Money Flow Trading Method along with Risk Management

https://www.zerohedge.com/news/2019-...Y3Axjx8O9Ny4vM


Authored by Sylvain LaForest via OrientalReview.org,
In the last two centuries, all wars have been machinations orchestrated by bankers pursuing two very simple objectives: profit and a world domination that bears a name: the New World Order.


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Education and medias are the main culprits to blame for keeping the important role of bankers in the dark shadows of history. The genuine relevance of Rothschild, Rockefeller, Warburg, Morgan and their peers is voluntarily kept hidden from public scrutiny, so that any investigator that digs in the realms of our past can easily be discredited as a «conspiracy theorist». Author Carroll Quigley once had full access to the Council on foreign relations documents and he confirmed the very real world banking conspiracy designed to dominate the world, in his book «Tragedy and hope».















Bizarrely, education and medias prefer to bring everything back to public figures and politicians like Churchill, Hitler or Stalin, but they will never tell you that these charismatic monsters had no money, nor created it. Hitler was a failed artist that built the most formidable war machine the world had seen in 6 years only, in a near-bankrupt country deprived of any oil production, so do you think he might have had some help?


The Grand Scheme

Before 1971, bank loans were based on their gold reserves, but no bank really owned the value in gold of the money it lent over the years, so the scheme wasn’t very different than today’s fractional system of money creation, in which banks have to own 1/10th of their loans. For example, if bank A has a million dollar, it can lend 10 millions to bank B, which can lend 100 millions to a country, since bank B owns 10 millions. This is basically how the world ended up owing 184 trillion dollars (184 000 000 000 000$) to private banks as of today.

If you doubt this private money creation scheme, just tell me where that money was before we owed it to them? I guess that settles it.

When a country goes to war, it borrows money from private banks that lend funds that they create out of thin air. Now, bankers will not only get back the funds that they never had, but will also charge interest on these loans. They will even change the interest rate at will, trying to hold in their laughter. Next step, countries will use this fake money to buy military equipment from industries in which international bankers are major shareholders or partners in investment. This equipment is then used to destroy as much infrastructure as possible in the countries at war, so that everything needs to be rebuilt by governments that will borrow more money from bankers, to pay construction companies partially or totally owned by bankers. This is why carpet-bombing on civilians was invented. All of these loans and interests add up to the national debt, or if you prefer, the bill that citizens have to repay through their taxes that they hand to the government with much trust on their good use.


«War is a racket», wisely said General Smedley Butler. Therefore, why would the almighty central banks that hold a permanent private power and control over countries, would kindly accept to share it with a puppet president on his 4-year journey?


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But the plot thickens.

Splitting ideologies

Just when you think that you’ve discovered the ultimate manipulations that have been set on us for centuries, thorough researches will lead you even further in the abyssal depth of the conspiracy that few have talked about. Thanks to James Madison, we know that the American founding fathers had designed the bipartite electoral system as a way to confine democracy in a tiny box limiting the choice of the people between two heads of the same monster, so that a mass of poor people could only maintain an effective plutocracy with their votes. All that was left to do would be to polarize opinions, by adding different ideologies and characteristics to each party, to give the impression that your vote could really determine the future of the country, but we all know by now that it never fundamentally changed anything. Therefore, an objective analysis will quickly take over the initial astonishment of your findings, since what’s next describes more likely than not how politics really work.

We often imagine Karl Marx as a lone writer in some crummy apartment, designing his great Communist Manifesto in 1848 under a flickering candlelight to break the capitalist tyranny, in the name of the workingman. Nothing could be further from the truth, since the general plan was to divide the world and bring it to wage perpetual wars, for perpetual revenues. Guy William Carr just wasn’t anybody; he was an officer in the Canadian Secret Services and had been in charge of the whole Royal Canadian Navy. Much like Carroll Quigley, he was a real insider with access to secret plans that we’re never told. Here’s what he had to say in his 1958 praised book «Pawns in the game».

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Karl Marx
While Karl Marx was writing the Communist Manifesto under direction of one group of Illuminists, Professor Karl Ritter of Frankfurt University was writing the antithesis under direction of another group, so that those who direct the conspiracy at the top could use the differences in these two ideologies to start dividing larger and larger numbers of the Human Race into opposing camps, so they could be armed and then made to fight and destroy each other, together with their political and religious institutions.

It is public knowledge by now that the Rothschild family had financed both Napoleon and his British foes early 19th century, which set a most successful example for profiting from double funding. One cannot lose a war if one owns both sides of the front line! Thus, author Anthony Sutton made a lot of sense when he described the details on how Zionist bankers and Wall Streeters funded communism in «Wall Street and the Bolshevik Revolution», published in the mid-seventies.

This activity in behalf of the Bolsheviks originated in large part from a single address: 120 Broadway, New York City. The Federal Reserve Bank of New York was at 120 Broadway. The vehicle for this pro-Bolshevik activity was American International Corporation — at 120 Broadway. AIC views on the Bolshevik regime were requested by Secretary of State Robert Lansing only a few weeks after the revolution began, and Sands, executive secretary of AIC, could barely restrain his enthusiasm for the Bolshevik cause. Ludwig Martens, the first Soviet ambassador, had been vice president of Weinberg & Posner, which was also located at 120-Broadway. Guaranty Trust Company was next door at 140 Broadway but Guaranty Securities Co. was at 120 Broadway. John MacGregor Grant Co., which was financed by Olof Aschberg in Sweden and Guaranty Trust in the United States, and which was on the Military Intelligence black list, was at 120 Broadway. The Guggenheims and the executive heart of General Electric (also interested in American International) were at 120 Broadway. We find it therefore hardly surprising that the Bankers Club was also at 120 Broadway, on the top floor.

You get the idea. So here’s what a timely little mustached totalitarian then said in «Mein Kampf», right after WW1 and the Bolshevik Revolution:
This colossal Empire in the East is ripe for dissolution. And the end of the Jewish domination in Russia will also be the end of Russia as a State. We are chosen by Destiny to be the witnesses of a catastrophe, which will afford the strongest confirmation of the nationalist theory of race.

Destiny, really Adolf? This looked more like a boxing match between artificial ideologies created decades earlier, with Hitler and Stalin wearing the gloves, accompanied by Karl Ritter in one corner and Karl Marx in the other, holding the spit-buckets.


A twist in history

Thing is, Hitler had been vastly funded by American banks and industries to pressure the Rothschild to share their hegemony on the world, which was confirmed in Bretton-Woods in 1944, where the US dollar replaced the English pound as the world reserve currency. In other words, the American Empire replaced the British Empire to lead the New World Order, but it was the same banking scheme, just a different set of owners.

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Winston Churchill, Franklin D. Roosevelt and Josef Stalin at the Yalta Conference in 1945. Source: US Library of Congress/wikipedia.org

In Yalta, Stalin and Roosevelt effectively divided the world in two ideologies for their masters, while Churchill was wondering what had bloody happened, since the other two seem to have a lot of fun together. That left him with ample time to think about his next historical quote for posterity.

After WW2, NATO and the CIA were created to counter the lurking Red Menace. Soviet citizens were depicted everywhere like cold-blooded killing robots, as if they were something else than ordinary folks making a living for their kids and having fun on the weekend. The whole planet got in the Cold War, providing great tension zones such as Eastern Europe and Southern Asia, justifying insane military funding and the industrial production of nukes. Wars could be waged without any objective, just for the sheer pleasure of making big money to the profit of bankers and military industrialists; on both sides of the Iron Curtain, I should add.


Perpetual wars

The case of the Korean War is sad and appalling. The UN conducted the aggression on North Korea as soon as 1950, because neither China nor USSR vetoed the attack at the Security Council. There are a few reasons that were given for this, but none as likely as the existence of Bigfoot.


General MacArthur quickly pushed back the North Koreans all the way to the Chinese frontier and only had to blow up the bridges on Yalou River to break any hopes of reinforcement from China, when he got a call from CFR member General Marshall, whom ordered him to leave the bridges untouched. A Chinese army crossed them, the communists pushed the UN troops back to the middle of the country, MacArthur resigned, and they settled for a tie. After a couple of years of bombing and 3 million dead Koreans later, the separation line was put back in its original place on the 38th parallel, but if we look at the bright side, banks and military industries had made an impressive bundle ending with 9 zeros, and we owed it to them, with interests.


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United Nations forces cross the 38th parallel while withdrawing from Pyongyang, the North Korean capital, 1950

Then there was Vietnam. And then Afghanistan. Fighting communism was the motto for perpetual purposeless wars. We cannot have any serious analysis about the 75-year Cold War, without taking account of how and why the communist movement was created. This manipulation ended with the fall of USSR in 1991, which was immediately replaced by the fear of Islamism, ignited that very same year with the Gulf War in Iraq. Since history repeats itself over and over, what happened in Korea solves the mystery of why George Bush Sr didn’t go all the way to Saddam.


What used to be communism vs. capitalism is now Islam vs. Christianity. If we listen to medias, every Muslim is a potential jihadist that wants to impose the sharia law on us, as if they were something else than ordinary folks that make a living for their kids and have fun on the weekend. We’re stuck in a carbon-copy replica of the Cold War that scared the world for three-quarters of a century.


Conclusion

The sad reality appears to be that politics and ideologies are nothing more than bullcrap created to polarize opinions and divide the population, while central bankers don’t give a hoot if a country is run by democrats, communists, fascists, Nazis, dictators, socialists, green parties, a king or even plumbers, as long as the government maintains the plutocracy that enslaves the population through debt, that plunders our natural resources, and fully controls our economy through their money creation monopole.


Dividing the population prevents it from uniting against our real common enemy, who gives the true meaning to «Divide and conquer». For example, independence movements are perfect to polarize opinions and split people apart, and once a nation becomes independent, it is from the neighbor who’s stuck in the same crappy plutocracy as yours, not from bankers who will keep looting your money and profit from your resources. Think about it next time you argue with your brother-in-law about politics, when you praise your party that is so much better than his. Think about it when you vote.


If we got rid of private banking in public affairs, and governments issued all currencies, unbearable peace and prosperity would roam the earth. Today, a few men are fighting this deeply corrupted world financial system: Putin was the first and main one by helping President Assad to keep Syria free from international banks, then came Xi and Trump. Now you know what Donald means by «giving back the country to the people»! He’s openly fighting the Federal Reserve, talks about the nationalization of this private institution, and he’s been the most efficient politician ever to convince the people on the constant media lying, the base of our general ignorance.

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US Department of Defence conducted a flight test of a conventionally configured ground-launched cruise missile at San Nicolas Island on August 19, 2019, less than 3 weeks after the U.S. officially abandoned the INF Treaty.


But neither mainstream medias, nor official history books ever talked about the grand scheme, and that makes me a «conspiracy theorist» to most. Even independent journalists and analysts rarely mention banks by fear of the conspiracy theory curse, a label that was created by the CIA in 1967 to ridicule those who disputed the Warren Commission conclusion on JFK’s murder, by the same agency. Conspiracy theories now apply on everything that mainstream medias can’t justify with lies that appear to make some sense and are not too obvious.


If you do a quick check on Wikipedia, Carroll Quigley, Guy William Carr, General Smedley Butler and Anthony Sutton are all described as conspiracy theorists today, because they all decided to use their access to extremely serious files and secrets for the benefit of the people through a denunciation of international banks as the source of every war, and the conspiracy curse is the last desperate attempt to discredit them. The CIA technique works on those whose minds are still programmed by mainstream medias, though more and more people now understand that these amazing analysts and genuine humanists weren’t some dumb lunatics, but were simply describing a reality that many of us find difficult to accept.


So, I’m sorry, forget what I said, nothing wrong happened. Just keep working, whistle and look away as you’re being robbed, carpet-bombed, spied-on or sent to war, as you’re being told what you can or can’t do with your life, when you vote or argue with someone who’s trying to explain, like you’ve done all of your life, and like your great-grandfather also did.


But at least, your old man didn’t know.

https://www.zerohedge.com/news/2019-...ops+to+zero%29

The End Is Unforeseeable" - Negative Interest Rates Threaten The Entire Financial System
https://zh-prod-1cc738ca-7d3b-4a72-b...?itok=LY4e264-


by Tyler Durden

Wed, 09/04/2019 - 09:47


Authored by Jim Bianco, op-ed via Bloomberg.com,
Former Federal Reserve Chairman Alan Greenspan recently said he wouldn’t be surprised if yields on U.S. bonds turned negative and if they do, it wouldn’t be “that big a of a deal.”

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That seems to be a sentiment widely held in central banking circles these days, but it’s wrong. Negative interest rates represent a threat to the financial system.
To understand why, let’s start with the existing fractional reserve banking system, which is more than a century old. For every dollar that goes into a bank, some set amount (usually about 10%) must go into a reserve account to be overseen by the central bank. The rest is either lent out or used to buy securities.
In other words, the fractional reserve banking system is leveraged to interest rates. This works when rates are positive. Loans are made and securities bought because they will generate income for the bank.

In a negative rate environment, the bank must pay to hold loans and securities. In other words, banks would be punished for providing credit, which is the lifeblood of an economy. As German bankers recently explained to the European Central Bank:
We already have a devastating interest rate situation today, the end of which is unforeseeable,” Peter Schneider, who represents public-sector savings banks in the southern German state of Baden-Wuerttemberg, said on Wednesday. “If the ECB aggravates this course, that would hit not only the entire financial sector hard, but especially savers.


And to make matters worse, the German government is considering outlawing negative deposit rates. In a negative rate world, forcing rates on short-dated debt to zero would keep the yield curve permanently inverted. The fractional reserve banking system cannot operate properly in this environment.


Valuation models are another area of finance that need to be tweaked in a negative rate environment. Nobel prizes have been awarded to economists that developed concepts such as the efficient frontier, the Capital Asset Pricing Model and the Black-Scholes option pricing model. But when a negative value is assumed for the risk-free rate in these types of models, fair value results shoot off toward infinity. With trillions of securities and derivatives dependent on these models, valuation is critical.


In a similar vein, pensions use a discount interest rate to determine if they are properly funded. If one plugs in a negative interest rate as the discount rate, all pensions would technically be underfunded. The only pensions that would be properly funded would be those with assets exceeding expected liabilities. No pension is set up this way. Negative rates on fixed-income securities also means there is no way pension funds can ever generate enough income to meet their obligations.


When repurchase, or repo, rates go negative, lenders of securities must pay rather than receive income. Why would anyone lend out their securities if they also must pay for the privilege of doing so? Repos are the basic plumbing of the financial system, enabling the trade and settlement of securities transactions. If this market becomes dysfunctional, it is akin to the pipes in your walls leaking.

To see the results of low or negative rate environments, look no further than the euro zone and Japan. They account for 87% of the negative rates worldwide. Europe is essentially in recession with negative GDP in Italy, Germany and elsewhere. Its banking system is a mess, thanks to negative rates. As the chart below shows, European banks are trading at the lowest levels in more than 30 years.

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Japan is not doing much better. Economists are projecting negative GDP in the fourth quarter and the Japanese banking system is even worse than Europe’s, trading at some of the lowest since the early 1980s.

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These are not isolated occurrences. The first instances of modern negative interest rates arrived in Switzerland in the 1970s. As Bloomberg Opinion Columnist Stephen Mihm recently detailed, the results were not pretty.

The U.S., UK, Canada, Australia and New Zealand are the only developed bond markets that do not have negative rates anywhere on their yield curves. Should these countries join the rest of the developed world in moving to negative rates, the financial system will be under much more stress. If negative rates become more widespread across the globe, then the financial system needs to be rebuilt on a new set of assumptions. The problem is we do not yet know what those should be or how they would work.

https://www.zerohedge.com/news/2019-...ops+to+zero%29


There is a saying, when in a hole stop digging.


Unfortunately for former Goldman managing director and NY Fed president, Bill "let them eat iPads" Dudley, that is a saying he is not familiar with, and one week after his stunning Bloomberg op-ed in which he advocated the Fed to prevent Trump's 2020 re-election by sending the economy in a recession, resulting in a brutal response from virtually everyone who slammed Dudley's musings as the final proof that the Fed was in fact a political animal, one which is more powerful than the executive branch in its ability to pick and choose presidents, Dudley is out with an "explainer", seeking to "answer" some of the main questions posed by his "provocative" piece.

After reading "What I Meant When I Said ‘Don’t Enable Trump", let's just say that Dudley fails in explaining why he said is not what he said, and if anything he has successfully doubled down, giving Trump even more ammunition to throw the book at the political Fed for not cutting rates fast enough as the president has been demanding for months, and for eventually taking the blame for the coming economic and market crash.

Dudley's letter, written in rhetorical Q&A format, begins by asking himself what motivated him to write this article. His answer is two fold:
Dudley Sparks Debate About the Role of the Fed in the Age of Trump

First, President Trump’s trade war with China was increasing uncertainty about how global trading rules would evolve, what tariffs would be imposed, what changes firms might need to make to their global supply chains, and what the downside risks might be for the U.S. economy. Just a few days before the article was published, the president ordered U.S. firms to pull out of China.

Second, the president continued to attack the Federal Reserve and push it to ease monetary policy further. He emphasized that the Fed, not the White House or its trade war with China, should be blamed if the economy faltered. His attacks on the Fed included characterizing Chairman Jerome Powell as an “enemy” -- on par, in his view, with President Xi Jinping of China.

As Dudley "saw it", the combination of the trade war and the president’s attacks on the Fed "threatened to put the central bank in an untenable position", one where Trump was shifting responsibility for the downside risks from his trade war onto the Fed. "I thought this was an important issue worth exploring."

What Dudley means here is that whereas traditionally the Fed has been commended for bailing out banks the world by throwing trillions of dollars at a problem and hoping it goes away, even though some time in 2016 it became clear that this approach was doomed to failure and so it would be great to have a hapless scapegoat in the White House - i.e., someone such as president Donald Trump - to take the blame for decades of disastrous monetary policy which has resulted int he world's biggest asset bubble in history, what happened next was not part of the program, namely Trump flipping the table on the Fed and making it the key catalyst for the upcoming US recession.


Indeed, one can say that Trump - painted daily as a bumbling buffoon by his enemies, and sometimes, friends - has in fact played his cards perfectly, demanding the Fed cut rates well into late 2018, something which the Fed eventually did, and giving Trump all the leverage in claiming that he was, in fact right, and the Fed was wrong. Certainly, with the market now expecting 4 or more rate cuts by the end of 2020 and tying the fate of the S&P to this expectation being fulfilled, one can argue that Trump will be even more right, and that the Fed - who can forget Powell's famous statement that we are "a long way" from neutral less than a year ago when the Fed chair was still hawkish - was not only wrong, but clueless.


As such, one can counter Dudley's rambling, defensive op-ed part 2 published today in Bloomberg, by simply pointing out that the reason for the former Goldman banker's anger is not so much Trump's trade war with China - which increasingly more Americans agree with and even Trump's enemies concede was long overdue - nor Trump's "attacks" on Fed independence, of course the Fed was never actually independent as anyone who remembers how LBJ literally attacked a Fed chairman in 1965, demanding more money, knows very well, but because Trump managed to quickly and effectively outsmart the Fed, and box the Fed chairman so that the Fed is now forced to underwriter Trump's trade war, as we explained first one month ago.

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So, apparently unable to express what he meant the first time around and sparking a firestorm of criticism, what was Dudley's oh so complicated message that was lost in translation:
First, the Fed needs to be cautious that it does not inadvertently enable the president’s trade war with China.

As I wrote: "what if the Fed’s accommodation encourages the president to escalate the trade war further, increasing the risk of recession? The central bank’s efforts to cushion the blow might not be merely ineffectual. They might actually make things worse.”

In my judgment, there is a risk that the Fed, by easing, might encourage the president to take even more aggressive actions on trade and in raising tariffs. This might create even greater downside risks for the economy that monetary policy might prove ill-suited to address.

One can argue that this is a credible complaint. The only problem is Dudley should be addressing his anger not at Trump, but at Powell, who certified before the world that any further escalations in Trump's trade war are effectively a justification for more rate cuts, for one simple reason: the US economy was doing well enough not to need a rate cut, yet the Fed - having become the world's central bank - desperately needed a pretext to cut, and found one in Trump's trade war. Whether this was Powell's intention is unclear, although as we said at the time, "it certainly means that Trump is now de facto in charge of the Fed's monetary policy by way of US foreign policy, and it also means that as BofA wrote, "the Fed is unintentionally underwriting the trade war."

Of course, what Dudley is concerned about is not the trade war itself, but how it could implicate the Fed as the global economy continues to grind to a halt, and as he says, "the Fed’s problems might not end there. Not only might the Fed be unable to rescue the economy, but it also might be blamed for the economy’s poor performance. This risk is higher because of the president’s ongoing attacks on the Fed." This is a point he echoes toward the end of the article as well, writing that "I don’t think the Fed should be attacked for the economy’s performance when the president’s own actions are creating the downside risks."


Bingo: that's it right there - the "risk" that the Fed may be blamed for not just the "economy's poor performance" but that the great unwashed masses may one day wake up and realize that the reason why the global financial system is facing a crisis of monumental proportions has nothing to do with Trump - who is merely a vessel and a symptom of a broken system - and everything to do with a central bank which ever since its creation in 1913 has had one purpose, to make the rich richer and perpetuate a broken monetary system (even Mark Carney is saying the days of the dollar as a reserve currency are now over), is why Dudley is so very much on edge. After all, those same great unwashed masses, following the moment of epiphany may pay Dudley a visit in his mansion and demand an explanation of their own why everything has gone to hell, as it almost certainly will after the next recession.


Once one realizes that this is the true motive behind not just today's Dudley article, but also his prior op-ed, then everything falls into place, including Dudley's hint that the Fed's actions will affect the "political outcome in 2020."

Addressing what was arguably the most sensitive aspect of his original oped, namely the conclusion which suggested that the Fed should throw the economy into recession just to prevent Trump's re-election, to wit:
“There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.”


... Dudley says that his "intention was to be provocative." So what was his intention, if not to bring attention to the fact that contrary to countless lies, the Fed was never independent? He explains:
I was exploring where logic might take you if you started with two premises: 1) President Trump’s trade war was likely to be bad for the U.S. economy, and 2) the Fed’s goal is to achieve the best long-term economic outcome with respect to employment and inflation. In such circumstances, how should the Fed behave and what should it consider?


I was suggesting that if the Fed pushed backed that it might be able to achieve a better economic outcome. I was not suggesting that the Fed should do so regardless of the consequences for the economy or that it should stand by and allow a recession. And I was not trying to suggest that the Fed should take sides in the upcoming election.




Actually, an even simpler question: who "elected" the Fed? And just whose interests does the Fed represent? Maybe for the third part of his increasingly surreal op-ed series, Bill Dudley can start with a discussion of just how the Fed - an entity which as Bernanke's former advisor once said: "people would be stunned to know the extent to which the Fed is privately owned" - represents the interests of the majority of Americans.
Then again, we doubt there will be a part 3 as by this point the backpedaling in Dudley's "explainer" was so furious, not even he had any idea what it was he was trying to say, as the following "Q & A" confirms:
Q. Do you think the Fed should conduct monetary policy with an eye on influencing the outcome of the 2020 presidential election?
A. I do not. Doing so would be far outside the scope of the Fed’s authority and clearly inappropriate. Moreover, the Fed would be perceived as partisan and such a perception would likely compromise the Fed’s independence. Behaving in such a manner not only would be wrong, but it also would not be in the Fed’s interests.


So, it's not within the scope of the Fed's authority to influence the outcome of a presidential election as that would "compromise the Fed's independence", but it is the scope to "achieve a better economic outcome" than that pursued by the president? Interesting, please tell us more.

And so he does, when in the very next rhetorical answer, Dudley tries to reconcile what he wrote in: "Fed officials should consider how their decisions will affect the political outcome in 2020."

I think central bankers should be aware of all the factors that affect the economic outlook. What the Fed does or doesn’t do can influence electoral outcomes, which in turn can have consequences for the economy and for monetary policy. But the Fed should never be motivated by political considerations or deliberately set monetary policy with the goal of influencing an election.

In other words, be aware of how your actions could sink Trump's reelection chances, but... don't follow through on them, especially since that would confirm the issue raised above, namely that the Fed was never independent and apolitical, and would culminate with the end of the US Federal Reserve, And yes, it is ironic that Dudley's letter has done more damage to the perception of Fed "independence" than hundreds of Trump tweets slamming Powell.

In parting, and having "resolved" any speculation that he was calling for a monetary coup against the president - at least in his own mind - Dudley touches on the two most important points address in his letter, Fed independence, and what on earth prompted Dudley to write the original "hornets nest" op-ed in the first place.
So, on the first topic, whether "the Fed has been politicized", Dudley answers:
In my view, President Trump’s persistent attacks on the Fed have politicized the central bank. People now wonder whether the president’s attacks are influencing the Fed’s decisions. For example, if the Fed eases monetary policy further at its upcoming September policy-making meeting, people are likely to wonder about the motivation. Is it concern about the economic outlook, or the president’s attacks on the Fed? In contrast, I don’t believe the Fed is politicized in the sense that it would consider trying to influence election outcomes.


Once again, the Fed was always politicized (see LBJ vs William McChesney Martin, and countless other examples of presidents bossing Fed Chairs around), but it desperately tried to deflect attention from this to avoid being called into Congress any time the leading political party needed lower rates to pursue a voter-friendly agenda, as will be the case with Helicopter money, aka MMT, in a few years, when the Fed will no longer be an independent entity in any capacity, and will be tasked with monetizing all the debt the US issues to pursue its Green New Stupidity.


However, where Dudley made a catastrophic fuck up is by himself suggesting that the Fed should not only try but succeed in influencing an election outcomes. It is this potentiality that sparked the outcry from both Democrats and Republicans, both Austrians and Keynesians alike, as that level of truth only emerges during periods of tremendous shock.

And, if nothing else, the second Dudley op-ed confirms that Dudley was in indeed in "shock" when he wrote his first Bloomberg column. And just in case there was any doubt, we leave readers with Dudley's conclusion, one in which the former NY Fed president says that while there may be a "deep state" or a conspiracy, he is part of neither:
The article is mine and mine alone. Fed officials were not involved in any way. There is no “deep state” or conspiracy that I am part of. Fed officials are not using me as a vehicle to signal their unhappiness with the president’s attacks on the central bank and on Chairman Powell.


And the absolute punchline: "I wrote the article to express my concern that the president had placed the negative economic consequences of his trade war at the feet of the Fed, and that Fed officials had not pushed back against this more forcibly." Which is amusing, because after all those often contradictory words, Dudley leaves his readers where they started: asking him how the Fed should "push back more forcibly" against the president, one which the Fed can prevent from getting re-elected - as Dudley himself admitted last week - if it only chooses, but it would never choose to do so as it is so apolitical, it should push to "achieve a better economic outcome" than the one sought by the president.


In short: if Dudley had dug the hole 6 feet deep with his original op-ed, he added a good 6 more feet with the sequel. We can't wait what "Deep State Dudley" does for part 3...

https://www.zerohedge.com/news/2019-...ops+to+zero%29


The ECB's imposition of negative interest rates have created an "absurd situation" in which banks don't want to hold deposits, rages UBS CEO Sergio Ermotti, arguing that this policy is hurting social systems and savings rates.


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Ermotti is not alone. As European bank bosses cast their eyes at their share prices, they are fighting back, some have said - biting the hand that feeds, in their attack on ECB policies, warning of severe consequences to asset prices and the broader economy.

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SocGen Chairman Says Brexit Keeping Banking in Wait-and-Se





Source: Bloomberg
As Bloomberg reports, Deutsche Bank CEO Christian Sewing warned that more monetary easing by the ECB, as widely expected next week, will have “grave side effects” for a region that has already lived with negative interest rates for half a decade.

“In the long run, negative rates ruin the financial system,” Sewing said at the event, organized by the Handelsblatt newspaper.

Another cut “may make refinancing cheaper for states, but has grave side effects.”


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While incoming ECB head Christine Lagarde has claimed that the benefits of deeply negative rates outweigh the costs (stating just this week that “a highly accommodative policy is warranted for a prolonged period of time;" few economists believe another cut at this level would actually help the economy. According to Sewing, all it would achieve is to further divide society by lifting asset prices while punishing Europe’s savers who are already paying 160 billion euros ($176 billion) a year because of negative interest rates.

“What’s really worrisome: central banks have hardly any tools left to effectively mitigate a real economic crisis,” Sewing said.

“They have already cranked open the money tap - most of all the European Central Bank.”

Who can blame Sewing, as the EU yield curve has collapsed, so has his share price...


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Source: Bloomberg
"Banks' interest margins are under pressure in this environment and that’s not going to change,” Commerzbank CEO Martin Zielke said at the same conference.

“I don’t think it is a particularly sustainable or responsible policy. But we have to recognize the facts and the facts are that winning clients in this environment helps work against that pressure.

Bloomberg also notes that Yngve Slyngstad, the chief executive officer of Norges Bank Investment Management, Norway’s $1 trillion wealth fund, has separately said that negative rates are the main worry at the world’s largest wealth fund right now.

So, with Draghi facing push back from an increasingly hawkish group of ECB members, the question is, will he just push off the decision? Starting October 31, how the Eurozone will be destroyed - whether with hyperinflation fire and deflationary ice - will no longer be Draghi's decision, but instead the final destruction of the Eurozone will be delegated to arguably the most clueless person (see Argentina) in the room.


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The ECB's imposition of negative interest rates have created an "absurd situation" in which banks don't want to hold deposits, rages UBS CEO Sergio Ermotti, arguing that this policy is hurting social systems and savings rates.


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Ermotti is not alone. As European bank bosses cast their eyes at their share prices, they are fighting back, some have said - biting the hand that feeds, in their attack on ECB policies, warning of severe consequences to asset prices and the broader economy.

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SocGen Chairman Says Brexit Keeping Banking in Wait-and-See Mode

https://www.zerohedge.com/news/2019-...iversification


The good news about portfolio diversification is that it is an act of pure self interest in pursuit of the preservation of capital. The bad news is that most portfolios are likely not to go far enough in their diversification attempts, even if they look good on paper.

Last week Hiromichi Mizuno, chief investment officer of the world’s largest pension fund, told a conference in California that global markets have become so synchronized that money managers risk losing on every front.

Hedge Funds Try to Break the Currency George Soros Couldn't


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“Conventional wisdom of portfolio diversification is when we lose money in equity we make a profit in fixed income,” Mizuno told the board of the California Public Employees’ Retirement System, the largest U.S. pension. “But we lost in every single asset classes and lost in the currency translation as well. It never happened in the past.”

The synchronization Mizuno talks about is not a one off event. On 15th September it will be 11 years since Lehman Brothers brought the financial system to its knees for the very same reason. The issue is one of design. Because the overwhelming majority of financial products are derivatives whose value depends upon the value of other financial products the financial system has evolved into a system of value-dependencies. This inter-dependence means that if a bank like Lehman Brothers fails the solvency of other intuitions is compromised because the value of the assets they hold depended upon the assets held by Lehman Brothers. Like a sweater unravelling the dependency ricochets throughout the system. Japan’s $1.5 trillion Government Pension Investment Fund is simply experiencing these dependencies in its negative return profile.



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In the context of these dependencies that make up today’s financial system, the problem that Mizuno and almost every portfolio manager faces is that there is likely to be very little genuine diversification in their portfolio. Instead the portfolio is likely to be made up of assets whose value depends upon other assets and institutional counterparties. It does not matter if these assets are bonds, equities, emerging markets, hedge funds, ETF’s or currency. In reality they are facets of just one system. Diversification has disappeared, not because diversification is not the bedrock of sound investing, but because the financial system has morphed into this singularity.

Genuine Portfolio Diversification (GPD) accepts the reality of a unified fiat financial system. No matter what assets are in a portfolio, if they are part of the fiat system they are, for the purposes of diversification, treated as just one asset. Therefore, if an investment manager wants genuine diversification they have to look outside the fiat system for their assets. These are few but obvious. They include property, owned outright and commodities such as precious metals, again owned outright.

Interestingly, under this more rigorous definition of diversification, digital currencies such as Monero, Litecoin and Bitcoin do diversify as their value does not depend upon the fiat system.

To improve the offering available to the investor, the digital infrastructure of the blockchain has also evolved a new asset class called Self-Managed Investments (SMI’s). As a form of digital hedge fund the express purpose of SMI’s it to provide hedge-fund like returns outside the fiat system.

Self-interest is a powerful motivational force. It has to be as it takes a lot for an investor to realise the diversification strategy they may have been pursuing for decades is no diversification at all. If the wake-up call is heard there is also the more practical issue of the relative scarcity of assets that meet the GPD criteria. Bitcoin has only 21 million coins. Gold production only increases supply on average by 2 per cent a year. Like passengers on the Titanic, some portfolio managers may be left wondering why there are so few lifeboats as they watch China-US relations sink to new lows.

https://www.theburningplatform.com/2...y/#more-203615

The Fraud Of Democracy

Guest Post by The Zman
One of the features of the current year is the regular reminder that western style democracy is a complete fraud. According to the political class, democracy allows for public policy to reflect the will of the people. The parties put forward candidates offering various policy proposals and the public signals their preferences by voting for one or the other candidates. The winners then set about trying to implement the policies they proposed. That’s how we’re told representative democracy works.

In reality, nothing like this happens. Instead, the parties put on a show for the voters, rarely intending to actually do what they claim. Instead, they manufacture differences between one another, so they can pretend the choice before the voters is stark. Once the election is over, the politicians go back to living their lives of leisure, waiting for instructions from the people who actually run things. The politicians are like robot actors, brought out for elections, then put back in storage.

The obvious example of this is the most recent American presidential election in which Donald Trump scored a stunning upset on the promise to reduce immigration, crackdown in illegal immigration and address the gross inequality resulting from globalization. So far, none of that has been done. Instead, he spent most of his presidency fighting a seditious coup to get him out of office. In fact, Trump’s three years are pretty much what Jeb Bush promised when he was running in the 2016 primary.

Notice that hardly anyone in either political party is terribly conce3rned about the FBI plot to overturn the election. Sure, there are a few lonely voices on the Republican side asking questions and demanding transparency. They have no support from leadership. On the Democrat side, they are actively colluding with the plotters to cover up the affair. One would think the people subject to the voters would care about the integrity of the process, but you would be wrong. The revealed preferences are on full display.

An ugly as the Trump era has been, it is civil and decent compared to what is happening in Europe. The Italians are now watching their political class submarine the will of the people in an egregious series of deceits by the Five Star Movement. The Italians voted for a populist, anti-EU coalition. Instead, the Five Star Movement cut a deal with the internationalist, pro-EU party to sabotage the nationalists. The result is the exact opposite of what the people voted for in their last election.

In Britain, the government put a choice before the people back in 2016, as to whether remain in the EU or become an independent nation again. The public chose nationhood by a respectable margin. In any democracy, getting 52% of the vote, particularly in a highly popular election, is a solid majority. Here we are, more than three years on, and the political class is still debating whether to accept the election results. In other words, the elected officials are deciding whether the election results matter.

To make matters worse, you now have members of one party actively colluding with members of other parties to undermine the orderly process in Parliament. Up until this week, the “remainers” could plausibly claim they are operating within the democratic process, despite thwarting the will of the people. Britain is not a pure democracy, so the pols have some leeway. Now, they are in active revolt against the system that they are sworn to uphold, in an effort to upend the result of the Brexit referendum.


In all of these cases, the question that never gets asked in the media is who is bribing these people to carry on this way. The most likely reason Five Star finked on its voters is the leaders too bribes from Brussels. In Britain, the “remainers” are certainly on the payroll of global enterprise. Those paymasters are most likely foreign. In the United States, of course, both political parties are wholly owned by the donor party. No one in the media bothers looking into it, as they are owned by the oligarchs as well.

The tell is that these shenanigans always work one way. You’ll never see the party of the globalist suddenly have a crisis of conscience and defect to the nationalists. It’s always the other way. There are no “remainers” siding with the Brexiteers in order to respect the will of the people, despite their own misgivings. In Washington, no globalists have switched teams to support Trump. In the charade that is democracy, the fink is always played by the same character in exactly the same way.

The reason we never see a politician break ranks in order to support the popular will against his own side is that western democracy is a fraud. Elections are a beard worn by the oligarchy to fool the public. The public space is filled with drama and outrage, drawing in the public. It is the circus half of the bread and circuses. Meanwhile, the oligarchs, most of whom are now foreign to the people over whom they rule, exercise the real power of the supposedly national governments of the West.


In the United States, both political parties are funded by the same people. For example, anyone questioning the endless wars for Israel gets pilloried, because Israel runs a massive lobbying operation to buy off both political parties. They work this racket in other Western countries as well. The tech giants operate in violation of the laws and civil order, because they own the politicians of both parties. Of course, the commentariat is being paid by the same people to maintain the fraud.

Every society has an elite. This is the natural state of mankind. In a democracy, this reality is concealed from the public. Instead, it is one man, one vote. The people decide public policy. In reality, it is a handful of men and your votes mean nothing. Worse yet, those oligarchs pulling the strings are wholly unaccountable. They don’t have to answer to the public. Instead, they pay flunkies and coat holders to do it. Democracy is a fraud to distract the public, while their society is looted by oligarchs.


The worst part of it is the public, instead of peering behind the charade to see the string pullers, vents its anger on the actors. In 2016 the public voted against the status quo in the form of Donald Trump. Angry at that result, they voted for his opposition party in 2018, as a punishment against his party for their intransigence. In 2020, the public will probably throw Trump out for someone promising something different, but the result will be the same. The result is always the same. Democracy is a fraud.

Will Everything Change in 2020-2025 or Will Nothing Change?
September 4, 2019

Any domino-like expanding crisis will unfold in a status quo lacking any coherent response.

Longtime readers know I've often referenced The Fourth Turning, the book that makes the case for an 80-year cycle of existential crisis in U.S. history.

The first crisis was the constitutional process (1781) following the end of the Revolutionary War, whether the states could agree on a federal structure; the 2nd crisis was the Civil War (1861) and the 3rd crisis was global war-- World War II (1941).


According to this proposition, we're fast approaching an existential crisis that could upend the status quo in a fundamental fashion.

While there is a great deal of historical evidence for cycles, predicting a major transition based on previous cycles is obviously a guess rather than a certainty.


So will everything change in 2020-25, or will the present simply extend another five years? We have to start by defining what qualifies as fundamental change. In my view, if the current distribution of income, power and ownership of capital remains unchanged, nothing of import has changed.

There might be dramas playing out in the political theater, but if the asymmetrical distribution of income, power and wealth doesn't change, then the dramas are merely another form of distraction / entertainment.

The other type of change that qualifies as fundamental is the breakdown of the structures of everyday life: the distribution, cost and availability of food, fresh water, energy, healthcare, income and basic security.

One way to measure the vulnerability of any society to breakdown or a fundamental reshuffling of income, wealth and power is to examine its buffers--the resiliency and reserves of the core systems.

I often reference buffers, as these are largely invisible to everyone who isn't intimately familiar with the workings of each system: the reserves that can be drawn upon in crisis, the redundancies, the staff and management training to handle crises, and so on.

Two examples that are often referenced are the supplies of gasoline in service stations and the food in supermarket shelves and coolers. Each commodity--food and fuel--are largely "just in time," meaning that the supply and distribution system is a long, complex chain with minimal buffers, as the systems have been optimized for efficiency not resilience.

Any disruption in any link of the supply chain will break the entire chain.

The ultimate buffer for any nation-state is its currency, a.k.a. "money." If its currency still acts as a store of value globally, the nation in crisis can issue more money to buy whatever is needed to alleviate the crisis.

If trust in the value of the money has been lost by over-issuing new currency, this buffer has been depleted.

Social and cultural buffers are more difficult to assess. Deeply corrupt societies may find that the public's patience with the abuses of power that manifest as endemic corruption has thinned to the point that mustering the police and army no longer protects the status quo.

Natural systems also have buffers, and the industrial civilization we inhabit takes a variety of natural resources--fuels, fresh water and fertile soils--for granted, assuming that brute force (more chemical fertilizers, more wells, more fracking, etc.) will guarantee ample supplies of these essentials.


Financial systems have multiple points of resilience or fragility. If we take the 2008 Global Financial Meltdown as an example, the Federal Reserve created or backstopped / guaranteed an astonishing $27 trillion out of thin air to restore trust. (The first tranches totaled $16 trillion.)


It worked a decade ago, but saving the banks does not necessarily restore the "animal spirits" of borrowing more money to chase assets higher, and it certainly doesn't boost investments in productivity, the ultimate source of broad-based prosperity.

It also doesn't create more income for heavily indebted borrowers, and with interest rates globally at or near zero (or even lower), there is very little room to lower the cost of servicing existing debt.


It certainly feels as if financial "fixes"--making it cheaper to borrow and refinance existing debt--have run their course, and have entered the fatal decline of diminishing returns: every additional dollar of debt adds less and less real growth to the economy.

I've also referenced institutional sclerosis and the rising wedge model of breakdown, in which costs and complexity continue edging higher while the output of the higher costs and complexity stagnate.


One example of how finance, politics and institutional fragility come together is public pensions, many of which are based on unrealistic financial projections of endlessly rising profits, capital gains and taxes.


We are now in the longest expansion in modern history, yet it doesn't feel as robust as the expansions of the 1950s to early 1970s (les trente glorieuses, the "glorious 30" years of magical expansion 1945-1975) or the financialization/cheap oil boom of the 1980s or the Internet boom of the 1990s.


History informs us that crises that could have been handled with relative ease in the past, when buffers were wide and core systems were resilient, end up triggering a domino-like collapse of entire empires.


These phase shifts often follow periods of financial depression, drought or pandemic (the three often go together as people who get less to eat have compromised immune systems that are then vulnerable to epidemics) that erode the economy and core institutions

If we put all this together, it seems we are facing a much different type of crisis this time, one in which the core systems of the economy and society have become increasingly fragile behind the thin facade of stability, and are thus more vulnerable to disruption.

The crisis of 1781 was essentially a struggle to balance the forces of state and federal power, a balance that already included the divisive issue of slavery.

By 1860, the political compromises that had duct-taped the Union without actually resolving the great divide between slave and free states collapsed, and the issue was resolved by war.

In 1941, a U.S. possessive of its relative isolation was forced to choose between an increasingly precarious isolation and a decisive battle with the Nazi Reich and the Japanese Empire.


What might change in 2020-2025? Perhaps nothing, if all the duct-taped "fixes" for the increasing asymmetries of income, wealth and power hold, and food, fresh water and energy remain cheap and abundant.

But it feels as if the resiliency of society, governance and the economy have thinned to the point that any one domino falling might knock down many others, leading not to a specific crisis such as war or a political struggle, but a generalized failure of the entire status quo: a collapse of indebtedness, a collapse of overly complex and unaffordable institutions, a sharp drop in the purchasing power of fiat currencies, a loss of faith in political processes, a collapse of trust in technocratic expertise and the mass media, and possibly scarcities of essentials that could drive prices much higher.

History suggests these systems are all interconnected and interdependent (i.e. tightly bound systems), so the collapse of one system triggers crises in all the systems it is connected to.


The possibility of such a cascading crisis of the entire status quo isn't even on the radars of the government, media, academia, corporations, etc. There are indications that the Pentagon has contingency plans that recognize the fragility of global systems, but at this point any domino-like expanding crisis will unfold in a status quo lacking any coherent response.



Longtime readers know I've often referenced The Fourth Turning, the book that makes the case for an 80-year cycle of existential crisis in U.S. history.

The first crisis was the constitutional process (1781) following the end of the Revolutionary War, whether the states could agree on a federal structure; the 2nd crisis was the Civil War (1861) and the 3rd crisis was global war-- World War II (1941).

According to this proposition, we're fast approaching an existential crisis that could upend the status quo in a fundamental fashion.

While there is a great deal of historical evidence for cycles, predicting a major transition based on previous cycles is obviously a guess rather than a certainty.

So will everything change in 2020-25, or will the present simply extend another five years? We have to start by defining what qualifies as fundamental change. In my view, if the current distribution of income, power and ownership of capital remains unchanged, nothing of import has changed.

There might be dramas playing out in the political theater, but if the asymmetrical distribution of income, power and wealth doesn't change, then the dramas are merely another form of distraction / entertainment.

The other type of change that qualifies as fundamental is the breakdown of the structures of everyday life: the distribution, cost and availability of food, fresh water, energy, healthcare, income and basic security.


https://www.oftwominds.com/photos2019/rising-wedge.gif
This essay was drawn from Musings Report 27. The Musings Reports are emailed weekly to subscribers and patrons at the $5/month or higher level.


Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): Read the first section for free in PDF format.


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America teeters on the precipice: our government is now captive to special interests and big money, twin cancers that threaten our democracy. This accelerating crisis is exacerbated by a toxic social media-fueled tribalism that has replaced “what do you think?” with “which side are you on?”


Our crisis isn’t just political—it’s structural: as the pace of change explodes from gradual to non-linear, the organizations that dominate our economy—centralized corporations and government—become destined to fail. We see this failure in both the soaring inequality that has hollowed out the American Dream as well as in the rising tide of social and political disunity.


To prevent the fall of our democratic republic, we must transform our economy and society from the ground up. As we enter a new era of rapid, unprecedented tumult, it is we citizens who will need to save our democracy. For our political and financial elites will cling to their centralized power, doing more of what’s failed, even as civil society unravels.


All is not lost--yet. Our way forward starts with understanding the fatal flaws of our brittle, self-serving status quo and embracing this basic truth: better options are available if we’re willing to explore.

To pathfind our way to a better destiny, we must create new localized structures optimized for resilience and adaptability—a flexible, decentralized, sustainable, democratic, opportunity-for-all nation.

Read the first section for free in PDF format.

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic (ebook $6.95, print $12)

https://www.zerohedge.com/news/2019-...ops+to+zero%29

Blackrock's Chief Investment Officer, Rick Rieder, best known perhaps for recently suggesting that the ECB should monetize stocks, writes in the Blackrock blog today and highlights the economic policy state-of-play today, and where it may lead to should economic growth falter, productivity not materialize, and populism continue to thrive.


* * *


The major global central banks continue to draw bigger guns in their battle against deflation, yet in some places, it appears to be of no avail. The fact is that the share of sovereign yields that are in negative territory keeps increasing and the average level of these interest rates becomes ever more negative. Further, quantitative easing (QE) purchases of sovereign debt have transitioned to purchases of corporate debt, and in some places equities; with inflation still elusive and improved growth prospects in question. That all leads one to wonder where (and how) these policies end? What is today’s monetary policy endgame?
Turn to economic history for perspective


In order to envision the monetary policy endgame several years (or a decade) from now, let’s start by stepping back and examining two of the foundational tenets that have driven the global economy and financial markets since the 1970s. The first principle is that the major central banks embraced a roughly 2% inflation target (implicit for the Federal Reserve since, at least, 1995 and explicitly stated since 2012), and the second factor is the end of the Bretton Woods monetary system; marking the shift away from the gold standard and into a world of fiat currency fluctuation. The commitment to the 2% inflation target is extremely important for understanding our current monetary policy challenges, because that target was premised around structural forces that no longer exist (given this era of demographic aging and rapid technological development, which both hold down broad-based inflation). Still, the switch to fiat currency about two decades before the 2% inflation target was set, ironically paves the way for the inflation target to be met – eventually.

The question that remains, then, is just “how” this will be the case?
However, before we answer that we must examine why inflation peaked in 1979 and why it has been in a downtrend since then? In other words, what are the structural forces creating disinflation? There are four major forces that created inflation prior to 1979 and resulted in disinflation afterward. First, the population growth rate following the post war Baby Boom peaked around 1979/1980 and subsequently slowed. Second, the growth rate of female participants in the labor force also peaked around 1979/1980 and subsequently slowed. Third, the U.S. and China opened diplomatic and trade relations in 1979, as a result of Deng Xiaoping’s reforms, arguably marking the beginning of the latest stage of globalization. Finally, the oil shocks of the 1970s, ending with the 1979 Iranian Revolution and a surge in oil-driven inflation were a critical factor in the price rises of that time.


This latter event was followed by the subsequent commitment from a then relatively newly formed OPEC that it would act as an oil supplier of last resort, helping to keep oil prices from becoming too volatile (a role it has largely maintained until today). Fascinatingly, in recent years technological innovations have taken hold that form an important new disinflationary force. Specifically, we’ve seen price transparency and information symmetry, which are driven by the proliferation of smartphones, the Internet and the Information Age, more broadly. These forces are flattening supply curves across a huge variety of products, making traditional aggregate demand stimulus less effective in creating inflation. Demand expands, but prices don’t rise as they did in the past, because everyone is aware of exactly what the marginal good should cost and will not pay a cent more than can be (instantly) found at the cheapest online supplier.


Thus, some huge inflationary forces pre-1979 have since abated, and some tremendous dis inflationary forces have entered the picture post-1979, but at the end of the day these are all significant, secular, factors that are not likely to be reversible (with the possible exception of globalization, but even then, only to a modest degree). The fact is that central banks’ actions, so far, have simply been too modest to matter against the backdrop of these tectonic changes. Moreover, we would argue that central banks have already achieved meaningful price stability (for instance, the volatility of CPI is near its lowest levels in history), but the natural rate of inflation is simply not 2%, but rather is something lower. So, despite the seemingly large size of monetary policy stimulus by historic standards, central banks have still only brought “a knife to a gun fight,” to paraphrase a film from the late-1980s, at least as far as creating sustained 2% inflation is concerned.
What ammunition central banks have yet to deploy


While the point is debatable, we do not think the arsenal of central bank tools is near exhausted, which brings us to the endgame and the concept of fiat currency. There are two ways inflation is created: one is to actually raise the prices of goods and services organically, but the other is to debase the currency in which those goods and services are sold (think helicopter money). Because the former method relies on traditional aggregate demand stimulus (lower interest rates), which has not been working, since the natural rate of aggregate demand growth is now so low (and in some places is contracting) and the supply curve is so flat; the endgame may well be monetary debasement. Under the gold standard this would not have been possible, as every new dollar would have to be backed by physical gold mined from the earth (a very slow and expensive process, and likely without the requisite volumes), but today money is created by printing presses, or even a few computer keystrokes.


In order to debase a currency, money needs to be created at a faster pace than goods and services are (essentially, liquidity growth needs to exceed world GDP growth). What does this mean for investors? Real rates will definitionally need to be negative – and in fact more negative than the real rates of competitors (think competitive devaluation). The U.S. is not quite there yet, but we will see as soon as next month how much closer the ECB gets to monetary debasement (we think they’re still some ways away, as they haven’t fully exhausted their negative interest rate path, it seems). Ironically, the beggar-thy-neighbor implications of competitive devaluations will almost certainly incite a response from countries who may not originally even have needed to resort to currency debasement in the first place, raising the potential for full blown currency war.


Investment implications
How should one position for such an endgame? As is probably evident, any nominal instrument will be devalued in real terms, so the solution is to hold an asset that maintains its real value – an asset that cannot be printed. We would include stocks (dividend yields are set on payout ratios, companies have some degree of pricing power, and shares outstanding are limited in number), real estate (it is difficult and expensive to expand the stock of real estate), and even commodity currencies, like gold (again, limited supply and expensive to extract). By definition, the worst asset to hold would be a sovereign bond with a negative yield, closely followed by paper money at zero yield, both with a theoretically infinite supply.


Unfortunately, such extreme devaluations in currencies could not only inflate the prices of real assets but could also push Gini coefficients to historically wide levels (a measure of the rich/poor divide) and may well fuel a continued rise in populist politics. Ultimately, this could have a real influence on central banking as we know it today, and/or the value of fiat currency. All of this is very difficult to anticipate in terms of the breadth and influence of these types of actions and ultimate reactions in terms of how prices, markets, investors, and central banks consequently adjust.


Coming back from these extreme policies is very difficult, particularly as the aging demographic and concurrent potential growth trends embedded in the system provide a ceiling on above-trend growth, which otherwise could aid the economy in soft-landing from these policies. And, potentially more importantly, extremely low rates can and will encourage fiscal actors to add more, and potentially dramatically more, debt to an already historically-levered set of economies (e.g. the increased discussion of MMT). Hence, all of this leads one today to consider assets that can participate in an inherent devaluation of the local currency, which is to say: equities, real estate, and even hard assets that have historic value-relevance, such as gold.

Good Morning

This video is my final confirmation on what awaits our world.

If there is one person that I trust and has a great track record it is Frank Giustra.

Very Few PEOPLE can accept that we are about to enter the most dangerous times of our lives.

I will post again the words of Egon Greyerz of Matterhorn.

https://goldswitzerland.com/the-deca...talist-system/

The world is now standing before a seminal moment and virtually nobody can see it. There has not been a more critical moment in the last 50 years than what we are now facing. In 1971, the world faced a similar situation. At that time, only the Chinese understood the consequences of Nixon’s decision to close the gold window.
The People’s Daily in China said in August 1971:
“These unpopular measures reflect the seriousness of the US economic crisis and the decay and decline of the entire capitalist system.”

The paper went on:
“mark the collapse of capitalist monetary system with the US dollar as its prop”…. “Nixon’s new economic policy cannot extricate the US from financial and economic crisis.”

“The policy is meant to fleece the American working people and to shift the worsening of the US financial and monetary economic crisis onto other countries.”


THE DECAY AND DECLINE OF THE WHOLE CAPITALIST SYSTEM
So almost 50 years ago, China predicted “the decay and decline of the entire capitalist system.”

How right the Chinese were. Half a century later, the dollar has lost 98% in real terms, which of course is against gold. And against most paper currencies the dollar has also collapsed. Against the Swiss Franc for example, the dollar has lost 80% since 1971.

US debt back in 1971 was $400 billion against $22 trillion today, a “mere” 55x increase. US GDP was $1.2 trillion in 1971 against $20 trillion today. So a 55x increase in US debt in the last 48 years has only produced a 17x increase in GDP.

The US economy is running on empty which is no wonder since massive money printing of worthless paper money cannot create any real wealth whatsoever but only inflated paper wealth.

But it is not just the US which is in this position. Because taking away the gold backing of the dollar in 1971, gave all countries a free for all right to print money and expand credit.


I HAVE PERSONALLY WITNESSED THE DESTRUCTION OF MONEY
My business life coincides pretty well with this period, working in a Geneva bank from 1969. So I do remember the start of the destruction of money. Moving later to the UK, I saw the pound collapse against the Swiss Franc from CHF 10 in 1972 to Swiss Franc or CHF 1.20 today, an 88% fall of the pound. And against gold, the pound has lost 99% since 1971.

A period of economic mismanagement and political upheaval in the UK in the 1970s started it all. Annual inflation was 15-17% for a 7 year period and interest rates reached over 20%.

The financial system was minutes from collapsing in 2008 during the Great Financial Crisis. Eleven years later, global debt has doubled and risk has increased exponentially.

Central bankers are aware that the world economy is now standing at a crossroads. The big problem is that they don’t have a choice of what path to take. The path was laid by them many decades back and now there is no way back. The Chinese understood already then where the path would lead.

August 2019 is in many ways similar to August 1971. America was back then in a corner. The country was under pressure after the costly Vietnam war and the gold standard stopped the US from cheating the system by printing money. The rest of the world saw the US’ precarious situation and started selling dollars. To salvage their position, Nixon saw no other way than to take the dollar off the gold standard and this was the start of half a century of global money printing and credit expansion on a humongous scale.


Nixon’s August 1971 decision has led to a crisis of unprecedented proportions. Still, very few people can see that we are now at the point of “a final and total catastrophe of the currency system involved” as von Mises said.

This August is not one single event like in 1971 but a number of very clear indications that all central banks are panicking. Every major central bank is now showing a degree of concern which is unprecedented. They are all telling us that there will be unlimited money printing combined with zero or negative interest rates. This will obviously not clear up 50 years of irresponsible monetary mismanagement.

So what Nixon started will now be finished off by current governments and central bankers in a most spectacular money printing bonanza leading to hyperinflation and a collapse of the financial system.

So far, over 40% of global bonds now yield less than 1% and over $16 trillion worth of bonds have negative interest.

DANISH MORTGAGE WITH BANK PAYING BORROWER
Negative interest rates are of course a total absurdity. They totally destroy the incentive to save and also pensions. In Denmark you can now get a 10 year mortgage with Jyske Bank at MINUS 0.5%. Imagine, you buy a house and the bank charges nothing for the loan but instead lets you pay back less than you borrowed. It will become even more interesting when mortgage rates go to minus 25% so after a few years the debt has been paid by the bank!


US RATES TO DECLINE SUBSTANTIALLY
95% of global bonds are now below the Federal Funds rate. But since that rate is 2.5%, this is a temporary situation. US rates are likely to decline dramatically during the autumn to zero or negative. That will lead to a lower dollar and higher gold. US stocks will also decline from their current dizzy levels, in spite of lower rates.

Lower rates are no longer seen by stock market investors as beneficial for markets but as a sign of economic trouble ahead.

Fed Chief Powell just declared that the “Economy is in a favourable place”. You wonder where that place is since there is nothing favourable about the US economy currently. And it seems that Powell doesn’t believe his own words since in the same breath he says that there are “significant risks”.

Trump takes every opportunity to attack Powell and asks “who is the bigger enemy Powell or Xi” and then announces sharply thereafter another round of tariffs.

So the Tit for Tat game between the US and China continues and what is certain is that everyone is a loser in a trade war. Trump won’t give in and nor will China. As they play their games, world trade will suffer and so will a fragile world economy. Global trade is already down and we will soon see the fall accelerate dramatically.

Trump is clearly going to win this game over Powell. Trump has declared that rates should be reduced by 1% now. Thus we are guaranteed to see much lower US rates and a rapidly falling dollar during the autumn.


BOTH BOJ AND ECB WILL ACCELERATE STIMULUS
Kuroda the Governor of the Bank of Japan also made it clear three weeks ago that they will not hesitate to expand stimulus if a global slowdown jeopardises the country’s recovery. And PBOC, the Chinese central bank is also indicating that it will lower rates for companies.

The ECB is the central bank in real trouble. The German and the whole Eurozone economy is weakening dramatically and the banking system is on the verge of collapse with ailing banks not just in Germany but in Italy, France, Greece etc.

EU growth has slowed down rapidly since the ECB July 25th meeting and Draghi has virtually promised more stimulus in September. The ECB minutes indicated that we should expect a combination of rate cuts and asset purchases.


CENTRAL BANKS ARE IN PANIC MODE
Although all the central banks are staying calm on the surface, the real situation is panic mode. What we are seeing is not isolated planned actions but a coordinated programme in an attempt to protect the global economy and financial system from collapse.

The central bank chiefs no longer have a choice. They don’t have the luxury that Brutus talked about in Shakespeare’s Julius Caesar to take the tide that “leads to fortune”. Instead the only option they now have is the tide which “Is bound in shallows and miseries”.

So in August 2019, central banks have by their actions told us that that the world is now facing the final phase of the destruction of the world economy that Nixon started in August 1971.


The autumn of 2019 will see global trade decline rapidly and also economic activity. Stock markets around the world will crash and currencies will continue their race to the bottom.


INDICATOR SIGNALS RISK GREATER THAN 2000 AND 2007
Most bond rates are already below the zero bottom and we will see that trend accelerate. At some not too distant point, the bond bubble will stop expanding with long rates going up and eventually also drag the short rates up. At that point, central banks will have lost control of interest rates and the world will see a debt collapse of massive proportions. Rates will go to the teens initially and later to infinity as bonds become worthless.

The very interesting chart below from SignalsMatter.com tells the above scenario in a beautiful way.

The chart shows the S&P Index divided by the 2/10 year Treasury spread.
The green area shows that the risk of a turn is extremely high. This indicator predicted the 2000 crash and also the 2007-9 crash. The Green area since 2017 shows much higher risk than the previous two crises. We are now at the Tipping Point which in simple terms means that we will first see stocks fall rapidly and a bit later interest rates rise. The size of the bubble and the extent of the risk will this time lead to a fall much greater than in 2000 and 2007.


A CRASH IS IMMINENT
http://goldswitzerland.com/wp-conten...08/history.jpg


The message from the chart above is very clear. The position of stocks at an extreme overbought situation combined with bond rates at an extreme low, indicates that we are now at the tipping point and thus not far from a major market crash.


DOW/GOLD AT THE BEGINNING OF A 95% FALL
Since 1999, the Dow is down 63% against gold. Just since April this year the Dow has fallen 20% against gold. But this is just the beginning. This ratio will go below the zero line, where it was in 1980. This size of such a fall in the Dow/Gold ratio means that if you hold gold instead of stocks, you will avoid a relative loss of at least 95% in the next few years.


Gold is up 44x since 1971 in dollars. But as I have explained many times, it is not really gold going up but paper money collapsing. This is what Nixon started almost half a century ago. Central banks around the world have now been handed the batten and they will finish the job in the next 3-6 years. Finishing the race means currencies going to ZERO and massive wealth destruction in the form of collapsing asset markets including stocks, bonds and property.
Physical gold and silver will, as they always have, reflect these moves and move to unimaginable levels which will be far beyond the 44x that we have seen since 1971 for gold. Since fiat money will be worthless, it is clearly not right to make a forecast in paper money as it would be infinity. Suffice it to say that gold and silver will maintain purchasing power as they always have and also be the most important wealth preservation asset to hold.

http://goldswitzerland.com/wp-conten...8/dow_gold.jpg


99% OF INVESTORS WILL SEE THEIR WEALTH WIPED OUT
Sadly 99% of investors will not realise that they should be out of stocks and into gold until their wealth has been wiped out. All stock investors will believe that central banks will save them again. But as I have outlined above, this time it will fail as we start a secular bear market in stocks and the world economy which will last a very long time and lead to a massive wealth destruction.


Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45

Matterhorn Asset Management’s global client base strategically stores an important part of their wealth in Switzerland in physical gold and silver outside the banking system. Matterhorn Asset Management is pleased to deliver a unique and exceptional service to our highly esteemed wealth preservation clientele in over 60 countries.

GoldSwitzerland.com

Contact Us

Articles may be republished if full credits are given with a link to GoldSwitzerland.com.

https://moneymaven.io/mishtalk/econo...lVLSXr2VeLonrM

The entire German yield curve is negative for 30 years. Japan is poised to join the club.

Bloomberg reports Japan Lines Up to Join Germany in All-Negative Yield Curve Club.

Yields in the Asian nation are already negative all the way out to debt maturing in 15 years, and buyers from home and abroad have been snapping up longer-tenor Japanese government bonds, adding to the downward pressure.

International investors are profiting by lending dollars for yen via currency forward contracts and plugging the proceeds into JGBs, while domestic players benefit from the slope of the yield curve by borrowing over a short time frame and putting the money into longer maturities where yields are higher.

“Investors are seeking to buy 30- and 40-year bonds while there are positive yields left,” said Tadashi Matsukawa, head of fixed-income at PineBridge Investments Japan Co. “They face the possibility that yields across all maturities will fall into negative territory.”

To Infinity and Beyond
Why stop at 30 years or even 40 years?
Why not offer perpetual bonds with a negative yield?

Negative Yields Fundamentally Impossible
Negative yields are fundamentally impossible in the absence of central bank manipulation or monetary fraud.
That is not an opinion, it is a statement of fact. It is impossible for someone to prefer 89 cents ten years from now to a dollar today.
Yet, I see some people whom I respect attempt to explain the matter.

Deflation Ahead

Why buy German 10-years at -60 bps? Well, core inflation in Germany typically falls 330 bps in a recession. The current core is 1.2%. So that means deflation lies ahead and as such generates a de facto expected “real” yield of +1.5%. That’s why.
09:58 - 21 août 2019

I agree that deflation is ahead, but I am sorry, that's not a valid excuse to buy negative-yield debt.


Currency Component
One of my readers commented "You are forgetting the currency component."

That statement is in apparent "carry trade" sympathy with Bloomberg's "No Brainer".

Excuse me for pointing out there is no risk-free arbitrage.

Carry trades blow up all the time and the next one will be a doozie. I expect many hedge funds will blow up on these kinds of bets.

Logically Impossible
Let's not equate speculative activity with the fundamental impossibility of someone actually preferring 89 cents ten years from now to a dollar today.
That is precisely what Swiss bond yields imply.
Yet, Rosenberg made the same rationalization as my reader.


Safekeeping
Again, note out the difference between safekeeping services and negative interest rates.

One would expect to pay a small nominal storage cost for gold (or cash).

But if one lent gold (or cash), as opposed to placing it in a bank for safekeeping, the yield would never be negative or zero. Never.
That one might choose to speculate in negative yield bets via carry trades or the greater fool's theory does not negate this simple fact: Time preference can never be negative except by central bank manipulation and outright monetary fraud.

Question of Fraud
Another reader commented "I don't understand how negative interest rates are fraudulent. The bond issuer is promising to pay fewer dollars upon maturity than the buyer is spending to purchase the bond. There is no fraud."


Of course there is manipulation and fraud.

Once again, Interest rates could never be negative without central bank manipulation.

The ECB engaged in massive QE, printing money out of thin air, forcing banks to take the money, then setting rates negative robbing banks of earnings. That's a huge fundamental mistake and it has backfired already.

If you do not like the word fraud, call it robbery. It is not much different than the playground bully demanding money in return for the right to walk to class unmolested.

Banks have to take the offer. In return, we are now seeing things like banks charging consumers for deposits. Negative interest rates on deposits rob depositors because they are forced upon them.

If something that cannot logically happen, actually happens, look for manipulation and fraud as the obvious explanation.


What's Happening?

1. To create "excess reserves" central banks, via asset purchases, flood banks with dollars (euros or yen) the banks do not even want because banks believe they cannot lend them profitably.
2. In the case of the ECB, the central bank charges the banks interest on the euros crammed down their throats.

Mathematical Certainty
In Europe, the US, Japan, and everywhere, it is a 100% mathematical certainty that someone has to hold every dollar, every euro, every stock, and every bond 100% of the time.

Please read that two or three times until it sinks in.

Someone must hold every security and every dollar. One cannot sell stocks and buy bonds without someone else doing the opposite.
Given there is a seller for every buyer, only the ownership transfers.

Manipulation, Fraud, or Theft?
In this case, the ECB prints euros the banks do not even want, yet someone has to hold the damn things, 100% of the time come hell or high water, no matter what interest rate the ECB sets.

Then the ECB charges the banks interest on the money printed out of thin air while simultaneously setting the short-term rate negative.
This has destroyed Eurozone bank profitably. In contrast, the Fed paid interest rates on excess reserves, slowly bailing them out over time.


Making Sense of It All
One can label these central bank strategies manipulation, theft, or fraud.

Select the term that suits you best.

But that is the correct way of Making Sense of 100-Yr Bonds yielding 0% and 30-Yr Bonds With Negative Yield.

Also, please consider Fed Baby Steps Coming: What's Powell Up To?

My short answer is the Fed wants to avoid the Eurozone negative rate trap.

Mike "Mish" Shedlock

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https://www.investopedia.com/terms/b...-wednesday.asp

Black Wednesday refers to September 16, 1992, when a collapse in the pound sterling forced Britain to withdraw from the European Exchange Rate Mechanism (ERM). The UK was forced out of the ERM because it was unable to prevent the value of the pound from falling below the lower limit specified by the ERM. The European ERM was introduced in the late 1970s to stabilize European currencies in preparation for the Economic and Monetary Union and the introduction of the euro. Countries seeking to replace their currency with the euro were required to keep the value of their currency within a certain range for several years.


Breaking Down Black Wednesday
Before Black Wednesday, the UK had been in the European ERM for two years. But the pound had been depreciating, and the British government took steps to bolster its value, including raising interest rates and authorizing the use of foreign currency reserves to purchase pounds. Believing that the UK would not be able to prop up the pound, George Soros had been accumulating a large short position against the currency.


The day before Black Wednesday, Soros' Quantum Fund began selling large amounts of pounds on the market, causing the price to plummet further. Although the Bank of England took steps to stem the sell-off, it was unsuccessful and later declared on Black Wednesday that the UK would leave the European ERM. Because of Black Wednesday, George Soros is known for "breaking the Bank of England." It has been reported that he made a $1 billion profit that day, which cemented his reputation as a great forex trader.


Although Black Wednesday is described as a disaster by many, some believe it helped prepare the way for an economic revival. Some believe that economic policies enacted in the UK in the aftermath of that day contributed to an improvement in economic growth, lower unemployment, and less inflation.


Related Terms

Coiled Market
In a coiled market, fundamentals indicate that it could make a strong move in one direction after being pushed in the opposite direction.

moreUnderstanding Exchange Rate Mechanisms (ERMs)
An exchange rate mechanism (ERM) is based on the concept of fixed currency exchange rate margins, but there is variability among currency exchange rates.

moreBear Raid Definition
A bear raid is an illegal practice of colluding to push a stock's price lower through concerted short selling and spreading false rumors about the target.

moreEuropean Currency Unit (ECU)
The European Currency Unit was the official monetary unit of the European Monetary System before it was replaced by the euro.

moreFloating Exchange Rate Definition and History
A floating exchange rate is a regime where a nation's currency is set by the forex market through supply and demand. The currency rises or falls freely, and is not significantly manipulated by the nation's government.

moreGeorge Soros
George Soros is a famous hedge fund manager who is widely considered to be one of the world's greatest investors.

more

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loveandpeace

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