Free Money

One major factor to the slow growth/low inflation in the U.S. is the Wall Street Yield Trade.  By incentivizing unproductive use of capital, low interest rate via monetary policy is actually deflationary.

Month after month, they came up with new excuses. Now they’ve used up all the good ones, but sales are still tanking.

With much hotter CPI & PPI reports the last two months, we anticipate the May reports before Fed's June meeting to be on the high side, and that the Fed will probably have to address these new inflation pressures....

During the bubblicious years from 2000 through 2014, while Wall Street used control fraud and virtually free money provided by the Fed to siphon off hundreds of billions of ill-gotten profits from the economy, the average middle class family saw their income drop and their debt load soar. This is crony capitalism success at its finest. The oligarchs count on the fact math challenged, iGadget distracted, Facebook focused, public school educated morons will never understand the impact of inflation on their daily lives. The pliant co-conspirators in the dying legacy media regurgitate nominal government reported income figures which show median household income growing by 30% over the last fourteen years. In reality, the real median household income has FALLEN by 7% since 2000 and 7.5% since its 2008 peak. Again, using a true inflation figure would yield declines exceeding 15%.

Our Fed-fueled lottery-ticket economy will unravel with a vengeance in the years ahead. Malinvestment - the systemic consequence of the Federal Reserve's policies of near-zero interest rates and abundant credit - doesn't just inflate destruction asset bubbles: it poisons productive assets and the entire economy.

When good decisions are no longer possible, bad decisions are inevitable.

The solution to the erosion of the middle class lifestyle is to destroy debt and other fixed costs and eliminate self-sabotaging discretionary consumption.

Never in a million years did we think we’d ever use an article by Andrew Ross Sorkin as the basis of a blog post, but here we are. While probably entirely unintentional, his article serves to further solidify as accurate the prevailing notion across America that former head of the New York Federal Reserve and Obama’s first Treasury Secretary, Timothy Geithner, is nothing more than an addled, crony, bureaucratic banker cabin boy. Simply put, "Geithner is so bad, he actually makes Larry Summers look good."

Fits the pattern of gratuitous bank enrichment perfectly. But this time, the beneficiaries of the Fed are foreign banks.

Some people are either born or nurtured into a time warp and never seem to escape. That’s Janet Yellen’s apparent problem with the “bathtub economics” of the 1960s neo-Keynesians. As has now been apparent for decades, the Great Inflation of the 1970s was a live fire drill that proved Keynesian activism doesn’t work. That particular historic trauma showed that “full employment” and “potential GDP” were imaginary figments from scribblers in Ivy League economics departments—not something that is targetable by the fiscal and monetary authorities or even measureable in a free market economy. Even more crucially, the double digit inflation, faltering growth and repetitive boom and bust macro-cycles of the 1970s and early 1980s proved in spades that interventionist manipulations designed to achieve so-called “full-employment” actually did the opposite—that is, they only amplified economic instability and underperformance as the decade wore on.

There is nothing fancy about these three solutions. They shift the incentives away from speculation to earned income/productive work, they lower regressive taxes on the middle class and working poor and they do not restrain legitimate enterprise and wealth accumulation. They eliminate complex systems (the Federal Reserve and the tax code) and put money in the hands of tens of millions of households rather then the top .1%. Yes, they are utopian, but only because we keep electing the same bought-and-paid-for Demopublican lapdogs of the super-wealthy and vested interests.

If there’s one thing we all know about banks and bankers: they love to tell tales in public of how much they value their customers. However, what you’ll never hear them profess in private: is how much they trust them. Although one may think that’s unseemly, believe it or not there is another entity banks hold at an even lower tier. Other banks.  One of the known facts people remember about the melt down in 2008 (as opposed to general public) was when the banks no longer trusted each other, and what they earlier claimed was “collateral” wasn’t actually worth what it was stated to be. As we recently explained in How China’s Commodity-Financing Bubble Becomes Globally Contagious, the implications of this development and the consequences it portends just might make it the proverbial “canary in a coal mine.” The underlying issue that makes this far more dangerous or different from times past is three-fold...

So far we have experienced 7 million foreclosures. Beyond that there are still 9 million homeowners seriously underwater on their mortgages and there are millions more who are stranded in place because they don’t have enough positive equity to cover transactions costs and more stringent down payment requirements. And that’s before the next down-turn in housing prices - a development which will show-up any day. In short, the socio-economic mayhem implicit in the graph below is not the end of the line or a one-time nightmare that has subsided and is now working its way out of the system as the Kool-Aid drinkers would have you believe based on the “incoming data” conveyed in the chart. Instead, the serial bubble makers in the Eccles Building have already laid the ground-work for the next up-welling of busted mortgages, home foreclosures and the related wave of disposed families and social distress.

They’re not even trying to blame the weather this time.

Last night's devastating trade data from China had the bad-news-is-good-news crowd chomping at the bit over the next massive stimulus that 'surely China will unleash...because they've got so much in reserves'. However, as we have explained previously, Chinese premier Li Keqiang destroyed those expectations last night when he ruled out major stimulus to fight short-term dips in growth. Unlike his 'desperate for a short-term fix' colleagues in the west, Li stated more thoughtfully (and perhaps more knowingly given his country's pending credit bubble crash), "we will instead focus more on medium- to long-term healthy development."