defeat and lobby group pressure. Now, we are stuck with financial repression. Investment is being directed toward funding the public sector. Policy rewards debtors over creditors. Such policy cannot go on forever. In reality, “unlimited” rarely means unlimited, because imbalances become too great. The Fed’s current quagmire has aspects resembling the Triffin Dilemma. The recent adverse spillover from Fed policies in emerging market economies and currencies may be the first hint of cracks in the global monetary system. At a minimum, foreign central banks have deviated from good policy in order to prevent sharp destabilizing fluctuations in the value of their currencies and to arrest volatile inflows and outflows of capital.
The Hippocratic Oath is one of the most widely known Greek medical texts. It requires a new physician to swear upon a number of healing gods that he will uphold a set of professional ethical standards. The premise of the original Oath, which supposedly started out like this is clear: First, do no harm. Over the last several years, a new oath has appeared in the world of finance as global investment banks have been hauled in front of Senate committees, Congressional panels, various regulatory bodies, and (what always used to be the harshest of judges) the public: the Hypocritic Oath. It begins thus: First, admit no wrong.
Putting our trust and faith in a few unelected bureaucrats and bankers, who use their obscene wealth to buy off politicians in writing the laws and regulations to favor them has proven to be a death knell for our country. The captured main stream media proclaims these men to be heroes and saviors of the world, when they are truly the villains in this episode. These are the men who unleashed the frenzy of Wall Street greed and pillaging by repealing Glass Steagall, blocking Brooksley Born’s efforts to regulate derivatives, encouraging mortgage fraud, not enforcing existing regulations, and creating speculative bubbles through excessively low interest rates and making it known they would bailout recklessness. They have created an overly complex tangled financial system so they could peddle propaganda to the math challenged American public without fear of being caught in their web of lies. Big government, big banks and big legislation like Dodd/Frank and Obamacare are designed to benefit the few at the expense of the many. The system has been captured by a plutocracy of self-serving men. They don’t care about you or your children. We are only given 80 years, or so, on this earth and our purpose should be to sustain our economic and political system in a balanced way, so our children and their children have a chance at a decent life. Do you trust that is the purpose of those in power today? Should we trust the jackals and grifters who got us into this mess, to get us out?
Lately various media outlets have been swamped with stories and allegations of precious metal manipulation ranging from the arcane, to the bizarre to the outright ridiculous. At issue is not that these claims of price fraud are unfounded - they very well may be completely true - but without a notarized facsimile of an actual trade ticket signed by Brian Sack, or his replacement Simon Potter, or any of the BIS traders confirming they are indeed selling gold on behalf of the Fed, BOE, ECB, SNB or BOJ simply to keep the price of the metal down, what such constant factless accusations (and no, sorry, a chart showing that the price of gold may go up or go down sharply indicates merely that and nothing about the underlying factors for such a move) do is to habituate the broader public to the real issues surrounding precious metal, and other asset class, manipulation. So instead of searching for circumstantial evidence which one can easily find everywhere, we decided to go straight to the source. To do that we go back to a post we wrote back in September of 2009, based on an internal previously confidential Fed document, which conveniently enough explains everything vis-a-vis gold manipulation and leaves nothing to speculation or misinterpretation. Zero Hedge presents the smoking gun that may provide responses to all the various open questions regarding the Fed's Modus Operandi in the gold arena which answer the core question - motive - courtesy of a declassified memorandum, written by none other than the then Fed Chairman, and addressed to the president of the United States.
This Is the First Time In History that All Central Banks Have Printed Money at the Same Time … And They’re Failing MiserablySubmitted by George Washington on 05/01/2012 18:44 -0400
Simultaneous Global Printing Is Failing Miserably
In perhaps the most courageous (and now must-read) speech ever given inside the New York Fed's shallowed hallowed walls, Economic Policy Journal's Robert Wenzel delivered the truth, the whole truth, and nothing but the truth to the monetary priesthood. Gracious from the start, Wenzel takes the Keynesian clap-trappers to task on almost every nonsensical and oblivious decision they have made in recent years. "My views, I suspect, differ from beginning to end... I stand here confused as to how you see the world so differently than I do. I simply do not understand most of the thinking that goes on here at the Fed and I do not understand how this thinking can go on when in my view it smacks up against reality." And further..."I scratch my head that somehow your conclusions about unemployment are so different than mine and that you call for the printing of money to boost 'demand'. A call, I add, that since the founding of the Federal Reserve has resulted in an increase of the money supply by 12,230%." But his closing was tremendous: "Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats."
In the science of physics, we know that ice freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed.. There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry. And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist. It is as if one were to assume a constant relationship existed between interest rates here and in Russia and throughout the world, and create equations based on this belief and then attempt to trade based on these equations. That was tried and the result was the blow up of the fund Long Term Capital Management, a blow up that resulted in high level meetings in this very building. It is as if traders assumed a given default rate was constant for subprime mortgage paper and traded on that belief. Only to see it blow up in their faces, as it did, again, with intense meetings being held in this very building. Yet, the equations, assuming constants, continue to be published in papers throughout the Fed system. I scratch my head.
The price of gold is being actively managed by central planners and their proxies. The main culprit here appears to be the US authorities, as the manipulation is most apparent in the US open gold market. For the most part, this 'management' has resulted in letting the price of gold rise, but not too much, or too quickly. The price of gold has always been an object of interest for governments and central bankers. The reason is simple enough to understand: Gold is an objective measure of the degree to which fiat money is being managed well or managed poorly. As such, whenever paper money is being governed poorly, the price of gold becomes an important barometer. And this is why the actual price of gold is a strong candidate to be 'managed.' Or 'influenced'. Or 'manipulated'. Whichever word you prefer, they all convey the same intent. Some who are reading this are likely having an eye-rolling moment because they hold a belief that there is no conspiracy to manage the price of gold. This is an interesting belief to hold because it runs heavily against the odds. We could spend a lot of time discussing how a belief such as 'gold is not being manipulated' gets promoted and inserted into the popular consciousness, but we won't. Instead, we'll simply note that the people who hold this belief -- and you may be among them -- react to the concept at a visceral level, often with strong emotions such as anger or contempt, and even anxiety. When a strong emotional response surfaces during a conversation of ideas, it usually means that beliefs are in play -- neither facts nor logic. Experience has taught me that when someone becomes dismissive or angry or hostile when the idea of price manipulation is discussed, it's best to simply drop the conversation and move on. No combination of logic or facts is effective against a deeply-held belief. It's better to wait until some new evidence calls that belief into question, opening the door for revisiting the topic. But for those with an open mind, there is a very interesting trail of dots to connect.
We are at a critical point as the worlds' economies continue to decline. Continued high unemployment and a stagnant economy will put pressure on the Administration and the Fed to do something. The implications are not good.
Q: If money supply is increasing, why aren't we seeing price inflation? A: We are.
Tracking The Gold "Conspiracy" - GATA's Must Read Presentation To The Cheviot Asset Management Sound Money ConferenceSubmitted by Tyler Durden on 01/29/2011 14:45 -0400
GATA has compiled what is probably one of the best and most comprehensive reports on the history of the gold market, the "special" place gold holds in the central bankers' world, the interaction between the physical and gold paper markets, and the documented historic evidence and definitive proof that the gold price has long been the most manipulated concept in the history of modern capital markets. Must read for all interested in the dynamics behind the price of gold.