End of QE? – I don’t buy it.

by DETLEV SCHLICHTER

A new meme is spreading in financial markets: The Fed is about to turn off the monetary spigot. US Printmaster General Ben Bernanke announced that he might start reducing the monthly debt monetization program, called ‘quantitative easing’ (QE), as early as the autumn of 2013, and maybe stop it entirely by the middle of next year. He reassured markets that the Fed would keep the key policy rate (the Fed Funds rate) at near zero all the way into 2015. Still, the end of QE is seen as the beginning of the end of super-easy policy and potentially the first towards normalization, as if anybody still had any idea of what ‘normal’ was.Fearing that the flow of nourishing mother milk from the Fed could dry up, a resolutely unweaned Wall Street threw a hissy fit and the dummy out of the pram.

This Is an Extraordinary Time

by Charles Hugh Smith


It's as if we have two economies: the simulacrum one of stocks rising dramatically in a few months, and the real one of household earnings (down) and hours worked (down).

It is difficult to justify the feeling that we are living in an extraordinary moment in time, for the fundamental reason that it's impossible to accurately assess the present in a historical context.

Extraordinary moments are most easily marked by dramatic events such as declarations of war or election results; lacking such a visible demarcation, what sets this month of 2013 apart from any other month since the Lehman Brothers' collapse in 2008?

It seems to me that the ordinariness of June 2013 is masking its true nature as a turning point. Humans soon habituate to whatever conditions they inhabit, and this adaptive trait robs us of the ability to discern just how extraordinary the situation has become.

Controlling The Implosion Of The Biggest Bond Bubble In History

by testosteronepit.com




In theory, the Fed could continue to print money and buy Treasuries and mortgage-backed securities, or even pure junk, at the current rate of $85 billion a month until the bitter end. But the bitter end would be unpleasant even for those that the Fed represents – and now they’re speaking up publicly.

“Savers have paid a huge price in this recovery,” was how Wells Fargo CEO John Stumpf phrased it on Thursday – a sudden flash of empathy, after nearly five years of Fed policies that pushed interest rates on savings accounts and CDs below inflation, a form of soft confiscation, of which he and his TBTF bank were prime beneficiaries. That interest rates were rising based on Fed Chairman Ben Bernanke’s insinuation of a taper was “a good thing,” he told CNBC. “We need to get back to normal.”

A week earlier, it was Goldman Sachs CEO Lloyd Blankfein: “Eventually interest rates have to normalize,” he said. “It’s not normal to have 2% rates.”

Why the Greenbackers Are Wrong

by Thomas E. Woods, Jr.



One of Ron Paul’s great accomplishments is that the Federal Reserve faces more opposition today than ever before. Readers of this site will be familiar with the arguments: the Fed enjoys special government privileges; its interference with market interest rates gives rise to the boom-bust business cycle; it has undermined the value of the dollar; it creates moral hazard, since market participants know the money producer can bail them out; and it is unnecessary and at odds with a free market economy.

Why My 'Crash Alert' Flag Is Flying High

by Bill Bonner




Whoa! Investors are acting as if it were 2007 all over again.

USA Today has the story:

Emboldened by soaring stock prices and record-low borrowing costs, stock investors are taking out loans against their portfolios at the fastest pace since before the Great Recession hit.

So-called margin debt hit $379.5 billion in March, the highest level since July 2007 when such debt hit an all-time record of $381.4 billion, according to the most recent data available compiled by the New York Stock Exchange.

The trend signals that investors are more comfortable with stocks and are more willing to use borrowed money to buy more securities in hopes of garnering fatter returns in a hot market that has pushed the Dow Jones industrials up more than 15% in 2013.

Why are investors so bullish? Because the economy is coming back? Because the future is rosy? Because stocks are going to earn even more?

Nah... What do you take us for, dear reader? We know the story. Stocks are going up because the Fed is making them go up. Here's David Rosenberg in Canada's Financial Post:

Statistics: Achilles' Heel of Government

by Murray N. Rothbard

Ours is truly an Age of Statistics. In a country and an era that worships statistical data as super "scientific," as offering us the keys to all knowledge, a vast supply of data of all shapes and sizes pours forth upon us. Mostly, it pours forth from government.

While private agencies and trade associations do gather and issue some statistics, they are limited to specific wants of specific industries. The vast bulk of statistics is gathered and disseminated by government. The overall statistics of the economy, the popular "gross national product" data that permits every economist to be a soothsayer of business conditions, come from government.

Furthermore, many statistics are by-products of other governmental activities: from the Internal Revenue bureau come tax data, from unemployment insurance departments come estimates of the unemployed, from customs offices come data on foreign trade, from the Federal Reserve flow statistics on banking, and so on. And as new statistical techniques are developed, new divisions of government departments are created to refine and use them.

The Phony Recovery

by Bill Bonner

Not much action following the new Dow high. Not much follow-through. But no big breakdown, either.

As near as we can tell, the Fed's EZ money has driven up stock prices. Investors expect more EZ money. So they think stocks will go up more.

We are attending an investment conference in New York. What has struck us so far is how optimistic the young investors are. They think stocks always go up.

"I'm 36 years old," one explained. "That means I was too young to get in on the boom of 1982-2000. All I've seen are stocks going up and down. They're just a little bit higher today than they were in 2000 – when I was just 23 years old.

Is “Austerity” Responsible for the Crisis in Europe?

by Martin Masse

Most European economies have been in recession, or close to it, since the beginning of 2012. Unemployment rates are reaching record highs. Meanwhile, a debate has been raging about the deleterious effects of “austerity” measures. Various heads of government, finance ministers, and European Union officials have declared that austerity has gone too far and is preventing a recovery.
Keynesian economists like Paul Krugman are seeing this as unassailable proof that stimulus policies adopted when the financial crisis started in 2008-09 should never have been reversed and replaced by austerity measures, notwithstanding the explosion of public debt that they entailed.
In the Keynesian view, when idle resources are left unused by the private sector, governments should put them to work. They should stop worrying about budget deficits and start spending again.

Is Japan Heading for Another Lost Decade?

by Frank Shostak

Recently various commentators have been warning Euro-zone policymakers that they needed to boost stimulus policies in order to avoid a Japanese-style lost decade. To support their case, they point to the years 1991 to 2000. The average growth of real GDP in Japan during that period stood at 1.2 percent versus the average growth of 4.7 percent during 1980 to 1990. In terms of industrial production, the average growth stood at 0.1 percent versus 4.1 percent.

Social Security: The New Deal’s Fiscal Ponzi

by David Stockman

The Social Security Act of 1935 had virtually nothing to do with ending the depression, and if anything it had a contractionary impact. Payroll taxes began in 1937 while regular benefit payments did not commence until 1940.
Yet its fiscal legacy threatens disaster in the present era because its core principle of “social insurance” inexorably gives rise to a fiscal doomsday machine. When in the context of modern political democracy the state offers universal transfer payments to its citizens without proof of need, it offers thereby to bankrupt itself—eventually.
By contrast, a minor portion of the 1935 legislation embodied the opposite principle—namely, the means-tested safety net offered through categorical aid for the low-income elderly, blind, disabled and dependent families. These programs were inherently self-contained because beneficiaries of means-tested transfers simply do not have the wherewithal—that is, PACs and organized lobbying machinery—to “capture” policy-making and thereby imperil the public purse.
To the extent that means-tested social welfare is strictly cash-based, as was cogently advocated by Milton Friedman in his negative income tax plan, it is even more fiscally stable. Such purely cash based transfers do not enlist and mobilize the lobbying power of providers and vendors of in-kind assistance, such as housing and medical services.

The Best Kept Secrets of The Dollar

by stormcloudsgathering.com

At this point in history virtually every human on this planet is enslaved whether they know it or not. This is not the crude and primitive slavery of ancient times, it does not rely on whips and shackles to keep the oppressed in their place. These tools have been rendered obsolete by much more sophisticated methods.

Is present monetary policy rational?

 By Detlev Schlichter 

While the stance of monetary policy around the world has, on any conceivable measure, been extreme, by which I mean unprecedentedly accommodative, the question of whether such a policy is indeed sensible and rationale has not been asked much of late. By rational I simply mean the following: Is this policy likely to deliver what it is supposed to deliver? And if it does fall short of its official aim, then can we at least state with some certainty that whatever it delivers in benefits is not outweighed by its costs? I think that these are straightforward questions and that any policy that is advertised as being in ‘the interest of the general public’ should pass this test. As I will argue in the following, the present stance of monetary policy only has a negligible chance, at best, of ever fulfilling its stated aim. Furthermore, its benefits are almost certainly outweighed by its costs if we list all negative effects of this policy and do not confine ourselves, as the present mainstream does, to just one obvious cost: official consumer price inflation, which thus far remains contained. Thus, in my view, there is no escaping the fact that this policy is not rational. It should be abandoned as soon as possible.

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 Paradox of Imperialism

by Hans-Hermann Hoppe

The State

Conventionally, the state is defined as an agency with two unique characteristics. First, it is a compulsory territorial monopolist of ultimate decision-making (jurisdiction). That is, it is the ultimate arbiter in every case of conflict, including conflicts involving itself. Second, the state is a territorial monopolist of taxation. That is, it is an agency that unilaterally fixes the price citizens must pay for its provision of law and order.

Predictably, if one can only appeal to the state for justice, justice will be perverted in favor of the state. Instead of resolving conflict, a monopolist of ultimate decision-making will provoke conflict in order to settle it to his own advantage. Worse, while the quality of justice will fall under monopolistic auspices, its price will rise. Motivated like everyone else by self-interest but equipped with the power to tax, the state agents' goal is always the same: to maximize income and minimize productive effort.

The Grandest Larceny of All Time

by Bill Bonner

Gold seems to be coming back fast. It rose $38 per ounce yesterday.
Of course, the Fed's monetary meddling doesn't work. And it will most likely cause a financial disaster.
But the biggest scandal of today's central bank policy is that it is essentially the grandest larceny of all time.
The normal ways in which wealth is distributed may not be perfect, but they are the best nature can do. People earn it. They save it. They steal it. Or they get richer by investing.

Or they just get lucky...

Normally, in other words, wealth ends up being distributed in an unplanned and uncontrolled way. People do their best. The chips fall where they may.

But along come the central banks. They're creating a new type of wealth. It is not wage income. It is not the product of capital investments. It is not the result of technology or productivity increases or hard work or self-discipline... or any of the other things that lead to wealth and prosperity.

Instead, it is created by the central bank "out of thin air."

Peak Gold

by PeakResources



We are rapidly approaching the end of cheap resources. The wealth of most Americans could get wiped out during the next decade due to commodity inflation. Focusing on your real purchasing power is critical. As this brief documentary discusses, what is it that makes gold so special? Merely a "tradition" as Bernanke would have us believe, or sound 'money'?

Marc Faber: "People With Financial Assets Are All Doomed"

by zerohedge.com

As Barron's notes in this recent interview, Marc Faber view the world with a skeptical eye, and never hesitates to speak his mind when things don't look quite right. In other words, he would be the first in a crowd to tell you the emperor has no clothes, and has done so early, often, and aptly in the case of numerous investment bubbles. With even the world's bankers now concerned at 'unsustainable bubbles', it is therefore unsurprising that in the discussion below, Faber explains, among other things, the fallacy of the Fed's help "the problem is the money doesn't flow into the system evenly, how with money-printing "the majority loses, and the minority wins," and how, thanks to the further misallocation of capital, "people with assets are all doomed, because prices are grossly inflated globally for stocks and bonds." Faber says he buys gold every month, adding that "I want to have some assets that aren't in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable."

The Friedmanite Corruption of Capitalism

by Thomas J. DiLorenzo

All throughout his new book, The Great Deformation: The Corruption of Capitalism in America, David A. Stockman is critical of the Chicago School, especially its intellectual leader during the last half of the twentieth century, Milton Friedman. He captures the irony of the so-called free-market Chicago School on the very first page of his introduction, where he writes of the “capture of the state, especially its central bank, the Federal Reserve, by crony capitalist forces deeply inimical to free markets and democracy.”
This is a deep irony because it was Chicago School economists such as George Stigler who wrote of the “capture theory of regulation” when it came to the trucking industry, the airline industry, and many others. That is, they produced dozens of scholarly articles demonstrating how government regulatory agencies ostensibly created to regulate industry “in the public interest” are most often “captured” by the industry itself and then used not to protect the public but to enforce cartel pricing arrangements.

The Rise and Fall of the Dollar

by Mark Thornton

Over the last century America’s money—the dollar—has come to dominate the global monetary system. It is used not just by Americans, but in other countries, in the global black market, and by importers and exporters. And it is the primary reserve currency for central banks. This status is what Barry Eichengreen calls an “exorbitant privilege,” because it confers numerous benefits to individuals, companies, and governments. Collectively, it also confers the ability for Americans to consume beyond our ability to produce.
Professor Eichengreen in his book Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, chronicles the rise of the dollar to world dominance, and what it means for the US. He then explores the possibilities of its demise and possible crash. The author should be commended for at times thinking outside the mainstream box, where such issues are often ignored.
He believes that the world is heading toward a state in which there are several reserve currencies, notably the euro and the Chinese renminbi. He maintains that a reserve currency status is based on economic strength: Europe has it and China and India are gaining it rapidly.

India to import around 350-400 tonnes of gold in Q2; Asia demand to hit record: WGC

by indiatimes.com

Asian gold demand from this April to June will reach a quarterly record as bullion consumers in the region take possession of supply freed up by selling from exchange-traded funds (ETFs), the World Gold Council (WGC) said on Wednesday.
Gold prices fell to their lowest in more than two years at $1,321.35 an ounce in mid-April on signs of economic improvement in main markets and fears that central banks around the world could start to curtail their bullion-friendly policy measures.

The move scared investors in the West, triggering a sharp liquidation of speculative and ETF positions. But lower prices also prompted strong physical demand from price-sensitive countries such as India and China, which together account for more than 50 percent of consumer demand for bullion.