$51, 323, 233, 866, 518. That’s the current global public debt that exists all countries together. Next year it will rise to$54, 020, 847, 580, 179.
The all important ECB press conference is set to begin momentarily. Will Draghi answer questions regarding the readiness of the OMT's use in Portugal whose short end has exploded this morning, or will he be forced to wait for the German court's decision first? Or maybe Draghi will finally have some comments on either the ongoing Monte Paschi scandal or the recently revealed Italian derivative debacle which took place under Draghi's watch. We somehow doubt it...
*DRAGHI SAYS ECB RATES TO STAY LOW FOR EXTENDED PERIOD OF TIME
*DRAGHI: IMPROVEMENT IN FINANCIAL MARKETS SHOULD REACH ECONOMY
*DRAGHI SAYS INFLATION RATES MAY BE VOLATILE THROUGHOUT YEAR
*DRAGHI: RECENT TIGHTENING OF MARKET RATES MAY WEIGH ON GROWTH
At the end of the day, Friedman jettisoned the gold standard for a remarkable statist reason. Just as Keynes had been, he was afflicted with the economist’s ambition to prescribe the route to higher national income and prosperity and the intervention tools and recipes that would deliver it. The only difference was that Keynes was originally and primarily a fiscalist, whereas Friedman had seized upon open market operations by the central bank as the route to optimum aggregate demand and national income. The greatest untoward consequence of the closet statism implicit in Friedman’s monetary theories, however, is that it put him squarely in opposition to the vision of the Fed’s founders. As has been seen, Carter Glass and Professor Willis assigned to the Federal Reserve System the humble mission of passively liquefying the good collateral of commercial banks when they presented it. Consequently, the difference between a “banker’s bank” running a discount window service and a central bank engaged in continuous open market operations was fundamental and monumental. In short, the committee of twelve wise men and women unshackled by Friedman’s plan for floating paper dollars would always find reasons to buy government debt, thereby laying the foundation for fiscal deficits without tears.
“There can be no doubt that besides the regular types of the circulating medium, such as coin, notes and bank deposits, which are generally recognised to be money or currency, and the quantity of which is regulated by some central authority or can at least be imagined to be so regulated, there exist still other forms of media of exchange which occasionally or permanently do the service of money. Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, other things equal, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money.”
How does it really work under irredeemable paper? It's more complicated than under gold.
Curious how Abenomics is progressing six months after its announcement? These charts courtesy of Diapason should provide a convenient status update.
After leaving rates unchanged and following Kuroda's efforts overnight, it appears Draghi had to do something in his press conference. Despite Barroso's assurances that the worst of the crisis is over, ECB's Draghi admits:
*DRAGHI SAYS ECONOMIC WEAKNESS EXTENDED INTO BEGINNING OF YEAR
*DRAGHI SAYS RISKS TO ECONOMIC OUTLOOK ARE ON DOWNSIDE
*DRAGHI SAYS RECOVERY IN 2H IS SUBJECT TO 'DOWNSIDE RISKS'
*DRAGHI: WEAKNESS IS EXTENDING TO COUNTRIES W/OUT FRAGMENTATION
*DRAGHI SAYS ECB WILL ASSESS DATA AND STANDS READY TO ACT
This 'negativity' jawboning, which is really nothing new to anyone who looks at real data, has battered EURUSD 80 pips lower and implicitly smacked S&P 500 futures down 5-6 points as the verbal currency wars continue.
Those who were transfixed by whether Cypriots would rumble and unleash their anger at the €300/day dispensing ATMs formerly known as bank branches this morning, may have missed what probably was the most important monthly chart coming out of Europe - that showing aggregate money (M3) growth and, far more importantly, loan creation. Those who did pay attention will know that in February M3 grew quite obediently in a Eurozone flush with cash, this time by a respectable €15 billion, or 3.1% y/y, after €37 billion in January (of which, however a whopping €47 billion was M1 so the balance actually declined). Of course, this was the easy part: creating money via various central bank conduits has never been the issue: the concern has always been getting that money into private consumer hands through loan creation. And it is here that things just keep on getting worse by the day. Because in a continent in which there is no confidence whatsoever: no confidence in the banks, no confidence in the financial system, no confidence in end demand, no confidence in any reported data, no confidence that one's deposits won't be confiscated tomorrow, and last but not least no confidence that a sovereign nation won't just hand over its sovereignty to the Troika tomorrow, nobody is willing to take on additional loans and obligations. This can be seen in the dramatic divergence between European money creation (blue line), and the bank lending to the private sector (brown), which is at or near an all time record year over year low. So much for restoring confidence in Europe.
Last November, in an act of sheer monetary desperation, the ECB issued an exhaustive, and quite ridiculous, pamphlet titled "Virtual Currency Schemes" in which it mocked and warned about the "ponziness" of such electronic currencies as BitCoin. Why a central bank would stoop so "low" to even acknowledge what no "self-respecting" (sic) PhD-clad economist would even discuss, drunk and slurring, at cocktail parties, remains a mystery to this day. However, that it did so over fears the official artificial currency of the insolvent continent, the EUR, may be becoming even more "ponzi" than the BitCoins the ECB was warning about, was clear to everyone involved who saw right through the cheap propaganda attempt. Feel free to ask any Cypriot if they would now rather have their money in locked up Euros, or in "ponzi" yet freely transferable, unregulated BitCoins. And while precious metals have been subject to price manipulation by the legacy establishment, even if ultimately the actual physical currency equivalent asset, its "value" naively expressed in some paper currency, may be in the possession of the beholder, to date no price suppression or regulation schemes of virtual currencies existed. At least until now: it appears that the ever-benevolent, and always knowing what is "in your best interest" Big Brother has decided to finally take a long, hard look at what is going on in the world of BitCoin... and promptly crush it.
Army Chief of Staff: “The conundrum we have is that we don’t need the tanks”
There will be some talk, but there will be no action.
"History is replete with examples of societies whose downfalls were related to or caused by the destruction of money. The end of this phase of global financial history will likely erupt suddenly. It will take almost everyone by surprise, and then it may grind a great deal of capital and societal cohesion into dust and pain. We wish more global leaders understood the value of sound economic policy, the necessity of sound money, and the difference between governmental actions that enable growth and economic stability and those that risk abject ruin. Unfortunately, it appears that few leaders do."
- Paul Singer, Elliott Management
Keynesian stimulus policies (deficit spending and low-interest easy money) create speculative credit bubbles. The U.S. economy is a neofeudal debt-serf wasteland with few opportunities for organic (non-Central Planning) expansion. The velocity of money is in free-fall, and borrowing, squandering and printing trillions of dollars to prop up a diminishing-return Status Quo won't reverse that historic collapse. Put another way: we've run out of speculative credit bubbles to exploit.
When people talk about "cash in the bank", or "money on the sidelines", the conventional wisdom reverts to an image of inert capital, used by banks to fund loans (as has been the case under fractional reserve banking since time immemorial) sitting in a bank vault or numbered account either physically or electronically, and collecting interest, well, collecting interest in the Old Normal (not the New ZIRPy one, where instead of discussing why it is not collecting interest the progressive intelligentsia would rather debate such trolling idiocies as trillion dollar coins, quadrillion euro Swiss cheeses, and quintillion yen tuna). There is one problem, however, with this conventional wisdom: it is dead wrong. Tracking deposit flow data is so critical, as it provides hints of major inflection points, such as when there is a massive build up of deposits via reserves (either real, from saving clients, or synthetic, via the reserve pathway) which can then be used as investments in the market. And of all major inflection points, perhaps none is more critical than the just released data from today's H.6 statement, which showed that in the trailing 4 week period ended December 31, a record $220 billion was put into savings accounts (obviously a blatant misnomer in a time when there is no interest available on any savings). This is the biggest 4-week total amount injected into US savings accounts ever, greater than in the aftermath of Lehman, greater than during the first debt ceiling crisis, greater than any other time in US history.
Earlier today, Bill Frezza of the Competitive Enterprise Institute and CNBC's Steve Liesman got into a heated exchange over a recent Frezza article, based on some of the key points we made in a prior post "A Record $2 Trillion In Deposits Over Loans - The Fed's Indirect Market Propping Pathway Exposed" in which, as the title implies, we showed how it was that the Fed was indirectly intervening in the stock market by way of banks using excess deposits to chase risky returns and generally push the market higher. We urge readers to spend the few minutes of this clip to familiarize themselves with Frezza's point which is essentially what Zero Hedge suggested, and Liesman's objection that "this is something the banks don't do and can't do." Liesman's naive view, as is to be expected for anyone who does not understand money creation under a fractional reserve system, was simple: the Fed does not create reserves to boost bank profits, and thus shareholder returns, and certainly is not using the fungible cash, which at the end of the day is what reserves amount to once dispersed among the US banks, to gun risk assets higher.
Alas, Steve is very much wrong.