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"This Is Not Normalizing... And No, We Don't Have Any Precedent"
Submitted by Adam Taggart via PeakProsperity.com,
Financial repression authority Daniel Amerman returns this week to discuss the ramifications of the Federal Reserve's first interest rate hike in nearly a decade:
The key to understand the situation here is that this is not normalizing, and we don’t have a precedent. We really don’t. We’re kind of all being soothed and reassured by the Wall Street Journal and Bloomberg and the financial authorities that we’ve been down this path before, we’ve been down it many times, more often than not we’ve had rising markets as a result and, really, there’s nothing to worry about. The issue with that is there are many things this time that are entirely different, and what is presented as 'normalizing', for instance, is going back to say a projected interest rate cycle like we saw in the 2000’s or the 1990’s. What’s completely different, among many other things, is that we’ve never had rates forced so low before, and they’ve never been so low for so long. So, if you look, say at a long-term graph since 1954, what’s been going on with the Fed funds rates, we’ve had plenty of reversals in interest rate direction, but they’ve been these brief little dips that look nothing whatsoever like this.
The other big issue, and this goes back to our prior conversation on financial repression, is that I don’t think you can take any interest rate increases from the 2000’s, 1990’s, 1980’s, 1970’s as being comparable. Because, we have the greatest degree of national debt outstanding that we’ve had since the 1940’s and the 1950’s. So, you have to go much further back in time to see how a rate increase works when you have a country that’s just absolutely massively in debt. And, it’s a very different process than these recent historicals they’re talking about.
I just read the statement from the Federal Reserve and what they clearly showed was this was not normal. And, one of the clear ways that they showed it is that they made crystal clear that they would be keeping their current holdings of U.S. government and agency debt in roughly the 2.4 to 2.5 trillion dollar range, until this is fully confirmed and they’re sure they’re going forward with the interest cycle and so forth. Now, that by itself tells you this isn’t normal. Typically, if you’re talking about driving interest rates down, you want liquidity in the system, and you provide liquidity through asset purchases. If you want to drive interest rates up, you want to tighten the system and you might remove money from the system let’s say by selling many of those assets. And, they’ve made clear on the front end that they’re not doing that.
And, I think this, again, ties very closely into what we’ve talked about before, with the size of the national debt, with financial repression and so forth. For financial repression to work, for the government to keep a lid on and control of interest rates, they need a large captive audience. One of the largest components of captive audience is the federal funds currently holding such a large portion of the U.S. national debt. So, if they were to follow a true normalizing cycle, they should be selling those and they’re not.
Our national debt is a fantastic sum that most of can’t really understand. How could we possibly be that badly in debt? How can we make the payments on that debt in terms of principle and interest and so forth? And, people are right that if we were in a normal market situation, we would be in a huge degree of difficulty with the national debt. But, again, this is something that’s happened many times over the centuries. And, what governments typically do, their most popular choice when they get deeply into debt is they increase their control over the markets so they knock out the interest rate risk for themselves, they push rates way down as they’ve done to historical lows. There’s more to it than that (we'd need another full hour more to talk about financial repression), but basically, they transfer wealth from savers to the government in the process of paying down the debt, in a process that most people don’t understand.
Click the play button below to listen to Chris' interview with Daniel Amerman (60m:03s)
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Does this feel like a 'pull it' moment to anyone else? Tightening and allowing the system to collapse like this seems like more of a palpaple alternative to the central planners than other scenarios, given the political and economic climate.
It just seems like the fed might be worried about having to take too much heat from acts like negative interest rates, bank bail-ins and the final qe that kills the dollar.
The Fed is in a position where, no matter what it does, it is fucked. It shouldn't have raised rates, but it shouldn't have not raised rates. Watch junk bonds. Espectially those in the energy sector.
Maybe they will just change the rules again.
Constantly easing money policy and letting private debt expand until it could no longer be supported.
So the governments take over the deft, but then the debt to GDP ratios go bad.
So they bring out the trillion dollar platinum coin, or a special class of security that isn't gov't debt but that can only be held by the Fed Res.
They seem to have ways to extend and pretend.
The equities markets are government sponsored....never seen that before.
"And No, We Don't Have Any President"
just another stooge for the deep state
Patience, my friend. This shit isn't going to get real until the next puppet is 'elected by the Sheeple'. I think they string this shit until November or early December of 2016. They have the tools and the printing press. Still, the music will eventually stop playing and there will be no chairs for most.
This ^^^.
Economic conditions will continue to worsen throughout 2016, but we will have an (s)election in November as expected. However, it appears the inauguration will either not happen or will be a mere formality without the pomp and circumstance normally associated with the presidential swearing in. You can expect some force majeure events then (and likely before November/December) and then blue helmets on east and west coasts, for the children, of course.
Heh, you're probably right. I was thinking that the 'pull it' moment was gonna be in the meeting in September, but they changed their mind at the last minute once they realized how annoying it'd be to hear all the Shemitah goyim bragging about how they 'called it' all this time.
Yes, they seriously missed their window.
The perfect time to have committed to a first interest rate hike was around 2010-2011. Why the FOMC opted not to is beyond me.
Yes, this is going to move far more slowly than people imagine. It'll get more extreme, but it'll still be slow. Until the last two weeks, which will leave us saying WTF.
Remember the timeline for the USSR collapse was more than two years, and the actual far ran from August to December.
My guess is the collapse in the US will be lead by the financial system, and then a few states will start to break away as the system falls apart. That's years from now, but probably not many.
MUCH more slowly.
The Roman Empire's collapse was measured in decades and even centuries.
But that headline doesn't get pageviews and ad clicks. The headline it's all collapsing any day now does.
Well, don't forget that back then it often took decades for news to get out to all corners of the empire...there were plenty of places that weren't aware that Rome had fallen, and life went on pretty much as normal, until they noticed they weren't hearing much from the central authorities, and has anyone seen a centurion lately?...Life could go on like that for a couple of generations before they became aware that the central powers had collapsed. They'd probably become aware of it when the local barbarians let them know there had been some changes...
Today the news spreads within hours, to everyone. We don't have to wait for it to trickle down. So things will move a lot quicker for us.
How many of your's and mine fellow Americans are truly aware of and understand of the coup that took place November 23rd, 1963? 52 years ago?
That event formally started us as a nation down the road to where we are today. It installed the cartel/oligarchy that has since thoroughly Asset-Stripped Americans primarily to overseas interests and to the domestic benefit of the oligarchy that implemented it.
Data is NOT information
rome is fine. the republic not so much.
It is a 'pull it' moment. That part is easy to predict. What is not so easy is what is getting pulled.
Is it the sovereign debt bubble? Unlikely. The Fed will do another QE, if necessary, to keep the US bond yields in a range affordable for the US government.
Is it the interest rate derivatives bubble? Doesn't seem likely considering the Fed has been warning about this rate rise for a long time now and the banks would have, by now, exited the interest rate swaps that will cause them to shell out money.
Is it the commodity derivatives bubble? Possible, but there isn't any perceptible movement in that direction.
But something is definitely going down before the Obama administration leaves office and is likely to be something no one has seen coming.
I don't know how realistic the following scenario is, but something I am guessing has the potential to kill the US$.
If the US stock markets crash before the end of the year, it could present some problems even if they recover early next year. I am suspecting the capital gains on the US stock markets have been a source of significant income for the US government the last few years and same would have been projected in the recently approved US budget. However, if the stock markets crash just before the end of the year, this source would simply dry up. The actual budget deficit for the year 2015 would then be far higher than initially projected and the debt ceiling will be hit well before March 2017 until when it was supposed to last. If the debt limit is hit close to the elections, no amount of posturing and lecturing by Obama will convince the House Republicans to raise it. They would instead offer to pass another spending bill that cuts the spending for various spending programmes in order not to raise the debt ceiling. That would, of course, be not acceptable to the Democrats. Given the "extraordinary" circumstances, Obama will authorise the minting and "sale", at face value, to the Fed of high face value platinum coins (the "Trillion Dollar Platinum Coin" discussed in the media) to finance the fiscal gap.
That, money creation without corresponding debt creation, is what will kill the US$. Regardless of the amount of money created in the first such attempt, a few billion or a few trillion, it immediately signals to the world that the US government no longer believes in taxing or borrowing to spend and is willing to create money without any liabilities in order to finance its spending. In other words, the US government can decide how much inflation to create. Ousiders holding the US$ will not wait for the US government to devalue their savings and will rush out of the US$ dumping them on whoever is willing to accept them for anything of value, incluing other currencies and tangibles. The US$ will sink in value as fewer and fewer entities outside the US will be willing to accumulate the US$. Prices of tangibles in US$ terms will hit the sky.
"But something is definitely going down before the Obama administration leaves office and is likely to be something no one has seen coming."
I think so too, and it would be poetic justice for this President to get ambushed before he leaves by the very problems he refused to deal with at the beginning of his stint. He did NOTHING.
The sleeping giant he ignored is now awakening. And if this economy is going down after all, then let it be on his watch, so he gets all the historical 'credit'...It won't take long before even the stupid MSM puts 2 and 2 together...No prosecutions for the financial crisis, now we have an even BIGGER problem with those very same actors...
Obama's failure to act will be seen much more clearly after the next crisis, and will lay a heavy coating of tarnish on his legacy.
So, the world is going to hell in a handbasket. Get over it!
Is there one iota of information in that hour long podcast that tells me how to behave financially to benefit from this bullshit 'market' we're in, or is this just another hour of fear porn with no fucking advice whatsoever?
Becuase if it's the latter, I'm grabbing yet another beer since I already know things are fucked beyond belief.
If I were you, I'd mortgage the house going deeper into debt and short it.
They got nuttin, they're now in the box the best & brightest created, the JV Team is minding the casino floor while the managers are off on vacation so can't move without bothering them for authorization.
Course, I'm just some guy on the internet, do you feel lucky? ;-)
Yet through all this phony baloney manipulation of fed rates - the federal government STILL isn't paying down the debt - not one fucking penny! They're barely able to pay the interest on it let alone on the principal. This is all bullshit.
Right. Recovery, my eye. We've got a lot more restaurants, constructed through the massive use of leverage, but no reduction in debt at the municipal, state or national level.
Black Tulips, South Seas Bubble; been here before, just never for the modern World.
Evening Survey:
What is preferred beverage this evening?
I'm drinking Newcastle Brown Ale
Dude, you are on point. I just finished my first Newcastle of the evening. I'm about to open another. Trying to get as fat as I can before the nukes incinerate me.
Goose Island The Muddy.
Amstel Light, switching now to Yuengling.
Water. Would never waste precious metal money on reality-alteration. Go ahead and hate on me, my ZH bros.
Next up is the Newcastle Foreign Extra India Pale Ale.
Jameson, rocks to the rim, a splash of water .... X 2 now. :-)
Ommission Lager. Gluten-free. Not bad, kind of pricy, but certainly no Newcastle. Fave beer of all time though is Sierra Nevada Bigfoot Ale, followed by Rasputin stout.
started off with some Sierra Nevada "Celebration", too much hops, moving on to "Best Damn Root Beer", never had it before had to try
Blue Moon. My buddy brought over a 12-pack after winning $2900 on the Rez playing hold 'em. He took 1st place out of 126 runners. Hell yeah!
A large wine glass of good vintage Pino Grigio...
The rate hike..was minor...but enough to put some people off..and perhaps wake them up?
I don't know.
It definitely feels like winter is coming.
Would that vintage PG be Oct 15 or Nov 15? PG is not particularly known for its vintages..... its chief appeal (IMHO) being that it is a 'bit exotic sounding' but still pronounceable to the ordinary man in the street....
Just need something positive out of Zero Hedge for final capitulation.
in 1929, Roy Young raised interest rates at precisely the "wrong" time. Everyone knows what happened next.
History doesn't repeat itself, except when it does.
Policy Error? Try Prime Objective.
A little scotch. Neat
Decoy Merlot
Best red by far
Absolutely marvelous
https://www.youtube.com/watch?v=5pbc_vloYRk Miles - Sideways. 11 sec
An important corollary to all of this is the methodical implementation of Basel III and their capital requirements.
Additionally, a few years back the Fed also inserted itself into getting closer to agencies with over $50 billion in assets. This allowed giant firms like GE to take a seat at the banker's table.
On a short list this is around 50 "insiders" that have a seat inside the Fed's lifeboat.
Just like with Lehman, these inevitable collapses will be about picking losers and winners with the winners implementing a fundamental shift in ALL global commerce - the blockchain.
Maybe the world adds another 100,000 people everyday, but for US assets balanced upon deflating household incomes and crumbing businesses amid deflating labor prices thanks to globalization something has to give as part of the Great Reset.
It would feel different if the US had an monopoly selling into Nigeria, India and SE Asia, but there is a place called China that actually makes things nowadays.
I suspect the inflection point downward will be when Zbig and Kissinger shuffle off their mortal coils and all the shrill shrieking hysteria that buoyed all these institutions become truly relativized - just like the Soviet doctrine post perestroika.
PULL IT. No reference to building 7 intended...
I think they're just hoping they can BTFD with printed money. Not sure that will happen this time. Might require WW3.
Look at it from the Feds view. Its a game of whacka mo. ya put a few sheckles in smack some heads and collect the tickets.
GUYS< COME FUCKING ON: NOTHING, nada, is real about this shit. ALL of it is manipulated. You cannot watch "junk bonds" or the the "Equity markets" as they are manipulated daily by fed interventions. So, the distortions are not a relevant factor. THAT is the fucking point here. "Normalcy" or an "intent to do something" is ridiculous. There is NOTHING they can do. Chris is right: it is like a drunk driver who runs over your entire family and then is congratulated for being a doctor and coming to your aid. NOTHING is real.
I knew 2 doctors who were snowmobiling a few years ago and were quite drunk. Stopping for a break, the Doc in front got off his sled and somehow, the Doc behind him accidentally hit the throttle and ran over doc#1 who recieved puncture wounds on legs from studded track.
In another case, a general store owner had some buddies from out of state come up to go snowmobiling. They met at his store after hours and proceeded to get wasted. After the festivities they all lined up by the gas pumps (located by a steep hill with a partially frozen river at the bottom) to fill the sleds. Much to the chagrin of the store owner, his sled wouldn't start (pull cord start) so to help things along he went back in the store and got some duct tape. He then proceeded to tape the throttle lever wide open to the handle bar and while sitting on the sled started to pull the starter cord furiously until it fired up. Both he and the sled were launched into the ice cold river.
One day the summer prior, the same store owner had purchased a new Boston Whaler boat and was towing it back home for its maiden voyage. Excited about his new acquisition, he and his friend started celebrating a little early. About a mile from his destination, he excitedly noticed that an identical Boat was passing his vehicle. His passenger noticed that as well and then came the revelation. There was no vehicle towing it...
A good friend of the same store owner was a Deputy Sheriff who really like to drink and routinely had quite a buzz while on patrol. He too had acquired a new boat in the fall (at a discount) and put it in his garage waiting for spring. He buffed and polished it all winter long until spring had arrived and the lake was ice free. Both he and his wife christened the new boat (and then themselves) and launched the shiny new boat. About 1 mile out his wife noticed that they were taking on water. He immediately turned around and headed back to the launch realizing the plug was still in his truck. In order to keep the water coming in so fast (or so he thought), he idled the boat down and made the journey back very slowly. They sank about 200 yards from the launch.
Patsy Yellen was chosen because she is a Keynesian Autopilot - she can be trusted to loyally "stay on target" while the architects of this economic disaster retreat to a safe distance.
In this regard, Yellen is "fire and forget" munitions.
The globalists and their pet Krugmanites will then watch the conflagration through dark goggles, and turn their efforts subsequently to recommending global governance as the only sensible solution to the (manufactured) crisis.
After all, if what you want is the mob begging to be led to safety, you first need a hobgoblin.
How many times is enough for "and so forth."
There is plenty of precedent. It just doesn't look like it applies yet because of all the legalized financial fraud coming out of the government and banking system. It is never different. The US is still hyperinflating. The economy is still imploding. Paper price controls and financial schemes to save this pile of crap are failing. Sausages will be 1$ a piece, and the shelves will be empty. The offers and bids on your screen represent people negative net worth buying from people who have nothing to sell.