December 23rd, 1913 is a date which will live in infamy. That was the day when the Federal Reserve Act was pushed through Congress. Many members of Congress were absent that day, and the general public was distracted with holiday preparations. Now we have reached the 100th anniversary of the Federal Reserve, and most Americans still don't know what it actually is or how it functions. But understanding the Federal Reserve is absolutely critical, because the Fed is at the very heart of our economic problems. Since the Federal Reserve was created, there have been 18 recessions or depressions, the value of the U.S. dollar has declined by 98 percent, and the U.S. national debt has gotten more than 5000 times larger. This insidious debt-based financial system has literally made debt slaves out of all of us, and it is systematically destroying the bright future that our children and our grandchildren were supposed to have. The truth is that we do not have to have a Federal Reserve. The greatest period of economic growth in U.S. history was when we did not have a central bank. If we are ever going to turn this nation around economically, we are going to have to get rid of this debt-based financial system that is centered around the Federal Reserve. On the path that we are on now, there is no hope.
Once gold goes into China’s vault, it’s like going into a black hole.
Outflows of gold from ETF's amounted to 24.3 million ounces, nearly 700 metric tonnes, in 2013. Imports from Hong Kong to China totaled 26.6 million ounces or 754 metric tonnes through September alone. It is unknown where gold would come from to replenish these ETF holdings, if there was a sudden surge in demand in the West in the event of a new sovereign debt crisis or a Lehman Brothers style contagion event.
One would think that value investors from outside the industry would be all over this vacuum.
Ireland Exits Troika Bailout To Prepare For Bail-ins: Nothings Changed & Don't Believe Everything That You're ToldSubmitted by Reggie Middleton on 12/13/2013 12:11 -0400
Ireland jumps out of the frying pan and into the fire, gets burnt and then climbs right back into that damn frying pan again...
“The only thing we have to fear is fear itself.”
Emergency resolutions and legislation would be likely in many countries in the event of another Lehman Brothers collapse and another global credit and financial crisis.
Particularly vulnerable banks in each country are....
From Bernanke's infamous 2008 "not forecasting a recession" call to Fannie Mae CEO Franklin Raines 2004 "subprime assets are riskless" commentary, the following 10 "predictions" - as opposed to Wien "surprises" - will go down in infamy for their degree of errant-ness...
"What keeps us up at night? Well I can’t speak for the others, having spoken too much already to please PIMCO’s marketing specialists, but I will give you some thoughts about what keeps Mohamed and me up at night. Mohamed, the creator of the “New Normal” characterization of our post-Lehman global economy, now focuses on the possibility of a” T junction” investment future where markets approach a time-uncertain inflection point, and then head either bubbly right or bubble-popping left due to the negative aspects of fiscal and monetary policies in a highly levered world. ... investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth. The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets. “You have no other choice,” their policies insinuate.... Deep in the bowels of central banks research staffs must lay the unmodelable fear that zero-bound interest rates supporting Dow 16,000 stock prices will slowly lose momentum after the real economy fails to reach orbit, even with zero-bound yields and QE." - Bill Gross
The rock is reality. The squishy place is the illusion that pervasive racketeering is an okay replacement for an economy. The essence of racketeering is the use of dishonest schemes to get money, often (but not always) employing coercion to make it work. Some rackets can function on the sheer cluelessness of the victim(s).
Just as in the 1930s the Fed fueled deflation by not making credit available, today the opposite seems to be the case – low rates are fueling deflation and preventing markets from clearing.
"We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels.... Each investor must decide for themselves just how close to midnight they want to leave this particular party. The advice of Solid Ground is leave now as it is increasingly likely that one event will be the catalyst to very rapidly change inflationary into deflationary expectations... So perhaps it is global deflationary forces creating a bankruptcy event, somewhere in the world, that is the catalyst for a sudden change in inflationary expectations in the developed world. It can all happen very quickly; and it is dangerous to stay at an equity party driven by disinflation when it can spill so rapidly into deflation... When there is plenty of leverage in the system and any key price starts to decline then a credit event and a sudden change in inflationary expectations are much more possible than the consensus believes. So watch the TIPS, BAA bond spreads and copper if you must, but this analyst prefers to observe the party from outside.... Each investor must decide for themselves just how close to midnight they want to leave this particular party."
- Russell Napier, CLSA
There are a couple of disturbing points that came out of her take on bubbles and the rationale behind not tapering a mere 10 or 15 Billion dollars given the monthly commitment of 85 Billion in Fed Purchases every month.
In 1997, the SE Asian Tigers all faced severe economic stresses, partially triggered by a primarily foreign capital-funded massive real estate bubble in Thailand. Today the EXACT same thing is happening as untempered foreign investment into Thailand’s real estate market has created not a “soaring” real estate market as economists always incorrectly explain them, but massive real estate market distortions better known as a bubble.
Debt always matters because it must always be paid for by someone - even if the borrower defaults, of course, the debt is simply “paid” by the lender. As China Financial Markets' Michael Pettis notes, this is why the fact that debt in China seems to be growing much faster than debt-servicing capacity implies slower growth in the future. The author of "Avoiding The Fall", explains that if the debt cannot be fully serviced by the increase in productivity created by the investment that the debt funded, unless it is funded by liquidating state sector assets it must cause a reduction in demand elsewhere, most probably in household consumption. Therefore, in spite of all the hope among global stock-buying hope-mongers, this reduction in demand implies slower growth in the future and, of course, a more difficult rebalancing process.