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Peter Schiff On QE's Creeping Communism: Washington Joins Tokyo On The Road To Leningrad
Submitted by Peter Schiff via Euro Pacific Capital,
Most economists and investors readily acknowledge that the current period of central bank activism, characterized by extended bouts of quantitative easing and zero percent interest rates, is a newly-blazed trail in economic history. And while these policies strike some as counterintuitive, open-ended, and unimaginably expensive, most express comfort that our extremely educated, data-dependent, central bankers have a pretty good idea as to where the trail is going and how to keep the wagons together during the journey.
But as it turns out, there really isn't much need for guesswork. As the United States enters its eighth year of zero percent interest rates, we should all be looking at a conveniently available tour guide along the path of perpetual easing. Japan has been doing what we are doing now for at least 15 years longer. Unfortunately, no one seems to care, or be surprised, that they are just as incapable as we have been in finding a workable exit. When Virgil guided Dante through Hell, he at least knew how to get out. Japan doesn’t have a clue.
Despite its much longer experience with monetary stimulus, Japan's economy remains listless and has continuously flirted with recession. In spite of this failure, Japanese leaders, especially Prime Minister Shinzo Abe (and his ally at the Bank of Japan (BoJ), Haruhiko Kuroda), have recently doubled down on all prior bets. This has meant that the Japanese stimulus is now taking on some ominous dimensions that have yet to be seen here in the U.S. In particular, the Bank of Japan is considering using its Quantitative Easing budget to buy large quantities of shares of publicly traded Japanese corporations.
So for those who remain in doubt, Japan is telling us where this giant monetary experiment leads to: Debt, stagnation and nationalization of industry. This is not a destination that any of us, with the possible exception of Bernie Sanders, should be happy about.
The gospel that unites central bankers around the world is that the cure for economic contraction is the creation of demand. Traditionally, they believed that this could be accomplished by simply lowering interest rates, which would then spur borrowing, spending and investment. But when that proved insufficient to pull Japan out of its recession in the early 1990s, the concept of Quantitative Easing (QE) was born. By actively entering the bond market through purchases of longer-dated securities, QE was able to lower interest rates across the entire duration spectrum, an outcome that conventional monetary policy could not do.
But since that time, the QE in Japan has been virtually permanent. Unfortunately, Japan's economy has been unable to recover anything resembling its former economic health. The experiment has been going on so long that the BoJ already owns more than 30% of outstanding government debt securities. It has also increased its monthly QE expenditures to the point where it now exceeds the Japanese government's new issuance of debt. (Like most artificial stimulants, QE programs need to get continually larger in order to produce any desirable effects). This has left the BoJ in dire need of something else to buy. Inevitably, it cast its eyes on the Japanese stock market.
In 2010 the BoJ began buying positions in Japanese equity Exchange Traded Funds (ETFs). These securities, which track the underlying performance of the broader Japanese stock market, are one step removed from ownership of companies themselves. After five years of the policy, the BoJ now owns more than half the entire nation's ETF market. But that hasn't stopped it from expanding the program. In 2014, it tripled its ETF purchases to $3 trillion yen per year ($25 billion), and the program may be tripled again in the near term. In just another example of how QE is a boon to the financial services industry, Japanese investment firms are currently issuing new ETFs just to give the BoJ something to buy.
However, these purchases have not proven to be particularly effective in doing much of anything, except possibly pushing up ETF share prices. But even that has been a mixed blessing. ETFs are supposed to be the cart that is pulled along by stocks (which function as horses). But trying to move the market by buying ETFs creates a whole other level of potential price distortions. It also tends to limit the impact to those holders of financial assets, rather than the broader economy. For this reason the BoJ is now contemplating the more direct action of buying shares in individual Japanese companies.
Such purchases would allow the Japanese government to accumulate sizable voting interests in some of Japan's biggest companies. Equity ownership would then allow, according to an economist quoted in Bloomberg, the Abe administration to demand that Japanese corporations adhere to the government's priorities for wage increases and heightened corporate spending. The same economist suggested, this "micro" stimulus provided by government controlled corporations may be more effective in spurring the economy than "macro" purchases of government bonds.
These possibilities should horrify anyone who still retains any faith in free markets. The more than four trillion dollars of government bonds purchased through the Federal Reserve’s QE program since 2008 now sit on account at the Fed. Although these purchases may have distorted the bond market, created false signals to the economy, and may loom as a danger for the future (when the bonds need to be sold), they are primarily a means of debt monetization, whereby the government sells debt to itself. But purchases of equities would involve a stealth nationalization of industry, and would represent a hard turn towards communism.
Many American observers will take comfort in their belief that the United States has already concluded its QE experiment and that we are heading in the opposite direction, toward an era of monetary tightening. This greatly misjudges the current situation.
The U.S. economy is slowing remarkably, and despite the continuous assertions by the Fed that rate hikes are likely in the very near future, I believe we are stuck just as firmly in the stimulus trap as Japan. The main difference between the U.S. and Japan is that Japan began this "experiment" from a much stronger economic position. Japan was a creditor nation, with ample domestic savings and large trade surpluses. In contrast, the U.S. started as the world's largest debtor nation, with minimal savings, and enormous trade deficits. So if Japan, with its superior economic position, could not extricate itself from this trap, what hope does the United States have?
If the Fed is unable to raise rates from zero, it will also be have no ability to cut them to fight the next recession. So the next time an economic downturn occurs (one may already be underway), the Fed will have to immediately launch the next round of QE. When QE4 proves just as ineffective as the last three rounds to create real economic growth, the Fed may have to consider the radical ideas now being contemplated by the Bank of Japan.
So this is the endgame of QE: Exploding debt, financial distortion, prolonged stagnation, recurring recession, and the eventual government takeover of industry and the economy. This appears to be the preferred alternative of politicians and bankers who simply refuse to let the free markets function the way they are supposed to.
If interest rates were never manipulated by central banks and QE had never been invented, the markets could have purged themselves years ago of the speculative bubbles and mal-investments. Sure we could have had a deeper recession, but it also could have been much shorter, and it could have been followed by a far more robust and sustainable recovery.
Instead Washington has joined Tokyo on the road to Leningrad.
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NEO-FEUDALISM.
It's what they're cooking.
< Road to Leningrad?
< Road to ruin.
< BOTH
< -- More Slavery
< -- More Freedom
(This is not choice, so please not choose favorite, this is prediction, so you are please choose what you are think is happen)
<--- Moose
<--- Squirrel
<-- Bear
<-- Pope
<-- Leningrad
<-- Pyongyang
< Cheesepope.
< ManBearPig.
<-- Handle of spoon
<-- Knitting Needle
What you are more like to have stuck in eye?
Which city is smelly sewer system come through cammode in hotel bath room.
Which is deficate in Boreal Forest?
Which animal is longer intestinal tract?
Yeah, Yeah, Yeah . . .
You've been telling us for YEARS now
How the system is going to Collapse.
Well, it's time to Put UP
or Shut UP,
GIVE US A DATE WHEN IT FINALLY HAPPENS, ASSHOLE!
Perhaps maybe you are not familiar with technique of boiling frog. You are put frog in pot of cold water and Frog is enjoy, enjoy. You are turn up heat, slowly, and frog is begin to cook, but is still enjoy, enjoy. You are turn up more heat, until is full boil. Soon, fully cook frog is float to surface of water.
Then wife is come in kitchen, scream, and for 25 minute straight is demand explanation why Boris is cook frog in new sauce pan.
Good thing the knives were not out where the wife could easily reach them.
Boris is keep sharp knife on balcony in lock cabinet.
Corrolary is "boiled frog is cannot complain"
Once you pull your head out of the sand maybe you'll realize the system has collapsed.
Else why all the Ctrl+P?
As a multi-millionaire even this guy fails to see the system has collapsed and believes it will collapse someday in the future.
Effectively 20 trillion in debt with somewhere around 200 trillion in obligations.
So when do we finally admit it to ourselves?
Everytime you head to the bank or credit union to retrieve some cash ask for gold and silver whenever they ask you how you'd like your withdrawal.
Gold and silver please!
Keyboard shortcut on Apple Macintosh is Command-P.
The top / peak was 2007.
This whole Interest Rate shit is a joke.
Here is how it plays out:
All of our fiat money is loaned into existance and exists as debt.
You loan this shit out and people have to pay it all back + Interest of course.
That means more loans , to pay off the earlier loans , otherwise known as a "growing economy"
However , at some point the interest compounds to such a point that it becomes mathematically impossible for people to borrow more money because they are already broke just paying down their debt and the majority cannot afford to borrow more money (get into further debt) and economic expansion turns into contraction.
So the Central Bank reduces rates again because borrowing is so low. and borrowing starts again.
That lead again to maxxed out people who cannot borrow any more , however , Interest Rates now are already at zero
The central bank has no choice but to send rates negative.
Central Bank Interest Rates are a LAGGING indicator:
When there is high demand for money interest rates rise - this slows down price rises (aka inflation)
When there is low demand for money interest rates reduce - this slows down price reductions (aka deflation)
When there is a negative overall aggregate demand for money interest rates go negative - this will actualy reduce the amount of money in ciculation which will cause deflation (price reductions) - and this is precisely where the black hole of fiat currency fails because interest rates cannot go up in this situation either because there is no actual demand for money , at this point a rate rise would also cause massive deflation (price reductions) due to less money being borrowed and circulated.
Interest rates are therefore a LAGGING indicator for the demand for money - ie more DEBT .. because all fiat money is LOANED into existance.
The entire fiat debt based system is on the brink of self destruction.
except it involves No hope instead of Bob Hope
I surpassed my Krugman quote quota for the day
Quite.
Dr. Paul Krugman is good for economy. Break Krugman face and from Doctor and Triage Nurse to hospital custodial staff clean up blood soak floor, economy is uptick as Nurse is purchase new hand bag and Doctor is pay green fee.
brain salad surgery...
(enter lector from hallway)
remove his brain first, he may not die...
Step inside! Hello! We are most amazing show
You enjoy it we all know
Step inside! Step inside!
Don't insult Leningrad.
Look, Mr. Schiff, total debt has outpaced growth for decades in the USA. Sure the government's bad. But show us why getting rid of the debt is going to boost industrial society. Otherwise, it's loghorrhea.
The debt load has been exacerbated by interest rate manipulation. Market rates provide signals which both businesses and consumers use to gauge future economic action. When those signals are disrupted malinvestment occurs. When markets are distorted for decades on end those distortions become untenable. Thus the bankers have instituted QE, ZIRP and NIRP in an effort to prop up the ever more precarious state of affairs. A return to accurate economic signals via market rates and less regulation in general is wanted.
BTP,
Sure it's wanted. But recent economic history suggests it will be difficult to "grow" without more debt unless one believes in skittles and unicorns. Step outside the echo chamber and figure out how the libertarian society is actually going to work for most people.
Sure it's wanted. But recent economic history suggests it will be difficult to "grow" without more debt unless one believes in skittles and unicorns.
So, if an addict doesn't increase his dosage then he won't get high anymore and believing that it's better to ease off the drugs rather than to overdose is nothing but a pipe dream (both pun and irony intended)?
Step outside the echo chamber and figure out how the libertarian society is actually going to work for most people.
Step outside the echo chamber and ask yourself, do you own yourself and do I own myself? If you do own yourself why would it be so horrific to act like you do and allow others to do the same? How much echo does there have to be for you to believe that by denying that other individuals own their own bodies you are doing them a big favor.
enjoy your 1.99 percent new car loan and 4 percent mortgae and STFU! s/
so wtf'en fuck does 4 t on the feds bal sheet represent? nothing, nadda. pooint is it doesn't mater. they can do whatever they want. create moar, let it grow moss on the north side of the stack of paper, beat their meat on top, anything to keep us believing it is real and has expirey or something we believe will become a problem financially. it can become 100t and the doom porn will flow and nothing, nadda will have changed. wake the fuck up pete...
"BoJ already owns more than 30% of outstanding government debt securities. It has also increased its monthly QE expenditures to the point where it now exceeds the Japanese government's new issuance of debt."
Once they own all it's North Korean economics baby.
Just to save the TBTF.
The Judeo-Bolsheviks jumped ship from their previous host, the moribund USSR in the late 1980s, early 1990s, correctly assessing that the West, Japan, EU and the USA, were much healthier prey and ripe for being feasted upon. Their work of the last 30 years, gaining total control over their host by slipping into every part of the Western economy and society, is almost complete.
Unfortunately, with the total control the host goes insane. The parallel in the USSR was the messianic mission of bringing Marxism to the rest of the world via revolution.
Same as it is now, but with the Zionazis pushing the NWO. Odd the neo-cons were pretty much unheard of in the West before the Judeo-Bolsheviks made their move...
The Zionist Zuckerburg made FaceBook work for him to become a Billionaire.
How's that working out for the rest of us??
Thats why I have said the great times (socially speaking) peaked in the 80s...the bolsheviks entered our country in droves right around the time of clinton.....never again will we see america of old.
Spot on and well written. Sadly, Peter and a few of us ZH readers are the only ones who believe it. Seems like an obvious train wreck, yet they keep doubling down.
The important point is that negative rates (goverment stealing from your bank account) and QE of equities (defacto nationalization of industry) are the next steps and already active in several countries.
Currency collapse happens slowly, then all of a sudden as they say.
They want us to what?
communism? lolwut? BS
Monopoly by facists. thats all. commie boogeyman bs, so childish and inaccurate. sad for a smart guy to stoop to such lame language. he fucking knows.. this is monopoly.. NOT by government.. government is a soft target out front. this is raw unbridled corporatism / fascism
always was the real goal. use strawman gov idiots to be out front, while the smokey back room oligarchy owns everything. hell, they already do. that swiss study proved that.
YOU.. your shit is already owned by fucking banksters #BankstersAreTerrorists
Exactly. Government does not own the big multinational corporations and bankers, the government is owned by them. The very definition of corporatistm/fascism. Many perceive that obamacare is government owning 'healthcare' when in fact all the profits are going to the private sector, government simply enabled the corps to have more of it with government subsidies to egg the profitteering on. Small businesses are the ones strangled by government regulation but government doesn't really care about them despite the politicos saying they do care ... they're not paying for their campaigns or meeting with the politicians at 'Signatures' for a quick $1200 lunch.
exactly bro. the strangulation of small business, is set in motion by the monopolists... they pay for the legislation to squeeze out competition...
Uhh, the Communists infiltrated big business. They are everywhere. You don't see them because you don't know what a communist is.
lol
Without these debts, if the free market had been allowed to fell a few things, the overpopulation/unemployed would not have eaten. That is something that you need to consider, plus could the US have paid for the wars without these debts and bailouts? The war machine is about 30 % of the economy, you cannot cut that off.
All economies will be limping until better pay comes along again but more importantly: Job tenure. When people do not know if they still have a job and roof over their heads in 12 months time, they will not spend and therefore the economies start limping about 3 to 5 years after deregulating the labour market.
One man's labour market flexibility is another man's income insecurity (and the woman's loss of appetite to have a child)
It must be very difficult to understand that (too) flexible labour markets cause economies to contract. This has nothing to do with Leningrad or communism - just psychology.
If the free market was in effect, none of these horrible things would happen at all. And certainly the mass murdering war machine would not exist.
War is the health of the State. That's why they print money. It is not to help us.
I am convinced since August 24,2015 the stock market is being propped up by the Federal Reserve buying stocks via their primary dealer banks.
Every day at 945-1015am the Fed steps in to set the trend for the day.
They already buy bonds, so.why not stocks too? They are unaudited so there is nothing to stop them. There is no other logical explanation for these rallies based on bad economic data. This has never happened before
we know for certain other CB's are buying equities too.. not sure our fed has admitted it yet, but, of course they are.
like playing poker with someone with a printing press. you can NOT win.
The global central bank cartel (I'll call it Oz) is operating a pyramid scheme from which there is no exit save an implosion of that scheme. Keep that firmly in mind at all times. Do not get caught up in the economic sophistry that surrounds what is nothing but a megalithic bank fraud.
Consider, by the way, the advantages and disadvantages of the great and powerful Oz as compared to the small and meek, cowardly and brainless among us.
Oz has the power of illusion, the magician's stock and trade. He has the power to evoke fear and wonder, the power to elicit obedience, and he seems to have the power to grant people's wishes...but, of course, he does not actually possess any of these powers. People grant these gifts to him...without them, he is powerless.
Ordinary people have the ultimate advantage, i.e., nothing to lose, relatively speaking, which has been cleverly and correctly equated to freedom. The small have the power of being invisible. They have the advantage of being underestimated. They have the advantage of surprise, being quick, nimble, free to act on a moment's notice without drawing attention.
Oz is trapped in his existing position. Sure, he can maintain it (almost) indefinitely but one thing he can never do is get out. He's bagged...big time. Moreover, people are watching his every move all day, every day. Tick, tick, tick...
in the late 40's, forming IMF and WB... the Mount Pelrin Society - Hotel du Parc
their intentions codified, to push through their proxy powers.. the IMF and WB these 4 basic planks to complete monoply for the oligarchy
1) De-regulate global financial markets
2) de regulate global trade
3) break the power of nations, cut taxation on real wealth, destroy their ability to prosecute monoplization and fraud
4) privitize everything especially necessary infrastructure..
they succeeded. they fucking own the world, these banksters. not childish commie or anything else. gov is impotent, beholding to the oligarchy
<”…If interest rates were never manipulated by central banks and QE had never been invented, the markets could have purged themselves years ago of the speculative bubbles and mal-investments. Sure we could have had a deeper recession, but it also could have been much shorter, and it could have been followed by a far more robust and sustainable recovery…”>
Duh! Nobody cares, or even understands what you are talking about, Peter!
Ben and his fellow bankers, oligarchs, and D.C. puppets have addressed this a hundred f***ing times. They firmly believe we would be in a depression ten times the size of the Great depression and we would likely NEVER recover. They decided to prevent having tanks in the streets and to do QE to infinity, if necessary.
Many believe it was a ruse to further enrichen the wealthy, which it did. But the masses are quite content, with 95 million in the markets counting on the Fed to rescue them from lousy “earnings”, falling revs, etc. Companies that see their stocks sold on bad news, are bought on any weakness with everyone sure the Fed will be there or more stock buyback announcements are coming. Shorts have their faces ripped off again and again.
They want Dow 19K by the end of the month and 20K by year’s end, and will get it. There is peace at home; the cities are not burning. Millions enjoy ‘Dancing With the Stars’, their newest I-Toys, EBT cards, and enough $ to put gas in the SUV’s gas tank. Nobody cares about the endless wars we start, so long as it doesn’t hurt the stock market. This is the ‘New Normal’ and it is here until it all comes apart. Donald is 100% correct on all points
How about if this chart were seen EVERYWHERE?!
http://showrealhist.com/RealDow.gif
We are all one Soviet, Comrades!
Forward! To the Bath House!
Japan loves communism.
The USSA loves fascism.
Those two "systems" are a distinction without any significant difference. Both are authoritarianism, tyranny, slavery and widespread destruction.
Everything being done is totally on purpose. They know precisely what they're doing, and the consequences their actions will cause. That's how they get what they want... totalitarianism.
They are distinct in that they will go to war against each for principles that baffle everyone.
WHO'S GOING TO STANDUP AND FREE THE MARKET AND STOP THIS INSANITY
Greed kills eventually.
The SOBs-that-be want to keep these very instructive histories out-of-sight!
http://showrealhist.com/yTRIAL.html
I suppose you have to go by way of Leningrad to get to St. Petersburg---the second city of a rich, prosperous, debt-free country whose best years are ahead of her, not behind her, with at most 15 years to go before her people enjoy living standards comparable with Uncle Sugar's debt-peons (today, I mean; we'll have lost a lot of ground in the meantime).
But it was a long road. I pray all here live to see the end of it.
In the meantime, an old Soviet joke:
Q. Where were you born?
A. St. Petersburg.
Q. Where were you live now?
A. Leningrad.
Q. If it were completely up to you, where would you like to live?
A. St. Petersburg.
Washington has no real allies, only slaves.
The only way out of this is to elect a true outsider with enough guile to cram legislation through while thwarting assassination.
They'll be gunning for the right candidate. I wouldn't put it past the money folks to bomb a whole city to keep the right candidate from living to win election.
If that happens, all bets are off about the future.
We haven't had a reasonably free market for many years,,, for sure not since 1913.
There is no easy way out,,, at some time we're gonna have to go cold turkey.
On the road to er,,, Stalingrad?
Sheeple don't give a hoot if everything is nationalised or not, QE4 or QE400, or who owns the stock market.
They can't change it in any case...so why worry?
Let ZH'ers worry for them.
So now you know where you persistent headache comes from.