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May 08 2019
February 27 2019
Fed Must Face Reality: No Return to Normalcy for Monetary Policy
More than a decade after the 2008 financial crisis, U.S. monetary policy continues to operate in crisis management mode.
Despite a long, drawn out rate-hiking campaign – now paused – the Federal Reserve has yet to bring its benchmark interest rate up to normal levels historically.
It has yet to unwind the vast majority of the nearly $4 trillion in emergency asset purchases added to its balance sheet.
The Fed outlined its “normalization” policies back in September 2014.
The two main components of normalization are gradual increases in the federal funds rate toward neutral and gradual reductions in securities held on the central bank’s balance sheet.
Even with the benefit of an unusually prolonged period of favorable economic conditions, progress toward normalization has been slow and fleeting.
Expect Continually Low Interest Rates, Ongoing Stimulus
Full normalization – a return to pre-2008 monetary conditions as is the Fed’s stated goal, may never come.
It may not be possible to withdraw much more stimulus from mortgage and equity markets without collapsing them. It may not be possible to unload U.S. Treasury securities without causing a funding crisis for the government.
The governmental, corporate, and consumer sectors of the economy are ALL addicted to debt growth fostered by artificially low interest rates.
The Fed wants to wean everyone off easy money. The problem is, everyone is behaving as if easy money will never end.
Central bankers can’t act normally when private and public debt levels are abnormally high and projected to go much higher. The Fed wants to keep hiking rates to discourage, in former Fed chairman Alan Greenspan’s words, “irrational exuberance.”
But going one hike too far or too fast risks triggering a deleveraging event that brings about another financial crisis.
At its most recent policy meeting, the Federal Open Market Committee (FOMC) vowed to be “patient.” Minutes released last Wednesday show the Fed citing “a variety of considerations that supported a patient approach to monetary policy at this juncture as an appropriate step in managing various risks and uncertainties in the outlook.”
Cutting through the dense Fedspeak, policymakers essentially said they put their rate hiking campaign on hold due to risks in the economy.
Left unstated were possible policy concessions made to Wall Street and Washington.
Perhaps Fed officials got spooked by the sharp stock market correction in late December. Perhaps they succumbed to political pressure from the Trump administration’s “Plunge Protection Team.”
Continue reading: https://goo.gl/7JaqAY
October 30 2018
R.I.P. Fed-Fueled Bull Market (2009-2018)?
The Nasdaq composite enters this week’s trading down over 10% in the month of October. For what it’s worth, market technicians consider a 10% pullback an official “correction.”
So far it’s just that – a correction. It may therefore be a bit premature to carve the stock market’s tombstone.
But investors should be prepared for further downside in share prices… and a possible longer-term (and long overdue) bear market after several years of relentless Fed-fueled price appreciation.
Widely followed market analyst Greg Weldon warned last week that a crash may be coming. “You have the setup for kind of like a crack, a big crack,” Weldon told listeners of the Money Metals Weekly Market Wrap podcast. “There are correlations to 2007 and '08, and that's more macro in setup, but when you look at the market structure and some of the more overlaid type of correlations, there's a lot of 1987 here.”
The October 1987 stock market crash caught most investors completely by surprise. But then, as now, there were warning signs.
Weldon is eyeing monetary policy. He thinks the Federal Reserve’s last rate hike may have been one too far: “We said at the end of August if the Fed moves in September you'd see a selloff in October. That's exactly what's happened, and I think it's just beginning.”
What will happen if the Fed goes again in December? Well, it could be a very unhappy New Year for stock market bulls.
Fed chairman Jerome Powell appears intent on continuing to hike interest rates until he buries the bull market. Perhaps President Donald Trump, who continues to express frustration over the Fed’s tightening campaign, will take to calling the Fed chair “Grim Reaper Powell” in a Halloween tweet.
The President’s main priority right now is helping more Republicans get elected to the Senate and preventing Democrats from taking over the House of Representatives. If Democrats do well on Election Day, you can bet Trump will amp up his rhetoric against the central bank.
A Democrat win would also dash investor hopes of more tax cuts, likely triggering another round of stock market selling. That, in turn, could catalyze a “fear trade” of flows into precious metals markets.
Gold and silver have been seen as “dead money” since the 2016 election swung the GOP’s way. They may finally be ready to come back to life.
Article Source: https://goo.gl/nQPTFf
June 07 2018
Precious Metals Represent Something True
You began investing in precious metals because they represent something honest.
Gold and silver are tangible, scarce, and beautiful. People have always recognized them as such. Societies naturally gravitated toward using them as a trusted medium of exchange – money – almost as soon as societies were formed.
Over time civilizations have come and gone. The world has seen constant social upheaval and change.
People from ancient Sumeria would not recognize modern society. But they would recognize a gold coin. In fact, some of the coins used in their time have survived to this day. Physical gold and silver have retained the trust and value placed in them thousands of years ago.
Gold and silver do not rely upon the stewardship of any government, thank goodness. They do not require legal tender laws to be deemed valuable in trade. The metals you hold inside your safe are worth something regardless of what happens outside.
Bullion coins, rounds, and bars are also completely off the grid and portable. This potent combination of attributes makes metals unique in the investment world.
Perhaps most importantly, gold and silver shine the light upon what politicians and bankers are doing to the fiat dollar. Relative to an ounce of gold, the dollar has lost some 97% of its value since 1913.
The Federal Reserve System was formed 105 years ago with a mandate to maintain stable prices when measured in dollars.
Instead, officials have worked tirelessly to devalue the currency, booted gold and silver out of the formal monetary system, and enabled massive growth in government along with perpetual deficits.
One only needs to look at the gold price to measure just how poorly the central planners have managed their beloved Federal Reserve Note.
Read the article here:
(https://www.moneymetals.com/news/2018/06/06/why-buy-gold-silver-001519)
(https://www.moneymetals.com/news/2018/06/06/why-buy-gold-silver-001519)
May 21 2018
Federal Reserve Note Dances Upon Its Own Grave
Practically nobody enters the foreign exchange markets looking to buy and hold. Currency trading is generally a short-term game, and there isn’t much regard for analysis of the longer-term fundamentals.
That much is evident given the ongoing rally in the Federal Reserve Note dollar, despite its outlook being downright grim.
Nobody should be fooled by recent outperformance relative to the currencies of other insolvent nations.
The greenback is in the worst shape of its life.
Sound money advocates are already well versed as to why the dollar has been losing purchasing power ever since the Federal Reserve took control of its fortunes more than a century ago. They understand the implications of perpetually rising federal deficits and debt.
The most recent decade, during which federal borrowing has begun growing exponentially, indicates we are much closer to the end of the cycle – insolvency and default – than we are to the beginning. But it isn’t the only indication that we are approaching the end-game.
The Federal Reserve Note’s hegemony in the global oil trade is starting to fall apart. Russia, China, and other BRIC nations are cutting deals to buy and sell oil using other currencies.
We can now add the EU to the list of potential defectors.
Continue reading (source)
March 02 2018
Why U.S. GDP Hasn’t Really Increased Since 2000
While official sources forecast U.S. Gross Domestic Product (GDP) to surpass $20 trillion this year, the real figure is probably much less. So how much less is real U.S. GDP? Well, that depends on how it is measured. If we factor in energy consumption and the increase in total public debt, U.S. GDP is likely less than half of the current figure.
Yes, it sounds insane to say that the current U.S. GDP is likely overstated by at least 50%, but if we go by fundamental data, it isn’t that crazy at all. Unfortunately, Americans have been conditioned to believe that money grows on trees and energy comes from the Wizard of Oz. Thus, if we need more money, then the U.S. Treasury can print more Federal Reserve Notes, or we can swipe the credit card. And, if we need electricity, we just switch on the light. Easy… Peasy.
Due to the highly complex nature of the world in which we live in today, the individual is clueless as to the tremendous amount of energy and work that it takes to produce the foods we eat and the goods, energy, and materials we consume. So, it should be no surprise that U.S. GDP can be overstated by 50%+.
If we go by the data that shows the growth of Global GDP is related to the growth of Global Oil Supply, then it is very quite easy to spot inflated GDP figures. However, you have to be able to understand this essential ENERGY=GDP relationship. Of course, this is not taught in business or economic classes in high school or college. Instead, the economic teachers focus on the insane theory of SUPPLY vs. DEMAND. If individuals are taught GARBAGE, then their thinking and reasoning is GARBAGE. So, we really can’t blame them.
In looking at the following chart by Gail Tverberg, the increase in Global GDP corresponds to the rise in Global Oil Supply:
As the annual growth percentage of World Oil Supply declined in the periods shown in the chart above, the same trend took place in World GDP. If we can understand the OIL-GDP relationship figures in the chart, then it is impossible for a country to grow its GDP if it does not increase its energy consumption.
Continue reading (source)
October 27 2017
October 24 2017
Trump May Reappoint Yellen as Fed Chair after All
Candidate Donald Trump was none too kind to current Federal Reserve Chair Janet Yellen during his 2016 campaign. However, the President’s tone with regards to Yellen and Fed policy has been softening since his election.
Trump met one on one with Yellen and other top contenders last week and now appears quite open to the idea of reappointing her to another four-year term.
Trump may reappoint UC Berkeley
Janet Yellen
Trump told CNBC in September of last year that Yellen should be “ashamed” for acting partisan. He accused the Fed of maintaining extraordinarily low interest rates at the request of former President Barack Obama and Democrats who wanted stimulus and credit for economic growth. Given an opportunity, he suggested he would find someone new as Fed Chair.
Now that has been thrown into question. Following his recent interviews with the candidates, Trump told Fox Business, “Most people are saying it’s down to two: Mr. (John) Taylor, Mr. (Jerome) Powell. I also met with Janet Yellen, who I like a lot. I really like her a lot. So, I have three people that I’m looking at, and there are a couple of others.”
Trump now favors Yellen’s low interest rate policy. He said in July of Yellen, “I’d like to see rates stay low. She’s historically been a low-interest-rate person."
Continue to the full article (source)
August 14 2017
August 07 2017
Insider's Take on the Political Situation from former Ron Paul Aide
Well now, without further delay, let's get right to this week's exclusive interview.
Mike Gleason:It is my privilege now to welcome in Paul-Martin Foss, founder and president of The Carl Menger Center for the Study of Money and Banking, an organization whose mission is to educate the American people on the importance of sound monetary policy. Prior to starting The Carl Menger Center, Paul-Martin worked on Capitol Hill for seven years, including a six year stint with none other than Congressman Ron Paul. As Paul's legislative assistant, he worked closely with Dr. Paul on his Audit the Fed and End the Fed bills.
Paul-Martin has a Master's degree from both the London School of Economics and Georgetown University, and has dedicated much of his professional life to the cause of sound money and the values of Austrian economics. So it's a real pleasure to have him on with us today. Paul-Martin, thanks so much for joining us and welcome.
Paul-Martin Foss: Well, thank you very much for having me on.
Mike Gleason: Well, I guess we'll start at the beginning here, and I'll ask you to explain why you've made it a goal and a mission to spread the ideals of sound money and sound banking. So first off, what does sound money and sound banking mean, and why should the average American citizen even concern themselves with these causes in the first place?
Paul-Martin Foss: Sound money basically is money that the government cannot debase and devalue. It's money that allows civilization and commerce to flourish. It protects savers. It protects consumers. It allows individuals to save and invest and plan for the future. What we're seeing is for the past century since the Federal Reserve was created is basically unsound money. It's money that is constantly being devalued. It favors debtors, especially the biggest debtor of all, the Federal government. It's silently taking money out of the pockets of savers and the average individual and putting that money in the pockets of Wall Street. The average American person doesn't really understand or see... who was it, I think Keynes quotes Lenin as saying that “the surest way to debase a civilization is to debase its currency.” This is basically what's happening in our country today, so I'm trying to make it an important issue and make people realize just how important sound money and sound banking is in the United States.
Mike Gleason: Furthering the point here, you wrote a great article about how the government essentially funds itself through three methods, taxation, borrowing, and inflation, and you explained how sound money is essential to keeping spending in check. Talk more about that, and then also explain more about the role that gold and silver can serve to rein in government spending.
Paul-Martin Foss: Yeah, it's like you said, you have taxation, you have borrowing, and you have inflation. Those are the three methods that the government can use to fund itself. Taxation is kind of self-limiting because once you get the tax rates high enough, people are going to stop paying taxes and the government's not going to take in as much money. Borrowing, eventually people… if you are spendthrift and not paying back your debts, they're going to stop lending you money or they're going to lend you money at higher interest rates, so there's kind of a self-limiting factor there too.
So inflation ends up being their preferred method of funding themselves, again because it's very subtle. The Fed says 2% inflation rate every year, that's their definition of stable prices. Well, that's devaluing government debt by 2% every year. Over the course of a decade, you devalue your debt by 25%, and you can pay back your debts in devalued dollars, so it's a win-win for the government all around, basically spending a lot more money than it actually has.
Gold and silver have always been great checks against the government because there's just a limited supply of it, and the government doesn't have a monopoly on the possession of gold and silver, the use of gold and silver. It can't print gold and silver. It's an item. If it wants to issue bank notes and spend money that way, it's limited by the amount of gold and silver that is physically in its possession. So it's always been a great check on government spending, and that's why governments around the world for the past 100 years have done everything they can to demonetize gold and silver, keep people from being able to use because they don't want gold and silver to be money because it limits their power.
July 05 2017
6 Things Precious Metals Naysayers Get Dead Wrong
Answering the Most Common and Current Objections
Gold attracts its fair share of detractors. But the most common objections to gold as money, and as a safe-haven asset within an investment portfolio, are misplaced. Anti-gold myths are ubiquitous.
Mega billionaire Warren Buffett remarked derisively of gold that it “gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility.”
That brings us to the first thing precious metals naysayers get wrong…
Myth #1: “Gold has no utility.”
Warren Buffett is without question one of the world’s greatest investors. But he is not without biases.
Buffett’s primary business interests are in banking and insurance.
He has literally made fortunes off the fiat monetary regime. He took part in (and benefited from) the government bailouts of the financial system. He (along with most other Wall Street and banking titans) supported Hillary Clinton for president.
So maybe, just maybe, Buffett’s hostility to gold has something to do with his deep, symbiotic connections to the political, banking, and monetary establishments!
In any event, the claim that gold has no utility is false. It's been chosen by the market as money because of its many useful features, including fungibility, divisibility, durability, and rarity. Gold also functions as a store of value precisely because it, unlike Federal Reserve notes, has uses beyond that of a currency.
Even if gold weren’t hoarded in vaults, people would still dig it out of the ground at great cost for its uses in electronics, jewelry, art, and architecture. In an economic sense, $50,000 in physical gold is just as useful as a $50,000 sports car – as determined by the market.
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