"The real disconnect lies in the failure of the economy to grow, as most people assumed that it would, after the Fed's quantitative easing and zero interest rates had supposedly worked their magic. But as I have said many times before, these policies act more as economic depressants than they do as stimulants. As long as these monetary policies persist, our economy will never return to the growth rates that would be considered healthy.... We prefer the ability to manipulate figures rather than allowing the figures to tell us things that we don't want to hear."
"To critics who warn that pumping trillions of dollars into the economy in a short period is bound to drive up inflation, today's central bankers point to stagnant consumer prices and say, 'Look, Ma, no inflation.' But this ignores the fact that when money is nominally free, strange things happen, and today record-low rates are fueling an unprecedented bout of inflation across asset prices."
"You said you weren’t monetizing the debt when you talked to Congress. You said the Fed was going to sell the bonds, but none of them have been sold. They’ve all been rolled over. So how are you claiming victory when you haven’t exited? You haven’t raised rates, you haven’t shrunk the balance sheet. You were wrong in the past. You didn’t see the financial crisis coming. You told us there was no housing bubble. You said subprime was contained. So you were certainly wrong then. So how do you know you’re not wrong now? Is there anything that might change your opinion and get you to rethink and maybe admit that your outlook is wrong?"
The oddest couple out there? Probably.
In the eight years that the Fed has issued GDP forecasts in the prior Fall, only once, in 2010, did the actual economic performance come in the range of its expectations. A more sinister possibility is that the Fed is not really forecasting at all but cheerleading. By forecasting strong growth, the Fed may be hoping to engender optimism, with more spending and hiring hopefully to follow. Kind of like a field of dreams recovery -- if the Fed forecasts it; it will come. Based on what we have seen thus far in the year, fantasies about a 2015 recovery should be evaporating.
Recently, France decided to crack down on those people who make cash payments and withdrawals and who hold small bank accounts. The reason given was, not surprisingly, to “fight terrorism,” the handy catchall justification for any new restriction governments wish to impose on their citizens. French Finance Minister Michel Sapin stated at the time, “[T]errorism feeds on fraud, money laundering, and petty trafficking." What we are witnessing is the creation of totalitarian control of your finances. The implication that you may have some sort of terrorist involvement is a smokescreen.
The day after the crash (and thereafter), what will be the currency that is used to buy a bag of groceries, a tank of petrol, a meal at a restaurant? Certainly, the need will be immediate and will be on a national level in each impacted country, affecting everyone. Many believe the US will be prepared ahead of time with a new, electronic currency - US citizens will then become the most economically controlled people in the world, overnight. A further possibility is taking place in Mexico today. Mexico is remonetising silver. As the Great Unravelling proceeds, we would be wise to monitor what happens with the Libertad in Mexico and watch for a similar return to precious metals in other jurisdictions.
In a fiat currency system, perception is, by definition, everything. Paper money has no intrinsic value. So the people saving it and accepting it in exchange aren’t expressing faith in the money itself but in the competence and honesty — and power — of the institutions managing it. Let that faith erode and those slips of colored paper and ephemeral computer bits revert to their intrinsic value. And on the credibility front, the trends aren’t encouraging.
"I was having lunch with a very dear friend of mine yesterday, who is also a very successful financial planner and advisor, who stunned me with an obvious question: 'Has the dumb money become the smart money?'"
The transparent truthlessness of the Fed’s basic premises go far to explain the chasm between official policy and reality - though it does not explain the appetite for plain lying of the supposedly informed minority cohort of the public, the deciders among us in business, politics, and media. Within th enext few months (between "patient" removal, token rate hikes, and reversals to QE4), the Fed will be completely out of cred. This will be the biggest disaster of all, since the loss of faith in august institutions will rage through every polity in the advanced economies. Nobody will believe any longer in anything they say or do, and especially the value of the papers (or digits) they denominate as money.
Going into 2015 the economic outlook held by the U.S. investment establishment could not have been much more positive, and more unified. Pundits saw all the variables aligning to create the best of all investment worlds, a virtual "no-brainer" of optimism. High degrees of certainty can be dangerous. Herd mentality can cause investors to chase returns en masse and pile into positions that may already be overvalued. But herds can be spooked, most often by unexpected developments which can catch the herd wrong-footed and spark major movements when the masses scatter at the same time. When that occurs, those who resisted the herd may find themselves rewarded. We believe that we are approaching such a point.
By ending its three year currency peg to the weakening euro Switzerland has become the first major economy to surrender in the international currency war, and in so doing has given a long-delayed victory to the Swiss people. Contrary to the indignant reaction by the media and financial establishment, the decision is not a disaster for Switzerland, but may be looked at in the future as the first significant counter-attack against our current global system of monetary insanity.
The problem is inherent in the knowing “that it will end badly” and yet turning a blind eye and making money anyway. For that’s what a good Wall Street aficionado does after all, right? I mean, who cares about arguing about real economics or fundamentals. Who cares – I’m up 8%!! As if that’s all that now matters. For if that’s all that matters why don’t we embrace crony capitalism, embrace stagnant wages, embrace the 99% vs the 1% as that’s the best it’ll ever be. Who cares, as long as we’re getting ours. This disgusting bloated behemoth of an adulterated Central Bank infused market is now getting downright scarier.
Despite the widely held belief that 2015 will be the year in which a patient Fed finally begins to normalize rate policy, we believe the Fed has no possibility of withdrawing the stimulus to which it has addicted us. QE4 was always much more probable than anyone in government or on Wall Street cares to admit. A recession and a financial panic caused by sub $60 oil will significantly quicken the timetable by which the Fed cranks up the presses. When it does, oil could once again increase in price, along with all the other things we need on a daily basis. That should finally dispel any remaining illusions that the Fed could successfully land the metaphorical plane. More QE may minimize the damage in the short-term, but we believe it will keep us trapped in our current cocoon of endless stimulus, where we will slowly suffocate to death.