Tag Archives: FOMC meeting

Can The Fed “Normalize” Without Collapsing The System?

The official lies about the economy keep mounting.  The Dallas Fed reports that its regional economic activity metric surged in early September, despite the complete shut-down of Houston for a few days during the “measurement” period.  The “general activity” index spiked up to a 7-month high. Clearly the quality of this report is suspect, to say the least.

Contrary to this report, the Chicago Fed’s National Activity Index plunged to -0.31.  It was the weakest reading since last August and a huge plunged from the July reading of 0.03. The Street was expecting 0.11.  Because of the nature of this index (85 sub-components measured at the national level) it takes a lot to “move the needle” for this metric.  A negative point-three-one reading implies that the national economy broadly contracted during August.

Clearly the Dallas Fed propaganda was intended to reinforce the Fed’s empty threat to raise interest rates and “normalize” its balance sheet .  Silver Doctors invited me onto their Friday weekly market podcast to discuss the latest propaganda that spewed forth from the Fed’s FOMC meeting earlier in the week, the western Central Banks’ losing battle to push the price of gold lower and the continuing deterioration in the U.S. political and economic system:

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Will The Fed Really “Normalize” Its Balance Sheet?

To begin with, how exactly does one define “normalize” in reference to the Fed’s balance sheet?  The Fed predictably held off raising rates again today.  However, it said that beginning in October it would no longer re-invest proceeds from its Treasury and mortgage holdings and let the balance sheet “run off.”

Here’s the problem with letting the Treasuries and mortgage just mature:   Treasuries never really “mature.” Rather, the maturities are “rolled forward” by refinancing the outstanding Treasuries due to mature.   The Government also issues even more Treasurys to fund its reckless spending habits.  Unless the Fed “reverse repos” the Treasurys right before they are refinanced by the Government, the money printed by the Fed to buy the Treasurys will remain in the banking system.  I’m surprised no one has mentioned this minor little detail.

The Fed has also kicked the can down the road on hiking interest rates in conjunction with shoving their phony 1.5% inflation number up our collective ass.  The Fed Funds rate has been below 1% since October 2008, or nine years.   Quarter point interest rate hikes aren’t really hikes. we’re at 1% from zero in just under two years. That’s not “hiking” rates.  Until they start doing the reverse-repos in $50-$100 billion chunks at least monthly, all this talk about “normalization” is nothing but the babble of children in the sandbox.  I think the talk/threat of it is being used to slow down the decline in the dollar.

To justify its monetary policy, Yellen stated today that she’s, “very pleased in progress made in the labor market.”  Again, how does one define progress?  Here’s one graphic which shows that the labor market has been and continues to be a complete abortion:

The labor force participation rate (left y-axis) has been plunging since 2000. It’s currently below 63%. This means that over 37% of the working age population in the United States is not considered part of the labor force. That’s close to 100 million people between the ages of 15 and 64 who, for whatever reason, are not looking for a job or actively employed. A record number of those employed are working more than one part-time job in order to put food on table and a roof over the heads of their household. Good job Janet! Bravo!.

The blue line in the graph above shows the amount of dollars spent by the Government on welfare. Note the upward point acceleration in the rate of welfare spending correlates with the same point in time at which the labor force participation rate began to plunge. Again, nice work Janet!

The labor force participation rate is much closer to the true rate of unemployment in the United States.  John Williams of Shadowstats.com has calculated the rate of unemployment using the methodology used by the Government a couple of decades ago and has shown that a “truer” rate of unemployment is closer to 23%.

The true level of unemployment  is definitively the reason why the rate of welfare spending increased in correlation with the decline in those considered to be part of the labor force.   It could also be shown using the Fed’s data that another portion of the plunging labor force participation rate is attributable to the acceleration in student loans outstanding.  I would argue that part of the splurge in student loan funding, initiated by Obama, was used to keep potential job-seekers being forced by economic necessity from  seeking jobs and therefore could be removed from the labor force definition, which in turn lowers the unemployment rate.

As I write this, Yellen is asserting that “U.S. economic performance has been good.”  I’d like to get my hands on some of the opioids she must be abusing.  Real retail sales have been dropping precipitously (the third largest retail store bankruptcy in history was filed yesterday), household debt is at an an all-time high, Government debt hits an all-time high every minute of the day and interest rates are at 5,000 year lows (sourced from King World News)

Note to Janet:   near-zero cost of money is not in any way an attribute of an economy that is “doing well.” In fact, record levels of systemic debt and rising corporate and household bankruptcies are the symptoms of failed Central Bank economic and monetary policies. This is further reinforced by the record level of income disparity between the 1% highest income earners and the rest of the U.S. labor force.

The entire U.S. economic and financial system is collapsing.  If the Fed truly follows through on its threat to “normalize” its balance sheet and raise rates, the U.S. will likely collapse sometime in the next couple of years. On other hand, up to this point since Bernanke’s famous “taper” speech in May 2013, most of the Fed’s statements with regard to hiking rates (hiking them for real) and reducing its balance sheet has been nothing but hot air.  And in fact, unless the Fed reverse repos its balance sheet back to the banks, it’s assertion of “balance sheet normalization” is nothing more than another in long series of lies.

“Low Inflation” In Not “Good” – It’s Pure Propaganda

Analysts who advocate a monetary policy that targets “low inflation” are the equivalent of chickens in the barnyard rooting for Colonel Sanders to succeed.   This idea that a low level of inflation being good for the economy is beyond moronic.

The fiat currency money system era was accompanied by the erroneous notion that a general increase in the price of goods and services is “inflation.”  But technically this definition is wrong.  “Inflation” is the “decline in the purchasing power of currency.”  This decline occurs from actions that devalue a currency.  Rising prices are the visible evidence of ongoing currency devaluation.

Currency devaluation occurs when the rate of growth in a country’s money supply exceeds the rate of growth in real wealth output.   Simply stated, it’s when the amount of money created exceeds the amount of “widgets” created, where “widgets” is the real wealth output of an economic system.

In ancient Rome, the currency devaluation occurred when the Roman Government began to “shave” gold and silver coins which enabled it to increase the amount of coins produced from mined gold and silver in order to finance Government spending.  When spending continued to exceed the amount of currency produced, the Government increased the money supply by diluting gold and silver coins with cheaper and more abundant metallic additives.

In the United States currently, currency devaluation occurs through both money printing, which has been cleverly disguised for propaganda purposes as “quantitative easing,” and by the continuous growth in credit creation.   Debt issued behaves exactly the same as printed currency until that time at which the debt is repaid, not by more debt issued, but from money that has been accumulated by the debtor in order to repay and retire the debt.

The U.S. Government has not reduced the amount of debt issued for decades.  Apologists will look at the Treasuries outstanding chart on the Fed’s website and argue that the debt level declined ever so slightly in the late 1990’s.  But this was achieved through accounting gimmicks, not an outright reduction in Federal debt outstanding.

Notwithstanding this, the total level of debt in the U.S. system has been continuously increasing for many decades.  While it’s argued that this is debt and not money supply, it is a fact that debt issued spends just like printed money until the debt is repaid and retired. Thus, currency devaluation has been occurring in the United States on a continuous basis since at least 1913 (founding of the Fed).

Back to the erroneous idea that “low inflation is desirable.”  I defy anyone to research this and present a rational explanation that has ever been offered.  The best I could come up with is “low inflation is good for the economy.”  That is unadulterated ignorance.  That phrase means that “it is good for the Government to devalue the currency.”  Why is it “good” for a consumer to pay higher prices, i.e. more money for goods and services on an ongoing basis?

Inflation, where “inflation” means the true definition, is a subtle mechanism by which the elitists redistribute wealth.   Printing money  benefits those who are closest to the money faucet to the detriment of those who are “downstream” from the flow of new money supply (or credit created).  The banks are always first in line at the money faucet.  The Federal Reserve was erected for that purpose.  The creators of the Fed were all owners of the biggest banks in the U.S. at the time plus the political puppets of those owners.   Go look up the roster of men who founded the Fed for yourself if you don’t believe me.

After the banks, the Government is next in line.  And after that all of the companies that benefit from Government largess.  Inflation, even “low inflation” is not beneficial to anyone other than those who are in a position to take advantage of the currency devaluation mechanism.  Period.  Anyone who tries to argue that “low inflation is good” and that a low inflation target should be a primary goal of the Fed’s monetary policy is either someone who is in position to benefit from that policy (banks, politicians, big corporations etc) or is tragically stupid.

The Public Is Getting Pissed – Ignoring Rule Of Law

“If liberty means anything at all, it means the right to tell people what they do not want to hear.”   – George Orwell

There’s a narrative here that the Government, the Fed, the Trump Administration, etc conveniently ignored.  Here’s the headline list this morning:

  • GM Extends Plant Shutdowns
  • 2nd Quarter GDP Hit As Inventories Tumble In April
  • Retail Sales Tumble Most Since January 2016
  • Pension Crisis Escalates
  • House Majority Whip Shot At Congressional Baseball Practice

Real Clear News reported that Representative De Santis stated to police that the shooter asked “whether Republicans or Dems were on the field before shooting.”  Fox News has confirmed  the report.

The public is getting pissed.  It is told daily, on no uncertain terms, by the White House that the economy is rapidly improving.  The Fed confirms that the economy is improving.  Wall Street chimes in confirming that “narrative.”

The public is told that the unemployment rate is under 5% and the labor market is tight.  But 95 million people in the working age population don’t have jobs.  They are not considered part of the “Labor Force” and have been removed from the statistics altogether by some BLS bureaucrat’s pencil eraser. To be sure, maybe 1/3 or even 1/2 of those people don’t want to work or need to work for some reason (wealthy, wealthy and lazy, inherited income, public assistance of some form, etc).  But 1/2 to 2/3’s of those people would like to find a job that doesn’t entail delivering pizza or washing dishes – in other words, jobs that pay to support a family.

A growing portion of the population understands the underlying truth about the economy that exists behind the propaganda and lies. And they are getting pissed. It’s become clear to anyone desperate enough in their fight to get by that the politicians, corporate elitists and Wall Street crooks are no longer beholden to Rule of Law.   The conclusion for the growing legion of desperate is obvious:  “why should we adhere to Rule of Law?”

At least this time the Deep State can’t shove the “it was ISIS” narrative down our collective gullets.

Gold & Silver Soar After The Fed’s Clown Show

Stocks rally as the Fed once again shows how clueless they are at trying to manage the economy. – from @Stalingrad & Poorski

The Federal Reserve’s FOMC predictably nudged the Fed Funds rate up 25 basis points (one quarter of one percent) to set its “target” Fed Funds rate level at .75%-1%.   Nine of the faux-economists voted in favor of and one, Minneapolis Fed’s Neil Kashkari, voted against the meaningless rate hike.

Or is it meaningless?  Ex-Goldman Sachs banker Neil Kashkari was one of the Treasury’s Assistant Secretaries when the Government made the decision to bail out Wall Street’s biggest banks with nearly $1 trillion in taxpayer money.   It was also when the Fed dropped the Fed Funds rate from about 5% to near-zero percent.  Despite Yellen’s official stance that  the economy is expanding and the labor market is “tight” (with 37% of the working age population not considered part of the Labor Force – a little more than 94 million people) Kashkari voted against the tiny bump in interest rates.  This is likely because he is fully aware of risk to the banking system – perched catastrophically on hundreds of trillions in debt and derivatives – of moving interest rates higher.

The Fed’s goal is to “normalize” interest rates.  The financial media and Wall Street analysts embrace and discuss this idea of “normalized” interest rates but never define exactly what that means.  For the better part of the Fed’s existence, the “rule of thumb” was that long term rates (e.g. the 10-yr Treasury rate) should be about 3% above the rate of inflation.  And the Fed Funds rates should be equal to or slightly above the rate of inflation.

Using the Government’s highly rigged CPI index, it implies the Fed Funds rate would be “normalized” at approximately 2.7% and the 10-yr bond around 6% based on Wednesday’s CPI report.  Currently the Fed Funds rate is 3/4 – 1% and the 10-yr is 2.5%.  Of course, since the early 1970’s, the CPI calculation has been continuously reconstructed in order to hide the true rate of price inflation.  For instance, the current CPI index does not properly account for the rising cost of housing, education, healthcare and automobiles.

John Williams’ of Shadowstat.com  keeps track of price inflation using the methodology used by the Government to calculate the CPI in 1990 and 1980.  Using just the 1990 methodology, the rate of price inflation is 6.3%.  This would imply that a “normalized” Fed Funds rate would be around 6.5% and the 10-yr bond yield should be around 9.5%.    So much for this idea of “normalizing” interest rates.  Using the Government’s 1980 CPI methodology, Williams calculates that the stated CPI would be 10.3%.

Most of the hyperinflated money supply has been directed into stocks, bonds and real estate. But based on the cost of a basket of groceries, healthcare and housing alone, price inflation is accelerating.    If the Fed were to “normalize” interest rates at 6.3%, it would crash the financial and economic system.  In other words, the Fed is powerless to  use monetary policy in order to promote price stability, which is one of its mandates.

In today’s episode of the Shadow of Truth, we discuss the insanity that has gripped the markets as symbolized by the Federal Reserve’s FOMC meetings:

Who Is Buying China’s Dumped Treasuries?

According to the latest Treasury International Capital report (for October), China unloaded nearly $42 billion in Treasuries in October. In the last 12 months, China has unloaded nearly $150 billion in Treasuries, equivalent to more than one month’s worth of new Treasury issuance by the U.S. Government.

The Zerohedge/mainstream financial media narrative is that China is selling Treasuries to defend the yuan. They hold reserves other than dollars. Why not sell those? They are trying to unload their Treasuries w/out completely trashing the market. Imagine what would happen to the bond market if China announced a bid wanted in comp for $1.1 trillion in Treasuries. They are working with Russia to remove the dollar’s reserve status and the U.S. doesn’t like it which is why there is an escalating level of military aggression toward Russia and China by the U.S.

Too be sure, China’s Treasury selling has contributed heavily to surprising spike up in long term Treasury yields.  But who is buying what China is selling?  Japan has been unloading Treasuries every month since July.  On a net basis, foreigners unloaded $116 billion Treasuries in October.  A colleague in the pension industry told me today that pensions are not buying Treasuries because the yield is too low.

Phil and John (Not F) Kennedy invited me on to their engaging and entertaining podcast show to discuss the chaos that has enveloped the global financial markets including the Fed rate hike, the manipulated take-down of gold and silver and the deleterious effects from the spike up in interest rates.

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Adios To The Housing Market

That popping sound you just heard is the Fed popping the housing bubble.  The housing bubble that it inflated with ZIRP and zero-bound credit requirements to qualify for a mortgage.    But first, let’s get this out of the way:  Goldman’s Jan Hatzius – apparently the firm’s chief clown economist commented that the Fed’s “faster pace” of rate hikes reflects an economy close to full employment.  That statement is hand’s down IRD’s winner of “Retarded Comment of the Year by Wall Street.”

I guess if an economic system in which 38% of the working age population is not working can be defined as “full employment” then monkeys are about to crawl of out Janet Yellen’s ass.  I guess we’ve witnessed more stunning events this year…

Before we start assuming the Fed will raise rates three times in 2017, let’s consider that Bernanke’s “taper” speech was delivered in May 2013.  3 1/2 years later, the Fed Funds rate has been nudged up a whopping 50 basis points – one half of one percent.

I hope the Fed does start raising rates toward “normalized” rates, whatever “normalized” is supposed to mean.  Certainly there’s nothing “normalized” about an economic system in which real rates are negative – that is to say, an economic system in which it’s cheaper to borrow money and spend it than it is to save.

Having said all that, put a big pitch-fork into the housing market.  Notwithstanding the highly manipulated “seasonally adjusted annualized rate” data puked on a platter  and served up warm by the National Association of Realtor and the Census Bureau – existing and new home sales data, respectively – the housing market in most areas of the country is deteriorating at an increasing rate.    I review this data extensively and in-dept in my Short Seller’s Journal.

Even just marginally higher mortgage rates will choke off the ability of most buyers to qualify for anything less than an conventional mortgage with 20% down and a 720 or better credit score.   With a rapidly shrinking full-time workforce – the Labor Department reported that last month the economy lost 100,000 full-time jobs – the percentage of the population that has a 720 credit rating and can afford 20% is dwindling rapidly.

The Dow Jones Home Construction index is down 2.5% today.  What will happen to the stocks in that index when the Fed cranks back up it’s “we’re raising again” song and dance?

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Despite the rampant move in the Dow/SPX since the election = while the Dow and SPX were hitting all-time highs almost daily – the momentum was not enough to propel the homebuilder stocks even remotely close to a 52-week high.  Hell, the 50 dma (yellow line) has remained well below the 200 dma (red line) and has not even turned up.  THAT is the market sending a message.

Here’s a weekly version of the same graph that goes back to 2005, when the DJUSHB hit an all-time high:

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When looked at it in that context, one has wonder where this great housing boom has been hiding? The stock market certainly didn’t price in a booming housing market. That’s because the truth is that the housing market since 2008 has been driven by massive Fed and Government intervention. The intervention enabled a segment of the population to buy a home that could not have otherwise afforded to buy a home. It was really not much different than the previous bubble fueled by liar loans and 125% loan-to-value mortgages. As I detailed yesterday, the system is now re-entering a cycle of delinquencies, defaults and foreclosures.

If you are thinking about buying a home – primary, vacation or investment – wait.  You will be happy you waited.  Prices have been pushed up to near-record levels by 3% down payment mortgages and credit assessment that gears the amount of mortgage available to a buyer based on maximizing the monthly payment based on monthly gross income.  That system is over now.  Prices and volume are going to spiral south.

If you need to sell your home, you better list it as soon as possible.  You will find that you will be competing with a surge in new sellers that descend like locusts.  “Price reduced” signs will blossom everywhere.  Just like 2008…

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Fed Reverse Repos Reveal Big Cracks In The Financial System

Since the Fed’s QE program largely tapered at the end of 2014 (note:  the Fed still used interest on its mortgage holdings to buy more mortgages), the size and volatility of the Federal Reserves reverse repo operations with banks – especially foreign banks – has been continuously increasing:

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The most likely explanation for this is growing liquidity problems in the western banking system connected to increasing instability in OTC derivatives. While all fingers point to Deutche Bank, DB is just one player in large game in which every player is inextricably connected.  But the eventual derivatives financial nuclear melt-down will probably be triggered by DB, and the fact that the ECB enabled Deutsche Bank to cheat on the BIS-mandated bank stress tests reinforces this view:  ECB Allow DB To Cheat.

The scale and severity of this problem is going to explode now that the U.S./western housing and auto loan bubbles are beginning to pop.

In today’s Shadow of Truth episode, we discuss some possible meanings embedded in the two graphs above plus a couple other topics not covered by the mainstream financial media propaganda:

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Operation Mockingbird And The Mainstream Media

Notice how EVERYTHING – even the most trivial of events – on Fox News/Business, Bloomberg, CNBC, CNN and MSNBC is “BREAKING NEWS?” The presentation of the news and the exploitation of sensationalism has itself become an insidious form of propaganda.

Operation Mockingbird was implemented by the CIA in the early 1950’s as operation to influence the media.  The idea is that, regardless of the truth, the first headline read by the public in the media was the version of the news that would stick with the public.  As an example, whenever a bomb explodes somewhere in the U.S., the first headlines that hit the newswires blame it on ISIS.

The genesis of this propaganda tool was Edward Bernays (nephew of Sigmund Freud), who is credited with being “the guy” behind Joseph Goebbels and the father of the “Virginia Slims Girl,” among another nefarious accolades.

In this latest episode of the Shadow of Truth, we discuss the reasons why that, for almost anything connected with politics and economics, the opposite of anything reported by the mainstream media likely the truth.

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Gold And Silver Getting Ready To Launch Again

Doc – Silver Doctors – and Eric Dubin – The New Doctors – invited me back on their SD Weekly Metals & Markets show this past week. We discussed the upcoming “most important ever” FOMC meeting this Tues/Wed (note the sarcasm as CNBC labels every FOMC meeting “the most important ever”), the “shock and awe” manipulation of gold and silver ahead of this meeting and the reasons why the precious metals are getting ready for another move higher. We also chatted about who might replace Hillary if/when she goes down for the count and we gave our predictions on whether or not the Fed will hike rates on Wednesday: