January 26th update; Manufactured crises, including the Coronavirus outbreak, help the central banks

-Despite conventional wisdom, the central banks need muted inflationary and economic growth over time in order to keep the nation-states solvent via QE. This will allow debt yields to continue to fall and the central bank balance sheets to expand as needed.
-The Coronavirus outbreak can be viewed as an auspiciously timed factor helping the Fed in its struggle with the short-term lending markets.
-Based on recent market behavior, I have to conclude that the coronavirus situation has been beneficial to furthering the QE objectives of the central banks.  If this outbreak becomes a lasting and growing matter, I see massive deflationary forces overwhelming the markets and economy. Stocks could fall in the short-term, but falling sovereign yields will ameliorate asset price shocks.

The Dow Jones Commodity Index (DJCI) (bars) and 10-yr UST yield (line) both fall in the wake of the corona virus outbreak (click to enlarge)

-I am encouraged to see the drops in commodity prices and sovereign bond yields. This shows me that the system is working as we theorize.
-The worrying strength in commodities is turning to weakness, and that can only mean one thing—it’s time to start worrying about the global economy again. Both WTI and Brent, as well as copper, are rolling over. Taken together, their poor price action suggests that perhaps the global economies’ growth rates are slowing.
-For those in the oil patch, I view the Coronavirus outbreak and others like it as a potential adverse demand shock in a sea of oversupplied markets.
-I leave it to you to determine whether the Coronavirus outbreak is natural, man-made, or just a cover for the central banking programs.

The only factor keeping the 10-year yield from dropping further is the yield compression on the shorter-end of the curve. Yields have been managed since the 2008 crisis. (click to enlarge)

-the Fed’s balance sheet has stopped expanding since the beginning of the year and actually contracted by some $25 billion in the week ended on Wednesday. While the central bank has said it would continue to purchase $60 billion of Treasury bills a month, it’s winding down its repo operations and letting its holdings of agency mortgage-backed securities mature without being replaced.
-Though the changes in the overall balance sheet over the past couple weeks could be viewed as ominous, the longer-term viability of the markets rests on the Fed’s ability to continue buying Treasuries on a permanent basis. It has stated it will continue this for a few more months. The Fed can continue peeling off their high amounts of repo collateral and mortgages as long as it continues buying $50-60 of Treasuries in permanent operations.
-Viewed through a wider lens, the direction in longer-dated Treasury yields is clearly down. The 30-year UST yield is stubbornly close to its recent all-time lows, but the 10-yr is overly affected by short-term rates.

Daily performance of the 10-yr UST yield. The Fed needs lower longer-dated yields and the corona virus outbreak has been auspiciously timed; a breach of 2% has been averted. (Click to enlarge)
20-year performance of the 30-yr UST yield. This yield continues to sink over the long term, as predicted. I was encouraged the outbreak helped cause longer-dated yields to drop this past week

-Gold continues to find support in the face of an ongoing overwhelmingly bearish COT report. If these disease outbreaks continue and expand, I look for a test of $1,583 soon. If $1,587 is taken out, then a retest of $1,600 will occur shortly after.

Daily platinum chart. With its less-liquid sister metal Pa in the stratosphere, I see continued support for Pl. Notice the nice pennant flag formation.

-Platinum looks very good here as well and is showing a nice pennant flag formation. We need silver to share in the rally for genuine confirmation of the trend.

(UPDATED) After watching a YouTube video, a subscriber is worried the Fed is trapped

Update 17:35 EST:
Subsequent to my original posting, the subscriber sent me a link to the referenced YouTube video below. Don’t chuckle, but it gets a lot of views and is monetized. I watched it and here were my comments to the subscriber below the video link (edited for grammar).

Hi Dave,

Okay, I sat through the video. Agh.

I don’t necessarily disagree with a lot of what this gentleman says (especially with respect to the pre-2008-09 timeframe). The problem is simple, he’s been wrong for 11 years worrying about a collapse, and the assets (collateral) that he calls garbage right now are not garbage like back then. It’s a whole different animal from last decade.

Moreover, he looks at the same charts we do and says that it’s QE that lowers the yields and that it can’t last. I counter, as I have all last decade, and claim that QE is not a problem; the markets have accepted it, there have been no collapses in asset prices, and the markets will all eventually be nationalized (managed) on a de facto basis.

The issue with this gentleman (and the others of his kind) is that he does not understand the hidden centralized management of the Conspiracy. I have repeatedly told the reader that to the untrained eye this system looks untenable and unstable. That is by design to freak people out. As long as people are freaked out, the powers-that-be can continue ramping up their system to further their grip on the control of the economy and over our lives. It is working very well. The more people that are like this gentleman, the more effective the globalists can be. It truly is an amazing conspiracy. And those who don’t understand are being bulldozed.

There is no repo endgame other than the fact that the overnight lending market will be nationalized by the Fed and Treasury. It already has. I feel so sorry for people who have listened to this stuff all decade. They have gotten wiped out. It’s a shame too.

I noticed he monetized his videos.

Chris

Original: 11:48 EST

Is the Fed trapped? Despite a ballooning Fed balance sheet, YoY CPI remains muted and the 10-Year UST yield has been fading.

Chris
I just watched a YouTube video which stated that the FED was trapped. The short reason is that when the FED expands its balance sheet it causes the Ten Year Treasury rate to increase.

The increase basically collapses the economy by depressing asset prices and tax revenues. I’d like to get your take as to if this is just a game of going back and forth forever or if there is a point of no return.

Regards,
Dave

Stocks, bonds, and real estate rise after the Fed announces resumption of balance sheet expansion and Fed funds rate cut
I see the Fed has ammo to drop the Fed funds rate.
The U.S. Fed: 40 years of aggressive easing and still going strong

Dave did not provide me a link to the particular YouTube video in question, but I do not need to watch it. I think we can observe the behavior of the marketplace to conclude that whatever this YouTuber is worried about is misplaced concern. In fact, I think this analyst should be more worried about continuing to place his viewers on the wrong side of the market.

Perhaps this YouTube expert should stop reading the ZeroHedge Twitter feed, since ZeroHedge has resorted to mocking the Fed and the Western establishment. The owners of ZeroHedge figure that if it continues to be wrong, they can just add humor to the mix. That obviously has sufficed as their Twitter following has been rising.

Here is my warning to the reader. Based on recent developments, including the surfacing of this manufactured corona-virus crisis, I can easily see a scenario where the Fed could add trillions more in Treasury assets without serious market dislocations and higher inflation. Furthermore, when the next manufactured catastrophes appear, I guarantee that the Fed will ramp up into overdrive as needed.

Think about the overnight lending crisis. By the time this is all done, the Fed will have effectively taken over the repo market. Via the IOER mechanism, its conspiring network of money center banks (e.g. JPM, BAC, GS), and its recent additions to the balance sheet, the Fed already has usurped control. While ZeroHedge mocks the Fed and its followers sleep, the Fed has already effectively “nationalized” overnight lending.

Wrap your mind around that thought next time you predict collapse.

Zero Hedge and the alt-financial media count on you having no memory

All Zero Hedge articles from 2009 to 2016 could have a current timestamp
The internet has been used by the elites to impoverish the masses and the data back me up on this one. Even though the bottom 90% do not think so, they have been gutted and disenfranchised

Over the past week or so, I received a few emails regarding my stance on Zero Hedge and the alt-financial media and what they are predicting for 2020, and felt the need to respond.

I have a subscription to [alt-finance expert] and he said I was too harsh on Zero Hedge and that we should just take it with a grain of salt….

Dave

I think 2020 is the year that this thing goes down. I have to agree with the others [in the alt-financial media] over your take on this one.

Geoff

Who knows? Maybe for once, these outlets and writers will be right. But I doubt it. How can I rely on an outlet that has been wrong for over a decade? I wouldn’t, and you shouldn’t either.

Zero Hedge has been bearish on real estate since its 2009 founding
Even with its obvious and predetermined objectives, ZeroHedge’s followers continue to heed its “advice” and lose out

Okay, let’s assume that ZeroHedge is just exaggerating a bit, but is otherwise fairly accurate. We can easily verify if Zero Hedge is on the level. Let’s do a Google search for the following and see what comes up.

“Zero Hedge 2014 Real Estate”,
“Zero Hedge 2015 Real Estate”,
“Zero Hedge 2016 Real Estate”.

Anyone who searches on these terms will come up with dozens of articles on each search that will only either conclude there is a bubble or market peak. In fact, I do not see one bullish article in the hundred or so I came across.

10-Year performance of U.S. housing, which doesn’t include rental income returns. Based on 2014-2016 house prices, cap rates would be much higher than now.

So, what if you heeded the warnings of the alt-financial media and didn’t get involved with rental real estate last decade? You lost out on a once-in-a-generation opportunity to plan for your future and retirement. I am grateful I stopped listening to these broken clocks long ago.

Zero Hedge has been wrong on the stock market since 2009

I wonder how many investors and traders relied on ZeroHedge when going short TSLA, NFLX, or AAPL?

The Wilshire 5000 Total Market Index is a widely accepted benchmark for the U.S. equity market, and measures the performance of all U.S. equity securities with readily available price data

Once again, do a Google search for Zero Hedge articles regarding the “stock market” for 2014-2016. The findings are even more glaring. Zero Hedge has been wrong all decade. I am grateful I stopped considering its advice when I warned that gold was was going to tank in February 2013 (I wrote this article under a pseudonym). In fact, that’s about the time I weaned myself off of all alt-financial guidance and Alex Jones.

In fact, do a Google search for any year in the 2010’s and your results will be the same. Should I take Zero Hedge or its alt-financial lackeys with a grain of salt? Instead, I say that we should heavily discount or reject most of what they say, because their poor track records prove we should. Even if they turn out to be right, their logic and reasoning cannot be relied upon, as they would be correct more likely from chance.

Please understand why these charlatan outlets generate this type of reading and analysis. If these sources concluded what I report and analyze, they would never build any readership and sponsor base. The bottom 90% need to turn somewhere, and they predominantly steer toward the propagandist outlets like Zero Hedge. Those who have been effectively marginalized will be attracted to those who reaffirm their existing biases, even if they are better served by avoiding them.

Zero Hedge has been wrong about the repercussions of Fed policy since 2009

I came across a Zero hedge story this morning titled, Gundlach Round Table: “Jay Powell Doesn’t Understand What’s Happening In Credit Markets”, and wished to respond to its premise.

These are the types of articles that Zero Hedge pumps out by the dozen all day long. It paints a picture that illustrates a Fed that is in over its head and  losing control of the monetary system and credit markets. Of course, if I believed this stuff, I never would have invested in stocks, real estate, bonds, or any other asset tied to interest rates. I would have been out of the U.S. dollar and into gold and cryptocurrencies. While both cryptos and gold have been profitable over the longer term, they do not produce any passive income, and I would never have developed my income stream if I stayed in them.

If we can conclude that the Fed is carrying out another agenda and that what it does is well calculated, then we can invest and trade more profitably.

Why doesn’t Zero Hedge criticize the Russian Sphere?

One more thought regarding Zero Hedge. Why doesn’t Zero Hedge denigrate the Bank of Russia? Why doesn’t it criticize Vladimir Putin. After all, President Putin is looking to further consolidate his grip on power in the same way as the Soviet leaders. Zero Hedge seems to be peculiarly quiet when it comes to castigating the former Soviet sphere. Perhaps, there is more to this than meets the eye?

If you are looking to invest and trade over the long-term, please be careful when choosing the media outlets you rely upon for your news.

Housing market update; Some analysis and ideas given current monetary policy

I wanted to put out a quick update on the housing market, and while I wish to concentrate on the dynamics influencing the markets in the United States, we can observe the same secular trends throughout the former Commonwealth nations and Europe.

I have to conclude that residential real estate will continue to benefit from the highly coordinated central banking policy that was implemented in the wake of the Great Recession. While the numbers and ratios will be higher in the former Commonwealth markets, I see a gradual lift in prices throughout 2020 in most areas.

  • The combined value of every residential home in the United States was $33.6 trillion at the end of 2019, up 3.4% ($1.1 trillion) from a year ago and 51% ($11.3 trillion) from the start of the decade.
  • The total value of the U.S. housing stock is almost equal to the combined 2018 GDPs of the U.S.A. (~$20.5 trillion) and China (~$13.6 trillion), by far the world’s two largest national economies.
  • Despite these ostensibly troubling trends, mortgage debt growth remains subdued.
Although IRC tax changes to real estate since the late 1990’s and lower mortgage rates have benefited real estate when measured against GDP, we do take note of the growing disparity
Despite higher house prices, mortgage payments as a % of disposable income have been dropping since the Great Recession. Lower interest rates have helped out on this front.

I have been keeping tabs on the Australian real estate market ever since several subscribers asked me to comment on it about a year ago. Indeed, despite affordability issues, I still see prices moving north.

Source: House price bounce leaves first home buyers behind, abc.net.au

Just when significant property price falls of around 15 per cent in Sydney and more than 10 per cent in Melbourne gave some prospective purchasers a sniff of breaking in, those markets turned around and launched higher again.

In fact, the last three months of 2019 saw the fastest quarterly property price growth in a decade, according to CoreLogic’s numbers.

Nationally, home prices rose 4 per cent during the fourth quarter, with increases of more than 6 per cent in both Sydney and Melbourne.

While Sydney and Melbourne, as well as the national average, are still below their 2017 peaks, at the current pace of growth those record price levels are set to be broken by March this year.

House price bounce leaves first home buyers behind, abc.net.au, January 16th

Last Spring and Summer we concluded that the malaise would soon end as the RBA and Australia’s Federal government would not tolerate any protracted downturn, and that any slowdown should have been viewed as a buying opportunity. Though aggregate house prices have not eclipsed their former highs, it is estimated that they will probably take them out in a few months.  We correctly picked the most likely outcome and prices have begun to rise again, even though affordability issues continue to intensify.

We observed throughout 2018 that the central banks can no longer tighten monetary policy. Thus, their ongoing programs will continue to benefit house prices. The world is awash in U.S. dollars with low borrowing costs, and housing near the global cities of influence will continue to receive a bid, regardless of rental rates.

Though the growth in house prices have been rising higher than rents, the disparity can be attributable to lower interest rates, which have lowered capitalization rates

While house prices viewed through a wide lens could be seen as relatively more expensive based on long-term historical trends, we need to be prepared for the most probable scenario; the central banks will continue to guide the yield curve lower over time as all this outstanding sovereign debt will remain in service.

I do not want to stand in front of this train, and while prices and yields may look relatively unattractive, depending on the market, some decent deals remain for those who are under exposed to rental property investing.

 

Some thoughts for those who refuse to believe of a conspiracy too large to conceive

To download the podcast – Right mouse click here

-Our observations of the overall world condition are important, because each one describes the mechanisms of a well-oiled machine that powers the new world order.
-This machine is run with money, and the elites completely control their own system. It is their economy and monetary system. We let them take over and they held us hostage with higher asset prices and the fear of poverty.
-Most market forecasters find the behavior of the central banks and governments baffling. I see something else.
-Netflix is really pushing the new world order narrative. Many new shows denigrating Christianity; Messiah, Lucifer, The First Temptation of Christ, etc., are being produced. This is not by chance. The promotion of death and nihilism abounds everywhere.
-If a person does not understand this conspiracy, he or she will not be able to make sound investment decisions. Indeed, this system to an untrained outsider looks untenable and unstable, but to those who know, it is viable and sustainable.
-To those economists out there who refuse to believe, I say, welcome to the new world order.

A reader says the velocity of money is a “useless” measure; Is he correct?

Velocity of Money = GDP / Money Supply

We can use dozens of math formulas to verify economic research, but we need to make certain these formulas do not take on a life of their own. My prior research tried to answer why M2 growth was rising much higher than GDP growth without a commensurate pickup in inflation. We were able to show this dynamic via the drop in the velocity of money, however it doesn’t tell us why.

The velocity of money has been dropping since 2008, and its fall is just a verification of our ongoing research and theories

Hello:
Nearly all your assumptions make sense.

An exception is money velocity — you & Martin Armstrong treat money velocity as if it had meaning. It’s a component in a formula but doesn’t exist independently of that formula, thus it’s useless.

The formula itself is useless — it stems from mechanics, which has nothing to do with the economy.
Cordially,
Henry

Here was my response;

Hi Henry,
Thanks for the email. Please don’t equate me with Martin Armstrong 🙂

The velocity of money in the context of my prior discussion was a measure of how much money there is in the economy and how actively it’s being used by the economy. The charts in the article I think you reference demonstrated that M1 and M2 growth were rising much higher than GDP growth. That, by definition, tell us that the velocity has to be dropping. That’s all. I have no opinion on it, other than to say it is not a useless measure. It’s what we make of it.

With that said, nothing is ever useless, per se, and the measure of the velocity of money can serve us as a verification of research. It is one of a number of measures we can use to determine if what we are saying is correct. What is of importance is this; we need to figure out why M2 growth is rising relatively higher than GDP growth without stoking a commensurate rise in price inflation. In other words, we need to figure out why this velocity is dropping and what dynamics are at play. The rest of my research explains why, and from what you said, you generally agreed.

I submit that this money has lost its effectiveness in driving up prices levels, because of the active monetary sterilization from IOER, the general economic and sovereign overindebtedness, and the active offshoring of USD currency. The Fed and Treasury have developed a number of schemes to make certain that currency and money stocks are effectively taken off the economic balance sheet. I say job well done.

All these dynamics are reflected in the velocity measure; it is not the other way around, and velocity is not the tail wagging the dog. We can easily verify our theories by seeing the velocity, since it’s 2+2=4 math. If someone were to tell me that the current velocity of money was 2.2 vs. 1.2, I would have to conclude that prices were rising higher, ceteris paribus, since there are only so many goods and services that this money can bid up. Moreover, if the velocity was rising I would be concerned that the Fed would no longer be able to carry out its QE programs.

As the money stock measures climb by percentage of GDP, the velocity, by definition, has to fall. It is and has been for a long time. I put this in my analysis as a verification to show the reader of this simple algebraic relationship.

Where I also differ from Armstrong; My concern is that the velocity of money will begin to rise over time. I think his concern is that the velocity is dropping. My desire is to continue to see the velocity value drop, as this would be an “ex post facto” or hindsight verification of my theories as well as the viability of QE and its ability to drive up the markets over the longer term and keep the U.S. government in business.

Now, I have a suggestion for you; stop reading Martin Armstrong and concerning yourself with anything he says. 🙂 I would be careful in assuming something where there is nothing. We all have biases and I struggle to leave them at the door before entering.

Once again, thanks for the email.

Regards,
Chris

Responses to subscribers; Anyone who believes in the power of the Conspiracy can make money

Non sequitur; The alt-media tell of a conspiracy that has gotten the world to this point, yet refuse to believe the conspirators are in control of their monetary system

Note to reader: I recently received a number of comments regarding my economic theories and will share one below, but I wanted to emphasize this one important point in my analysis; Under QE, sovereign debt levels and their growth rates more strongly determine asset price inflation than do M2 and M3 growth.

If the owners of the central banks ever lost control of QE and the other monetary policies they promulgated in the wake of the manufactured 2008 collapses, then all the money printing in the world could not save the asset markets. Observe the nations that experienced hyper-monetary inflation and see how their asset markets fared with respect to the monetary printing. The asset prices never kept pace. That’s because their economies and financial systems fell apart.

Chris,

[I] just wanted you to know I started following your blog about 4 months ago. Very impressed with your observations. Don’t agree with everything, but think you are about 90-95% right about trends. The system is NOT going to crash, and the monetary/system reset already occurred in 2007-2009. They are just going to run up the debt forever, money has ceased to have any true value (if it ever did). I was a doomer catastrophist expecting the sky to fall every month, and have struggled to ween myself from this self-destructive and self-defeating mindset.

Kris

Here was my response (edited for grammar):

With the support of QE, the nations and debt slaves all dutifully spend and service their debts

Hi Kris,
Thanks for the email. I guess you are one of only a few who agree somewhat with my assessments as I do not get much fan mail.

The more debt, the more money. The bigger the debt millstone, the less that this money can drive up prices. [There is also the] incentive to spread the money outside the U.S. and keep it parked at the Fed [Excess Reserves]. It all gets sterilized. While the vast majority of the people, who cannot come to terms with this ostensibly grim dynamic, get stuffed with the debt, I see this as an auspicious opportunity. I see it as a time to move forward and make hay, because the sun is shining.

I am just a small potato, but I prefer this system over all others. Where else can I sit at home and get wealthier? Imagine the rest of the top 10%. They love what is going on. They are giddy, and they are the only ones that matter in this system. The poor debt slaves do not matter as long as they keep spending.

What will bring this system down? Only if the debt slaves stop spending. I drive about and shop, work on properties, and today I stopped at Trader Joe’s on the way home and the roads were jammed on Saturday, and the people were spending and spending. They cannot stop.

I marvel and thank the debt slaves for accepting their conditioning to spend until they are broke and for perpetuating their own servitude. I see no end. M2 can climb and climb forever and the economists can grab at all sorts of straws to try to explain what is going on, but you and I know that the new system emerged in 2008.

The elites now control it all. They control the media, TV programming, movies, internet searches, news, [most of the alt-finance], social media, etc., and they demand the sheep spend. The sheep are following their orders without even knowing what they are doing. With QE and all this new monetary policy, the elites now control the economy. It really is very simple.

If I didn’t comprehend what was going on, I too, would be guessing that a collapse or crash was coming soon. It may come, but the alt-finance have been predicting one all decade and beyond. It will happen eventually, but I am sad to report that it will probably not happen the way they think. They were eventually right with the one in 2008 and lost out on that auspicious opportunity.

My observation; many knowledgeable economists cannot come to terms with what is going on, so they keep coming up with different theories. My theory has worked and served me well for a long time, but my ideas are too difficult to accept. To accept them would mean something much more sinister is at play. To accept them would mean that much of what they learned was a farce. The fact that so many people in the alt-finance cannot accept this means that this system has plenty of legs to run. They don’t know their adversary.

Anyway, thanks for reading and keeping an open mind.

Chris

A subscriber asks; How can price inflation remain low with an expanding monetary base?

To download the podcast – Right mouse click here

There is a sincere debate… regarding how there could be a 5x expansion of monetary base in 2008 (and a subsequent spike in M1 currency) and yet the real world price levels (CPI inflation) have not noticeably risen. It is my belief that this has been made possible by:

(1) interest on excess reserves (IOER) that essentially bribes/incentivizes banks not to lend, IOER caused no/low/contained consumer credit expansion means no price inflation (M1/physical currency increase is probably irrelevant) because prices generally correlate with credit; and

(2) something in Dodd Frank/Fed policy (I don’t know what) since 2008 that has allowed the Fed to directly monetize assets, specifically USTs—I believe you have correctly said that Fed has complete control over the yield curve, I’m not sure I’ve heard specifically how it has done this.

If you can explain number 2 specifically and how Fed can directly control/prevent a drop in asset prices, I think you will help more people and your correct message will get further amplified.

William

M2 as a % of GDP has been climbing for decades. Since the Fed is making sure all the debt outstanding is serviced, the deflationary forces persist and magnify, even as currency measures rise
As nominal GDP rises over time, M2 as a percent of GDP has been climbing faster. Hence, the drop in velocity. The velocity of money is the frequency at which one unit of currency is used to purchase domestically-produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is decreasing, then less transactions are occurring between individuals in an economy.

-The higher the levels of in-service sovereign debt outstanding (e.g. US Treasuries), the higher asset prices will be, ceteris paribus. My observation has been that monetary growth is a much less precise indicator.
-Prior to 2008, monetary growth strongly correlated to higher general price inflation as a very low percentage of Mb and M1 was sterilized.

The United States has a more developed monetary system, it’s M2 as a % of GDP is less than most  other nations. Japan’s economy has a higher level, because of its decades-long debt and asset monetization programs. Will the U.S. trend higher like Japan?

-In 2008, for the first time the global investors questioned how the nation-states would be able to stay in business. The successful implementation of the QE and asset purchase programs solved that dilemma.
-The Fed and other central banks could have chosen a number of routes in the wake of the 2008 crisis. They chose the current path of debt monetization and balance sheet additions. I am not here to say if this was wise; I only observe. This provides the nation-state governments with the money to operate.
-Prior to 2008, the world’s net savings rate and its balance sheet supported sovereign nation-state spending. Subsequent to 2008, QE was needed to keep nation-states borrowing and their spending needs growing.
-Since 2008, the global economy is no longer large enough to service the growing levels of outstanding debts, under normal circumstances (economic laws prior to 2008). Thus, the QE programs effectively act as a huge deflationary force. So, money velocity slows and the amount of money supply needed to operate the economy increases over time.

The Fed admits that it needs to maintain its IOER program and uses it as a vital monetary tool. Without it, there is a hyperinflationary risk to the system.
If the banks can borrow from customers at near 0% in checking and savings, why bother lending?They can deposit all that money at the Fed risk free. They can shut their branches and layoff their workers, and this money becomes effectively sterilized.

-Since the promulgation of QE and the IOER program, large portions of the money supply have been effectively sterilized.
The Fed admits that the IOER program is vital to keeping inflation lower. I agree. Keep in mind that as debt levels rise and money velocities slow, M2 must rise to keep the nominal GDP growing.
-If the Fed really wanted to increase consumer price levels, it should lower the rate of interest on excess reserves. But it won’t, because the lower the level of consumer prices, the more viable their QE programs.

As serviceable debt levels rise, the amount of money required increases over time when compared to GDP growth. Velocity drops and debt burdens to the economy climb.

-With the amount of US Treasuries rising and the dollar firm, USD-denominated securities should continue to be better supported than elsewhere. This paradigm should continue as long as the dollar is the reserve currency.
-My primary immediate concern on this current course of action is this; The Fed and Treasury seem to becoming less concerned over the repercussions of their actions. This means asset prices may move much higher than anticipated. In essence, as they grow more desperate, they may stop pretending to care.
-The Fed does effectively control the entire yield curve. As long as all the Treasuries are being serviced, yields will fall over time as an ever greater portion of GDP is committed to prior debt service.
-The Fed isn’t actively managing the yield curve, per se. Rather, QE by function will force rates lower over time as the world struggles to service debts and sinks further in a sea of deflationary red ink in which debt is never repudiated. This was easily apparent in the wake of the Fed’s about face in late 2018. Yields across the board fell and the yield curve flattened.
-Fed jawboning can play a part in managing yields, especially on the longer end. Longer-dated QE would also do the trick.
-With respect to William’s second question, The Fed is prohibited from buying stocks. It can only purchase Federal securities, such as Treasuries and Mortgage-backed securities. Please refer to this section of the Federal Reserve Act for more information.

Links for more information:
Federal Reserve Act – Section 14. Open-Market Operation
Money supply
Should We Worry About Excess Reserves?
Interest on Excess Reserves and U.S. Commercial Bank Lending

A response to a subscriber in Singapore; We all have the ability to overcome and succeed

We all have the potential to succeed. We need to stop living in fear and plan properly for the future.

Hi Chris,

I’ve been reading your blog since 2018 and [have] studied it religiously for quite some time now. I’m a firm believer of FIRE [financial independence, retire early] and I particularly loved George Carlin, but I know he rejects religion as he always said it is very self-limiting.

I [unshackled] myself and managed to achieve above market gains, although it’s not much as I’m based in Singapore. The elites here have been screwing the middle class by means of [limiting] property access and my worries are that they will one day make our financial markets unprofitable for anyone to further widen the gaps.

One fetish of human nature has always been the need to fight wars. The elites have since eliminated them (wars) but, replaced them with a more silent war for our minds and hearts…

Law and order and religious teachings [have been] totally reversed and defiled to keep the sheep sleeping. Because of this I no longer listen to modern music, watch dark-themed movies, and read modern literature anymore.

Defiance and being fearless is the only way to win this game. The stuff I read have taught me how to reverse engineer my life….

Jason

Here was my response;

Hi Jason,
Thanks for the email and for reading my blog.

I know this may seem ironic to my readers and non-remnant Christians, but like George Carlin, I too, avoid religion. I think that most organized religions have been usurped by darker forces with the intent to deceive and hinder us from attaining our rightful place. Regardless, I am an avid student of the Bible and would consider myself a Jesus man. The Bible has helped me a lot over the years, especially over the past dozen or so. It has helped me to uncover the concepts I write about on a daily basis. It works.

I have always said that the United States still provides the best opportunities anywhere. I say this, because despite what the media proclaim, the U.S. still has a stable legal framework, and a less punishing taxation structure that can reward hard work and ingenuity. Of course, within the U.S., some areas are better than others. I moved from New York and Maryland to Virginia to assist me in my investment and personal endeavors.

Nonetheless, I do not see these easy avenues in most other nations, except maybe the former Commonwealth countries. And even then, the tax burdens can be relatively overwhelming. Despite what we hear, a person in the U.S. can still succeed without having to bribe people, etc. I know the alt-media bashes the United States, but it still is better than other countries.

Regardless, it is possible to succeed in most nations, including Singapore. Singapore has really grown and moved up in status, and by emphasizing English it helps the country with business and financial market matters. While I have never been there, I watch YouTube and marvel at how it’s developed. I also communicate with others who have lived and traveled there.

As for the elites screwing people, this is true, because they have little concern for us, except to exploit us for profit. However, I have observed that most who struggle financially exhibit lethal and self-defeating behaviors, including making fear-based and subjective financial decisions. In addition, most people can no longer argue an idea in a logical manner and have lost their ability to think objectively.

We all have to look in the mirror before we blame others. The elites use their media to keep us down and promote this self-defeating and lazy behavior in the masses. This is why I try to get my readers to adjust their mindsets. Indeed, there is a conspiracy for our minds and hearts, but we don’t have to fall victim to it.

The truth is out there. For me it is the Bible, but religion pollutes its words. The internet, social media hive mind, TV and movies divert us away from seeing the truth. It sounds like you have taken the first steps to uncover reality as it really is. I hope you continue to build upon your budding wisdom and knowledge base.

Chris

A subscriber asks; Will the Federal Reserve sink Trump’s 2020 campaign?

Can the Fed sabotage Trump’s election or has Trump taken that opportunity off the table?

I received an email from a subscriber asking me to comment on another alt-financial analyst’s article from late December, regarding the Federal Reserve’s possible intention to sink President Trump’s campaign with a market crash prior to this November’s Presidential election.

I normally would not comment on other people who I think are doing an otherwise decent job, and I do not wish to single out this person’s commentary, but I found it similar to many other writings in the alt-media. So, here is some analysis on the matter.

This analyst was commenting on a Bloomberg op-ed piece from ex-NY Fed President William Dudley titled, The Fed Shouldn’t Enable Donald Trump.

Don’t worry about an Obama appointee. Trump’s Fed criticism precludes a repeat of 2008

U.S. President Donald Trump’s trade war with China keeps undermining the confidence of businesses and consumers, worsening the economic outlook. This manufactured disaster-in-the-making presents the Federal Reserve with a dilemma: Should it mitigate the damage by providing offsetting stimulus, or refuse to play along?

If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach.

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.

The Fed Shouldn’t Enable Donald Trump, William Dudley, Bloomberg, August 27th

Later that same day, Bloomberg published an article titled, Ex-Fed Official Dudley’s Call to Block Trump Draws Criticism, in which it said that Dudley’s op-ed comments were misguided and dangerous. Dudley also received a sharp rebuke from the Fed itself as a Fed spokeswoman said the central bank would not play politics.

The Fed rejected the suggestion that it would play politics with monetary policy.

“The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment. Political considerations play absolutely no role,” Fed spokeswoman Michelle Smith said in an emailed statement.

Pushback from analysts and economists also came thick and fast.

“Bill Dudley’s remarks are not only misguided but also dangerous coming from a former top Fed official,” said Gregory Daco, chief U.S. economist at Oxford Economics. “The Fed doesn’t have the luxury to stand idle in the face of a slowing economy.”

Jared Bernstein, who served as former Vice President Joe Biden’s chief economist, posted on Twitter that to “do what Dudley suggests compromises the Fed’s independence. Also, it could easily backfire as Trump often doubles down when challenged.”

Ex-Fed Official Dudley’s Call to Block Trump Draws Criticism, Bloomberg, August 27th

Okay, with this background, I want to consider the chances that the elites have already manipulated the outcomes of past presidential elections. I think it’s fair to contemplate they rigged the 1960 and 2000 elections. With respect to the elites’ use of the Fed, I can specifically think of the 2008 election in which the Fed’s willfully ignorant monetary policy guaranteed an Obama victory. Trump is no dummy and I am sure he obsesses about a possible redux.

With this as a preface, I offer you my response to this reader (edited for grammar);

Hi Dave,
Thanks for the email….

As for my blog, my overriding thesis is this; the central banks will do whatever it takes to keep the nation-states in business with them in control, and they are in control of their system. They have admitted they assumed control in late 2008, under the Bernanke tenure. Why would the Fed sabotage the Trump regime via a crash now? They would get the full blame and have to accept the responsibility.

If the Fed owners hated Trump, they would just rig the election and never tell us. I am sure they already have done this (Kennedy in 1960, Bush 2000, maybe even Trump 2016). Trump is just a puppet.

If the Fed “screwed up” they would get the full blame at this point. The Fed is being used by the elites to control the U.S. nation-state and have fully accepted the responsibility of keeping things going, and crashing it would only expose a partisan intent. This could actually work in Trump’s favor as it would be viewed through the lens of Dudley’s partisan remarks.

But this won’t happen. Trump has been complaining about Fed policy throughout his whole term. The spotlight is now on the Fed and the Fed cannot “screw up” like last decade. The Fed’s owners have all the power they want [and all the tools they need to keep things moving forward]. Bernanke said the same over the weekend.

Furthermore, Dudley was arguing as a former fed official as he left the Fed in 2018. He was appointed by Obama to the NY Fed. He is just a partisan shill and he has lost a lot of street cred after that Bloomberg editorial. I remember it.

The Fed sharply rebuked him and from what I can see, the Fed has fully enabled Trump with QE4.

The Fed couldn’t just come out and say we are going to undertake QE4 without any cause. For now on, the Fed will ramp up their programs after manufactured market blowups. Their M.O. going forward will be exactly as it was in the wake of the repo madness.

Trump doesn’t want to get rid of the Fed. Trump only wants ultra-loose policy and he is getting it. QE is MUCH MUCH more important than rate setting. QE allows the nation-states to stay in business.

The contention between Trump and the Fed preclude a 2008 redux

I agree with Ben Bernanke, the Fed has all the tools it needs to keep this system moving forward. Look how simple it was to solve the repo market problems last year. I relayed this to the reader that the Fed could easily solve this dilemma by placing Treasuries, on a permanent basis, onto the Fed’s balance sheet. They did so to the tune of $400 billion and the problem was solved immediately. Now, the Fed will use this as an opportunity to effectively regulate the overnight credit market.

Think about the market’s near collapse in late 2018. All throughout 2018, I said that the Fed needed to stop unwinding its balance sheet and begin QE again. Look what it did, they redirected everything from the brink and onto a new bullish market trend. The Fed even cut rates 75 bps last year. I told the reader that the Fed needed to start QE again in order to move things along, and it did. All the problems were solved in the asset markets. Bond yields fell across the board and stocks and real estate began to firm around the world.

After all this show of force by the Fed since late 2018, how can it crash Trump’s election chances now? Even if the Fed wanted to torpedo Trump’s campaign, it no longer can. It has already revealed its power to move the markets, so by feigning impotence to stop a downturn their excuses would be viewed as totally transparent and disingenuous. But the elites can still rig the votes or plan something else out of the blue. However, that is not part of my expertise nor within the scope of my analysis.