What’s So Scary About Deflation?

 by Frank Hollenbeck

When it comes to deflation, mainstream economics becomes not the science of common sense, but the science of nonsense. Most economists today are quick to say, “a little inflation is a good thing,” and they fear deflation. Of course, in their personal lives, these same economists hunt the newspapers for the latest sales.

The person who epitomizes this fear of deflation best is Ben Bernanke, chairman of the Federal Reserve. His interpretation of the Great Depression has greatly biased his view against deflation.

Bill Gross To Ben Bernanke: "It's Your Policies That Are Now Part Of The Problem Rather Than The Solution"

by  Tyler Durden 

On practically every day of the past four years, we have said that it was the Fed's own policies that are causing the ever-deeper systemic weakness in the US (and now global with all central banks going "all in") economy, which in turn forces the Fed to intervene even more aggressively in an attempt to counteract, in turn generating ever more economic weakness, leading to even more intervention, which is why every incremental episode of QE is larger and longer, and why the economic baseline is ever lower in the most perverse feedback loop of the New Normal. Now, it is once again Bill Gross to catch up to Zero Hedge and conclude just this in his latest monthly letter: "It’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%. Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution. Perhaps the beating heart is pumping anemic, even destructively leukemic blood through the system. Perhaps zero-bound interest rates and quantitative easing programs are becoming as much of the problem as the solution." Which is why there simply is no way out as long as Bernanke stays in.

From Bill Gross of PIMCO

Wounded Heart

The Gods Of The Marketplace

by Mark J. Grant, author of Out of the Box,
"It's the lure of easy money. It has a very strong appeal."

                 -Glenn Frey, Smuggler's Blues

 

Investors borrowed $384.4 billion in April, a 1.3% gain from the previous month and a 29% rise from the same month last year. This is an all-time record for margin debt and it exceeds the previous high mark set in June 2007. Some may see this as an increased sign of investor confidence but I am not one of them. To me this is a giant red warning flag blowing in the financial breeze indicating the leveraging of dumb money making very risky bets.

"Every swindle is driven by a desire for easy money; it's the one thing the swindler and the swindled have in common."

                     -Mitchell Zuckoff

Substances based upon some sort of white powder are quite dangerous. They can overcome your good sense and then they it can be quite difficult to extricate yourself from them. The Great Depression was caused, in large part, by massive leverage utilized in the equity markets. This was the white powder of 1929. It took a decade and a World War before America was able to loosen the grip of the stuff.

The Serf Society

By Bill Bonner

Stocks, bonds, gold – all bounced around last week.

And as we mentioned on Friday, Americans continue to turn into "neo-serfs."

"Wall Street is running a new profit game," writes Shabnam Bashiri at Salon.com, "by buying foreclosed houses and renting them back to their former owners."

Yes... nice business. Even better than it looks. It's why the rich get richer... and the 1% are way ahead of the other 99%. Writes Bashiri:

Every day, it seems a new report comes out praising the ongoing housing recovery. In Georgia, home prices are up 5% over last year, a year in which we also had one of the highest foreclosure rates in the country. Seems a little odd, doesn't it? Don't foreclosures usually drive down the market?

Lessons From The 1930s Currency Wars

by Tyler Durden  

With Abe picking his new dovish playmate, and Draghi doing his best to jawbone the EUR down without actually saying anything, it is becoming very clear that no matter what level of bullshit histrionics is used by the politicians and bankers in public, the currency wars have begun to gather pace. Japan's more open aggressive policy intervention is the game-changer (and increasingly fascinating how they will talk around it at the upcoming G-20), as if a weaker JPY is an important pillar of the strategy to make this export-oriented economy more competitive again, it brings into the picture something that was missing from earlier interactions among central banks of the advanced economies – competitive depreciation. The last time the world saw a fully fledged currency war was in the early 1930s. Morgan Stanley's Joachim Fels looks at what it was like and what lessons can be drawn for the sequence of events - there are definite winners and losers and a clear first-mover advantage.

Via Morgan Stanley, Back to the 1930s? What Would a Currency War Look Like?
What did the currency war of the 1930s look like?
The backdrop for the currency war of the 1930s was the Gold Standard and the Great Depression (many economists blame the former for the latter). By fixing the value of the currency to the price of gold, the Gold Standard prevented a country from printing too much money. If it did, people would simply exchange it for gold (or for other currencies pegged to gold).

James Rickards: Global Monetary System Headed for Collapse

By Dan Weil

The world currency system is riding down the road to catastrophe, says James Rickards, senior managing director of Tangent Capital Partners.

The world already has entered a currency war that began in 2010 on the heels of the Federal Reserve’s massive easing program, he tells Wall Street Journal Digital Network. Since then, plenty of nations have joined in, including Brazil, Switzerland and Japan, says Rickards, author of “Currency Wars: The Making of the Next Global Crises.”

“All major central banks are easing,” he says. “Eventually so much money will be printed that this will lead to inflation. The endgame is collapse of the international monetary system — sometime sooner than later.”