Purchasing Power

How The Fed Creates Money

What does the future look like for fiat currencies? (e.g. the dollar, the euro, the yen, the pound...) In the case of the dollar (which operates similarly to the other major world currencies), we know that - since all are "loaned into existence" - all dollars are backed by an equivalent amount of debt. Debt upon which interest must be paid. As all outstanding debt must compound over time at the rate of its interest (at least), we come to this important conclusion: Our money system is designed to grow exponentially. And it requires ever more debt in order to do so.

"The US Is Bankrupt," Blasts Biderman, "We Now Await The Cramdown"

There are many ways to look at the United States government debt, obligations, and assets. But TrimTabs's Charles Biderman cuts straight to the bottom line and add it all up - $89.5 trillion in liabilities and $82 trillion in assets.  There.  It’s not a secret anymore, and although these are all government numbers, for some strange reason the government never adds them all together or explains them - but we will. No one can really know what will have value in this politicized crony capitalistic system as the hyper-monetization ramps up... all I can suggest is to hedge your bets with some physical precious metals and some minimal leveraged real estate. Unfortunately, the more you know, the more you know you don’t know... invest and live accordingly.

For Argentina, Default Is Minor; The Real Problem Is Much Worse

By now it is well known that Argentina has been declared in default by the major credit rating agencies. However, the default is really a sideshow to Argentina's real problem, which is a profligate government financing its spending increasingly via the printing press, while publishing severely falsified “inflation” data in order to mask this fact. Inflationary policy is and always will be extremely destructive. In the developed world, a situation like that observed in Argentina has so far been avoided, but that doesn't exactly mean that central banks in the industrialized nations are slouches in the money printing department. Their actions buy us what appear to be “good times” by diverting scarce resources into various bubble activities, but in reality they impoverish us.

Money Creation - "So Simple The Mind Is Repelled"

As John Kenneth Galbraith famously stated, "The process by which money is created is so simple the mind is repelled." As Peak Prosperity's Chris Martenson explains (as part of his excellent Crash Course), essentially, money is lent into existence though fractional reserve banking. The dollars you deposit at the bank? They turn into nearly 10x that amount as your bank subsequently makes loans using that money as collateral. As simple as the process is, nearly every American remains ignorant of it and its massive implications. At the heart of the matter is this: our money supply and its related debt obligations MUST continue expanding (thereby devaluing the purchasing power of each dollar ad infinitum) -- forever -- or the entire system collapses upon itself. Prepare to be repelled...

The Coming Slump

There is a growing certainty in the global economic outlook that is deeply alarming. The welfare-driven nations continue to impoverish their people by debauching their currencies. As Japan’s desperate monetary expansion now shows, far from improving her economic outlook, she is moving into a deepening slump, for which this article provides the explanation. Unfortunately we are all on the path to the same destructive process.

Substituting Debt For Income Is Not Success - It's Failure On An Epic Scale

The economic "recovery" has been based on a simple premise: debt can be substituted for income with no ill effects. As real household incomes have declined, the legitimate foundation of additional spending--more income--has eroded for the bottom 90%. The Fed's substitution of debt for income has only doomed the nation to a deeper, more painful realignment of real income and expenses.

Our Totalitarian Future - Part 2

Huxley’s Brave New World dystopian America had a good run from 1950 until 2000. Our keepers kept us fat, dumb, distracted, and in debt up to our eyeballs. Since 2000 Orwell’s 1984 dystopian Surveillance States of America seems to be taking shape, under the watchful eye of our very own Big Brother, the NSA. Fear, punishment, slogans (See Something Say Something) and appeals to non-thinking patriotism have replaced freedom, liberty, individual rights, the Constitution, personal responsibility for our own lives and questioning authority. Are you a believer? “One believes things because one has been conditioned to believe them.” – Aldous Huxley – Brave New World; Or a truth seeker? “You shall know the truth and the truth shall make you mad.” – Aldous Huxley

Is Hong Kong-US Dollar Link About To End? HKMA Buys $715 Million To Support Peg

Yesterday saw something quite unusual in the New York trading session. The Hong Kong Monetary Authority bought $715 million (selling HKD) in the FX markets to manage its currency peg, injecting the money into the banking system (and expanding its balance sheet) to prevent HKD from rising above its permitted range. HKMA projects its balance sheet to grow to the end of July, but as Simon Black (of Sovereign Man blog) notes, this could well be the start of a bigger shift - an end to the US Dollar peg..."The US is no longer the undisputed superpower it once was. The US dollar is dragging them down. Hong Kong is easily strong enough to stand on its own."

The Rot Within, Part II: Inflation Is Not "Growth"

Just as the Federal Reserve cannot directly force you to stick the needle of monetary heroin (debt) into your arm, it also can't force employers to pay employees more. The ultimate hubris of the Keynesian Cargo Cult (which includes the global economy's central banks) is the naive notion that they can manipulate an entire system with a few levers such that the desired outcome--and only the desired outcome--is the output. The idea that you can change one input in an interconnected system of systems and only affect the one output you want is not just naive and simplistic: it requires a level of blindness and incompetence that is off the charts.

What Disposable Income Looks Like: With And Without Government Handouts

If one looks past headline figures, things are not really getting better. As shown in Figure 1, real disposable income per capita in the U.S. has increased only modestly since the Great Recession. However, all of this increase is due to Government Transfers, not from an improvement in the real economy.

Hoisington: 30Y Treasury Bonds Are Undervalued

With U.S. rates higher than those of major foreign markets, investors are provided with an additional reason to look favorably on increased investments in the long end of the U.S. treasury market. Additionally, with nominal growth slowing in response to low saving and higher debt we expect that over the next several years U.S. thirty-year bond yields could decline into the range of 1.7% to 2.3%, which is where the thirty-year yields in the Japanese and German economies, respectively, currently stand.