There’s good propaganda and bad propaganda. Bad propaganda is generally crude, amateurish Judy Miller “mobile weapons lab-type” nonsense that figures that people are so stupid they’ll believe anything that appears in “the paper of record.” Good propaganda, on the other hand, uses factual, sometimes documented material in a coordinated campaign with the other major media to cobble-together a narrative that is credible, but false. The so called Fed’s transcripts, which were released last week, fall into the latter category... But while the conversations between the members are accurately recorded, they don’t tell the gist of the story or provide the context that’s needed to grasp the bigger picture. Instead, they’re used to portray the members of the Fed as affable, well-meaning bunglers who did the best they could in ‘very trying circumstances’. While this is effective propaganda, it’s basically a lie, mainly because it diverts attention from the Fed’s role in crashing the financial system, preventing the remedies that were needed from being implemented (nationalizing the giant Wall Street banks), and coercing Congress into approving gigantic, economy-killing bailouts which shifted trillions of dollars to insolvent financial institutions that should have been euthanized. What I’m saying is that the Fed’s transcripts are, perhaps, the greatest propaganda coup of our time.
That didn't take long: merely weeks since he walked out of the Marriner Eccles building and into the sunset, Ben Bernanke is writing his memoirs. AP reports: "Ben Bernanke, who stepped down last month after eight years as chairman of the Federal Reserve, is planning a memoir. Bernanke told The Associated Press on Monday that he will focus not just on the defining moment of his time at the Fed, the 2008 financial crisis, but on the "Great Recession" that followed. "I want people to understand what we knew, when we knew it, how we made decisions and how we dealt with the enormous economic uncertainty," said Bernanke, who expects to begin meeting with publishers within the next several weeks. Bernanke, 60, says he will cover his entire career at the Fed, starting in 2002, when he joined the Board of Governors." So our question to you, dear readers, is what should the title of Bernanke's book of memoirs be?
880 grams at a time...
This next paragraph contains what Grant Williams believes is the fundamental principle of investing in gold and silver, which so few people genuinely understand — despite the multitudes of commentators expending countless thousands of words.
"So these anti-gold idiots are just that, idiots, or else they have the memory of a goldfish, because currencies come and currencies go, as sure as night follows day. It is the natural order of things. And as you can see, it's not about trading gold to get rich or getting long gold or buying one by two call spreads or getting fancy, it literally is about protecting yourself in the end. It's not like Williams got rich. He just stayed rich. Everyone else got poor."
Central banks are accumulating gold because it cannot go BANG! like fiat currencies do. Individuals should be doing the same — not being sidetracked by the distractions. It's not about price - if you own gold, it will do all the heavy lifting for you when the time comes.
Now that we have the full history of foreign Treasury purchases in 2013, we know the following: in December 2012 total US paper held by foreigners was $5,573.8 billion; one year later it rose to $5.794.9 billion or a $221 billion increase. So how does this look in the context of QE? In the past year, courtesy of the Fed's $1 trillion in TSY and MBS purchases, Ben Bernanke purchases some $552 billion in Treasurys, or about 150% more than all foreigners combined! Suddenly the need for MyRA is becoming all too clear...
Now that Ben Bernanke has handed over the keys of the Federal Reserve, there are all sorts of theoretical arguments, pro and con, concerning his bold quantitative easing (QE) programs, in which the Fed massively expanded its balance sheet. Many critics have worried that this will disrupt the proper functioning of credit markets, and threatens to severely debase the US dollar. The defenders of Bernanke have argued that he spared the US (and indeed the world) from a second Great Depression. One of the odd (more farcical) points that people raise in Bernanke’s defense is the case of Japan... We do have historical examples of central banks ruining their economies/currencies through massive expansions of their balance sheets (Weimar Germany, Zimbabwe, etc.). To our knowledge, this has never actually worked anywhere in history...
Last week, Federal Reserve Chairman Janet Yellen testified before Congress for the first time since replacing Ben Bernanke at the beginning of the month. Her testimony confirmed what many of us suspected, that interventionist Keynesian policies at the Federal Reserve are well-entrenched and far from over. Isn't it amazing that the same people who failed to see the real estate bubble developing, the same people who were so confident about economic recovery that they were talking about “green shoots” five years ago, the same people who have presided over the continued destruction of the dollar's purchasing power never suffer any repercussions for the failures they have caused?
“Guidance” is the new organizing credo of US financial life with Janet Yellen officially installed as the new Wizard of Oz at the Federal Reserve. Guidance refers to periodic cryptic utterances made by the Wizard in staged appearances before congress or in the “minutes” (i.e. transcribed notes) from meetings of the Fed’s Open Market Committee. The cryptic utterances don’t necessarily have any bearing on reality, but are issued with the hope that they will be mistaken for it, especially by managers in the financial markets where assets are priced and traded.
Those of our readers focused on the state of the housing market will undoubtedly remember this chart we compiled using the data from the largest mortgage originator in the US, Wells Fargo. In case there is some confusion, as a result of rising interet rates (meaning the Fed is stuck in its attempts to push rates higher), the inability of the US consumer to purchase houses at artificially investor-inflated levels (meaning housing is now merely a hot potato flipfest between institutional investors A and B), and the end of the fourth dead-cat bounce in housing (meaning, well, self-explanatory), the bank's primary business line - offering mortgages - is cratering. So what is a bank with a limited target audience for its primary product to do? Why expand the audience of course. And in a move that is very much overdue considering all the other deranged aspects of the centrally-planned New Normal, in which all the mistakes of the last credit bubble are being repeated one after another, Reuters now reports that the California bank "is tiptoeing back into subprime home loans again."
We at the Fed are the platonic guardians of the global financial system. And our logic is undeniable….
The concept of continuously doubling down in order to achieve financial and economic goals is now a respectable and established norm. Takahashi’s Wager of 1930s Japan shows that such a policy, while initially successful, can remove all sensible restraints. On the surface ‘Gamblernomics’, like the ‘Takahashi Wager’, appears successful - the equity market has risen substantially, the currency has fallen, and government bond yields remain low. So far, so good. How is the government gauging the success of this dice roll? They are looking for two percent inflation, a positive growth number, and have committed to two years of massive QE to achieve these goals. As time passes and these targets are not met, the policy makers will double down again, by which point interest payments and welfare spending are likely to comprise most of the budget.... Today’s adherents of ‘Gamblernomics’ are not only found in Tokyo, but also reign in all major financial capitals, each playing their own version of a similar wager. All believe that doubling down is a sober strategy given the sunk costs of lost growth. As a new generation of gamblers sit at the table, ghosts of gamblers past whisper - “Place your bets.”
People Powered Privacy Savior ... Or Honey Trap Pushed By the Central Banks and TBTF?
XKCD published this cartoon in reference to ESPN and the like, but it’s even more applicable to CNBC and its ilk. Just to be clear, I’m not slamming these hosts and traders. I’m sure that they are overwhelmingly smart, honest people who believe that what they say are useful truths from their own perspectives. They are not hypocrites. But they are performers. And like any performer, there is a larger game being played with their words. The larger meaning of the statements made on CNBC has absolutely nothing to do with specific investment advice or news. CNBC really could not care less about the actual content of what is being said. The purpose of CNBC’s game is not to tell you WHAT to think, but HOW to think, that thinking about investing in terms of some sell-side analyst’s anodyne story about fundamentals or some trader’s breathless story about open option interest is smart or wise or what all the cool kids are doing. Why? Because CNBC can create inexpensive content essentially at will to fill this demand, allowing them to sell advertisements and take cable carriage fees.
"Many will remember Ben Bernanke for classic central bank stabilizing actions taken during the fall 2008 panic, including emergency loans to banks and swap lines to foreign central banks. But historians might also consider actions the Fed took before and after that panic...
Many argue that QE has not reduced unemployment, but has diminished the Fed’s independence and credibility, offsetting the effects of adopting a numerical inflation target. Now, only a year after the latest round of QE began, the Fed is struggling with how to unwind it, just as many had warned."
Last week brought two important pieces of news: one deceptive, the other fraudulent. The deceptive news was that the Fed, in its last Ben Bernanke moment, would stay the course. The fraudulent news was that US economy grew at a 3.2% annualized pace in the last quarter of 2013. We're still in the weakest recovery since the end of World War II. But since 1950, the composition of the US economy has changed so substantially that GDP 'growth' no longer means what it used to mean...