Central Bank Issues Stunning Warning: “If The Entire System Collapses, Gold Will Be Needed To Start Over”

central-bank-issues-stunning-warning:-“if-the-entire-system-collapses,-gold-will-be-needed-to-start-over”

13-10-19 05:20:00,

It’s not just “tinfoil blogs” who (for the past 11 years) have been warning that a monetary reset is inevitable and the only viable fallback option once trust and faith in fiat is lost, is a gold standard (something which even Mark Carney hinted at recently): central banks are joining the doom parade now too.

An article published by the De Nederlandsche Bank (DNB), or Dutch Central Bank, has shocked many with its claim that “if the entire system collapses, the gold stock provides a collateral to start over.”

Wow

Dutch National Bank goes ‘Big Reset’:

‘Aandelen, obligaties en ander waardepapier: aan alles zit een risico [..] Als het hele systeem instort, biedt de goudvoorraad een onderpand om opnieuw te beginnen. Goud geeft vertrouwen in de kracht van de balans van de centrale bank’. pic.twitter.com/Oi9n7bnAdi

— willem middelkoop (@wmiddelkoop) October 12, 2019

While gloomy predictions of a monetary reset are hardly new, they have traditionally been relegated to the fringe of mainstream financial thought – after all, as Mario Draghi stated on several occasions in recent years, the mere contemplation of a “doomsday scenario” is enough to create the self-fulfilling prophecy which materializes it. As such, it is stunning to see a mainstream financial institution open up about the superior value of limited supply, non-fiat, sound money assets. It is also hypocritical given the diametrically opposed Keynesian practices regularly engaged in by central banks and official institutions worldwide: after all, just a few months back, the IMF published a paper bashing Germany’s adoption of the gold standard in the 1870s as the catalyst for instability in the global monetary system.

Fast forward to today, when the Dutch Central Bank is admitting not only did gold not destabilize the monetary system, but it will be its only savior when everything crashes.

The article, as loosely translated and titled “Goud van DNB” (“Gold from DNB”) states:

“If things go wrong, prices may fall. But, crisis or not, a gold bar always holds value.” This makes it the opposite of “shares, bonds and other securities” all of which have inherent risk.

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Central Bankers Go Green… Why?

central-bankers-go-green…-why?

03-10-19 07:43:00,

Authored by Matthew Ehret via The Strategic Culture Foundation,

I was told many depressing things as a child.

Watching World Vision infomercials educating the west to the want and misery suffered by millions of children in the third world, I wasn’t alone in asking adults “why”? When I enjoyed all the comforts of food security, electricity and running water, why were these other children living in poverty? I know that I was not the only bewildered child to receive the shallow response that I did from family and teachers when I was told that this “simply is the way it is”. At best, we privileged few in the 1st world could hope that $1/day would alleviate their pain, but really there was no great solution.

Later in life, as my closest friends found themselves enmeshed in university political science and economic programs, the innocent curiosity that recognized injustice for what it was not only died under the weight of materialist theories of human nature which their parents paid good money to feed them, but upon leaving school, those same friends actually became witting accomplices in that very system which their youthful hearts recognized as wrong so many years earlier. Since humanity was intrinsically selfish and our economic system so immutable, the best we could hope for was success in life and enjoy being on the receiving end of destiny.

Again, I know that I’m not alone in this experience, as tens of millions of citizens took to the streets all around the world on September 27 to march for the earth, repulsed by corrupt consumerism and celebrating the advent of a Green New Deal.

This activation of “people power” driven by such institutions as the Extinction Rebellion, Fridays for the Future and the young Greta Thunberg could never have occurred had not a deep sense of injustice and malaise not already been festering in our collective hearts. That sense of injustice and malaise connects us to our deepest humanity and is a purity which unites each of us in a field of compassion with the whole of which we are but parts, and should be celebrated and protected at all costs.

In spite of that purity something much darker showed its ugly face on September 27 which used that inherent goodness to its dark advantage.

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Desperate Central Bankers Grab for More Power – Global Research

desperate-central-bankers-grab-for-more-power-–-global-research

19-09-19 02:04:00,

Conceding that their grip on the economy is slipping, central bankers are proposing a radical economic reset that would shift yet more power from government to themselves.

Central bankers are acknowledging that they are out of ammunition. Mark Carney, the soon-to-be-retiring head of the Bank of England, said in a speech at the annual meeting of central bankers in August in Jackson Hole, Wyoming,

“In the longer-term, we need to change the game.”

The same point was made by Philipp Hildebrand, former head of the Swiss National Bank, in an August 2019 interview with Bloomberg.

“Really there is little if any ammunition left,” he said. “More of the same in terms of monetary policy is unlikely to be an appropriate response if we get into a recession or sharp downturn.”

“More of the same” meant further lowering interest rates, the central bankers’ stock tool for maintaining their targeted inflation rate in a downturn. Bargain-basement interest rates are supposed to stimulate the economy by encouraging borrowers to borrow (since rates are so low) and savers to spend (since they aren’t making any interest on their deposits and may have to pay to store them). But over $15 trillion in bonds are now trading globally at negative interest rates, yet this radical maneuver has not been shown to measurably improve economic performance. In fact  new research shows that negative interest rates from central banks, rather than increasing spending, stopping deflation, and stimulating the economy as they were expected to do, may be having the opposite effects. They are being blamed for squeezing banks, punishing savers, keeping dying companies on life support, and fueling a potentially unsustainable surge in asset prices.

So what is a central banker to do? Hildebrand’s proposed solution was presented in a paper he wrote with three of his colleagues at BlackRock, the world’s largest asset manager, where he is now vice chairman. Released in August to coincide with the annual Jackson Hole meeting of central bankers, the paper was co-authored by Stanley Fischer, former governor of the Bank of Israel and former vice chairman of the U.S. Federal Reserve; Jean Boivin, former deputy governor of the Bank of Canada;

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Blain: “Central Banks Are No Longer A Solution – They Have Become The Risk”

blain:-“central-banks-are-no-longer-a-solution-–-they-have-become-the-risk”

05-09-19 02:53:00,

Blain’s Morning Porridge, submitted by Bill Blain

 “Slipping down Raki and reading Maynard Keynes…”

We really should focus on the signals emanating from bond markets.  Forget the current political madness – yesterday saw a number of key moments for bond markets:  UK Chancellor Sajid Javid hitting the spend button in the UK (whether it actually happens is a moot point), another $30 bln new issuance day in the US, BAWAG launching a 10-year negative yield Covered Bond, Spain about to launch a 50 year issue at a smidge over nothing, and Christine Lagarde lecturing the European Parliament about the need for Fiscal Policy initiatives.

It really feels like we are at something of a nexus for bonds and fiscal spending.  Central Bankers and politicians are tinkering with new ideas (ie: old ones rehashed) about Monetary policy – because nothing they tried re QE and zero rates really worked the last 10-years.  I can’t help but feel it’s like something out of The Walking Dead – the Neo-Keynesians have suddenly risen and now stalk the Earth. (Queue Thriller on the turntable…) 

Politicians now see low interest rates as a phenomenal opportunity to sort out the bleak mess of the last 10-years of Austerity driven under-investment, and spend economies back into growth.  It looks attractive.  And, if they’d started 10-years ago.. then we’d probably not be where we are today…

Of course, corporates would be mad not to take advantage of current ultra-low rates to borrow.  But what are they going to spend the money on?  More distorting stock buy-backs and dividend recharges back to private equity owners?  Should investors be worried about the growing leverage?  If the crunch comes – well, 5% of issuers might default, but the rest will be fine… ish.  Meanwhile, ultra-low rates are great for stocks.  Not because companies are inherently more profitable, but largely because low rates make stocks relatively more attractive compared to low-yielding bonds, and encourage corporate buy-backs which further push up prices!

The problem is… the global bond market is now in excess of $115 trillion (a very very big number) and its grown dramatically since the 2008 crisis. It’s just about tripled according to one set of numbers I looked at. When the bond market crunch comes,

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How Central Banks Lost Control Of The Market, In One Chart

how-central-banks-lost-control-of-the-market,-in-one-chart

30-08-19 08:40:00,

By Tyler Durden

The topic of this year’s Jackson Hole was, in not so many words, the fading power of central banks which for the past decade had been the only game in town. However, with interest rates back to record lows, and the ECB (and soon Fed) set to restart QE, the outcome will be even worse than last time, sending the world into Albert Edwards’ infamous deflationary ice age.

But one didn’t have to go all the way to Wyoming to observe the waning power of central banks. A quick look at the following chart from Bank of America would have sufficed.

As BofA’s equity derivatives team led by Stefano Pascale and Benjamin Bowler notes, the year 2018 was characterized by the awakening of vol from 2017’s historical lows as investors adjusted to CBs showing less sensitivity for markets.

Meanwhile, Bank of America’s buy-the-dip rule, which worked 9 out 11 times from 2013-2017 when central banks were in their prime, failed 4 times in 2018, and only after the ~20% selloff of Q4 did the Fed flip to a much more dovish rhetoric.

This historical U-turn led to a record start to 2019 for risk assets and one of the sharpest drops in cross-asset vol ever. However, an ominous, if 30,000 ft. view shows that, despite CBs’ best efforts to contain risk this year, the genie can’t be put back in the bottle, and cross-asset vol is unlikely to return to 2017 bubble-lows.

This is shown best through the lens of Bank of America’s GFSI Market Risk indicator, which despite virtually every central bank turning dovish in 2019, is unchanged on average between 2018 and 2019. Indeed, among its cross-asset components and including credit spreads, rates and commodity vol are on average markedly higher in ’19 than in ’18 (less negative numbers indicating higher vol), FX vol has hit new lows this year, and equities and credit are showing similar levels of stress.

Why is this notable? Because as the BofA strategists conclude, “this is important evidence that the market’s trust in central bank support is waning and that the 2017 ultra-low levels of vol are probably behind us.”

The bigger problem,

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The Fantasy Of Central Bank “Growth” Is Finally Imploding

the-fantasy-of-central-bank-“growth”-is-finally-imploding

28-08-19 01:57:00,

Authored by Charles Hugh Smith via OfTwoMinds blog,

Having destroyed discipline, central banks have no way out of the corner they’ve painted us into.

It was such a wonderful fantasy: just give a handful of bankers, financiers and corporations trillions of dollars at near-zero rates of interest, and this flood of credit and cash into the apex of the wealth-power pyramid would magically generate a new round of investments in productivity-improving infrastructure and equipment, which would trickle down to the masses in the form of higher wages, enabling the masses to borrow and spend more on consumption, powering the Nirvana of modern economics: a self-sustaining, self-reinforcing expansion of growth.

But alas, there is no self-sustaining, self-reinforcing expansion of growth; there are only massive, increasingly fragile asset bubbles, stagnant wages and a New Gilded Age as the handful of bankers, financiers and corporations that were handed unlimited nearly free money enriched themselves at the expense of everyone else.

Central banks’ near-zero interest rates and trillions in new credit destroyed discipline and price discovery, the bedrock of any economy, capitalist or socialist.

When credit is nearly free to borrow in unlimited quantities, there’s no need for discipline, and so a year of university costs $50,000 instead of $10,000, houses that should cost $200,000 now cost $1 million and a bridge that should have cost $100 million costs $500 million. Nobody can afford anything any more because the answer in the era of central bank “growth” is: just borrow more, it won’t cost you much because interest rates are so low.

And with capital (i.e. saved earnings) getting essentially zero yield thanks to central bank ZIRP and NIRP (zero or negative interest rate policies), then all the credit has poured into speculative assets, inflating unprecedented asset bubbles that will destroy much of the financial system when they finally pop, as all asset bubbles eventually do.

Nobody knows what the price of anything is in the funny-money era of central banks. And since capital earns next to nothing, the only way to earn a return is join the mad frenzy chasing risk assets ever higher, with the plan being to sell at the top to a greater fool,

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BofA: Central Banks Are Creating Bubbles Instead Of Helping The Economy; The Result Will Be A Disaster

bofa:-central-banks-are-creating-bubbles-instead-of-helping-the-economy;-the-result-will-be-a-disaster

27-08-19 08:26:00,

In recent weeks we have seen a surprising spike in criticism of central banks by establishment figures, in some cases central bankers themselves, most notably Mark Carney who last Friday remarkably admitted that very low interest rates tend “to coincide with high risk events such as wars, financial crises, and breaks in the monetary regime.” This continued yesterday when 7 months after it praised negative rates, the San Francisco Fed pulled a U-turn and warned that the “Japanese experience”, where negative rates dragged down inflation expectations even more, is ground for NIRP caution.

Then, in an even more bizarre interview with the FT, St Louis Fed president James Bullard made an even more stunning admission – that the Fed no longer has any idea what is going on. To wit:

“Something is going on, and that’s causing I think a total rethink of central banking and all our cherished notions about what we think we’re doing… We just have to stop thinking that next year things are going to be normal.”

There was more. In a series of questions aimed at the Fed in this post-Jackson Hole powerless reality, we brought you some rhetorical fireworks from the head of FX at Deutsche Bank, Alan Ruskin, who lashed out at the central bank with 20 questions, technically statements, that 10 years ago would have branded him a tinfoil-wearing conspiracy theorist (we know, because we asked just these questions back in 2009), among which:

  • “Will the Fed/ECB buy equities/ETFs? How far are central banks willing to distort underlying value, or is distorting value intrinsic to Central Banking as per the Austrian critique?”
  • “How much are Central Banks going to be complicit in a collapse in fiscal standards, by buying public sector assets? Will a passive Central bank simply accommodate and facilitate fiscal actions related to MMT?”
  • “Are we reaching a natural end to the secular decline in inflation and rates that has propelled the asset cycle in the last 40 years. Has asset inflation hidden an even more meaningful deceleration in the natural rate of growth that will evident in the next decade?”
  • “Is it the Central Banks job to do away with business cycle? And at what price?

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Will Central Banks Survive?

will-central-banks-survive?

27-08-19 07:13:00,

Authored by Tuomas Malinen via GnSEconomics.com,

Almost all economists and the vast majority of the general population erroneously believe that central banks are, basically, indestructible. And most fail to appreciate that central banks are different from normal commercial banks in just two respects: their ability to earn seigniorage revenue, and to distort accounting rules.

With the current level of liabilities central banks hold those may not be enough. We might be closing in the end of the central banking era.

The income structure of a central bank

Central banks earn seigniorage from the difference between the “printing” costs of the legal tender (monetary base) and its nominal value. In a simplified balance sheet of a central bank, money is visible in the liabilities-side, which also holds the government’s bank account (domestic liabilities) and the reserves of commercial banks and net worth. Net worth includes the capital of the central bank and valuation adjustments for changes in the foreign-exchange rate and investments. A central bank’s assets include securities, foreign-exchange reserves (net foreign assets) and loans (to commercial banks).

Thus, when a central bank buys assets, such as government bonds, it simply either creates money directly or debits the reserves of commercial banks to maintain balance. In the programs of quantitative easing (“QE”, see Q-Review 1/2018), the latter option has been used. The central bank earns income in the form of interest from these holdings. If the liabilities contain required reserves and currency, the central bank has “zero-cost” financing. If the liabilities contain excess reserves and or domestic liabilities, the central bank will need to pay interest.

Losses of a central bank

The central bank can, naturally, also incur a loss. The value of foreign and domestic assets have a significant role in a central bank’s income stream. Usually, losses result from interest obligations, subsidy payments, multiple exchange-rate practices, “guarantee” schemes and unfavorable changes in net asset valuations. With the advent of  QE programs, central banks have made themselves vulnerable mostly to the latter (see the Figure).

Figure. The balance sheets of the Bank of Japan, European Central Bank, Federal Reserve and the People’s Bank of China in billions US dollars.

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World’s Central Banks End Pact That Limited Selling Of Gold

world’s-central-banks-end-pact-that-limited-selling-of-gold

27-07-19 01:09:00,

In a surprising announcement on Friday morning, the European Central Bank said the 21 signatories of the 4th Central Bank Gold Agreement (CBGA) “no longer see the need for formal agreement” as the market has developed and matured, and as a result the signatories “decided not to renew the Agreement upon its expiry in September 2019.”

For readers unfamiliar, the first CBGA was signed in 1999 to coordinate planned gold sales by the various central banks. When it was introduced, the ECB notes that “the Agreement contributed to balanced conditions in the gold market by providing transparency regarding the intentions of the signatories. It was renewed three times in 2004, 2009 and 2014, gradually moving towards less stringent terms.”

The fourth CBGA, which expires on 26 September 2019, was signed by the ECB, the Nationale Bank van België/Banque Nationale de Belgique, the Deutsche Bundesbank, Eesti Pank, the Central Bank of Ireland, the Bank of Greece, the Banco de España, the Banque de France, the Banca d’Italia, the Central Bank of Cyprus, Latvijas Banka, Lietuvos bankas, the Banque centrale du Luxembourg, the Central Bank of Malta, De Nederlandsche Bank, the Oesterreichische Nationalbank, the Banco de Portugal, Banka Slovenije, Národná banka Slovenska, Suomen Pankki – Finlands Bank, Sveriges Riksbank and the Swiss National Bank.

The simplest reason why the agreement is no longer needed, is that whereas central banks used to sell gold in the 1990s and early 2000s, most famously the UK’s sale of 401 tonnes of gold of its total 715 tonne holdings under Gordon Brown, broadly seen as one of the “worst investment decisions of all time“, currently they are buying at an unprecedented pace, and in 2018, central bank gold demand was the highest in the “modern” era, or since Nixon closed the gold window in 1971.

More recent data shows that gold buying by central banks in 2019 has persisted and remains the highest in years, with no central bank buying more than Russia, which after dumping most of its US Treasury holdings in 2018, has continued to aggressively convert its foreign reserves into the precious metal.

RS

As a result of a shift in official institutional sentiment from selling to buying,

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How Central Banks Could Benefit From A “Protectionist-Driven” Global Downturn

how-central-banks-could-benefit-from-a-“protectionist-driven”-global-downturn

21-07-19 11:12:00,

Authored by Steven Guiness,

From observing the behaviour of ‘leavers‘ and ‘remainers‘ since the EU referendum in 2016, I have seen first hand how partisanship works as an effective tool to cloud judgement. Once a position of bias becomes ingrained, it has proved next to impossible to see beyond it or for the individual concerned to be convinced of an alternative perspective.

The psychological operation of ‘fake news‘ is now entrenched within society, with both sides of the divide claiming one another to be peddlers of false truths. By my reckoning this is all the more reason why positioning yourself as neither one thing or the other is the only logical way in which facts can be objectively scrutinised.

The role of the Bank of England in the Brexit process is an example of how bias is serving to insulate central banks from impartial and informed criticism. On one side are those who depict governor Mark Carney as an ‘enemy‘ of Brexit, whilst on the other are people who consider Carney as a safe pair of hands amidst a whirlwind of political turmoil. Non-partisan analysis of communications and policy decisions emanating from the BOE is rarely given space to evolve.

For instance, last week the bank published its latest Financial Stability Report in conjunction with a press conference delivered by Mark Carney. Whilst much of his interaction with the press on Brexit was of a similar theme to previous events, one aspect in particular stood out.

Asked by Joel Hills of ITV News about the level of preparation in the event of a no deal Brexit, Carney affirmed that the financial system in which the BOE presides over was ‘ready for whatever form Brexit takes.’ Carney’s conviction stems from a series of bank stress tests that the BOE conducted in 2018 in an attempt to gauge how the financial system would stand up to a crisis greater than 2008. The results as published by the BOE showed that the UK’s banking system was fully prepared.

Indeed, Carney’s confidence was such that he went on to say how the system would continue serving both households and businesses,

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Corrupt central banks ‘print money every time they make a mistake’ – RT’s Keiser Report

corrupt-central-banks-print-money-every-time-they-make-a-mistake-rts-keiser-report

12-04-19 06:21:00,

The European Central Bank’s corporate bond buying program has led to extreme malinvestment and misallocation of capital, allowing companies to make questionable decisions.

RT’s Keiser Report discusses the issue, using as an example German pharmaceuticals company Bayer’s takeover of Monsanto.

According to Max Keiser, every central bank “willing to finance dodgy deals crowds out the good companies, so you end up with a lot of bad companies.”

He says central banks should not be allowed to do deals as they only print money to make those deals. “Every time they make mistake they just print more money. And that methodology is now working its way down to a corporate level,” Max explains.

“We’re living in meritocracy where everybody is free to compete; you just have to be better than the competition,” says Stacy Herbert.

In fact, they are “propping up dodgy competition maybe that’s why we have this ongoing crisis because these huge corporate behemoths just run out of ideas other than buying their own shares and taking free money from central banks.”

For more stories on economy & finance visit RT’s business section

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Central Banks Are Driving Us Toward A Stagnant Global Zombie Economy

central-banks-are-driving-us-toward-a-stagnant-global-zombie-economy

10-04-19 12:18:00,

Authored by Daniel Lacalle via DLacalle.com,

Liquidity injections and zero interest rate policies disguise risk and may give a false sense of security…

This risk could not be more evident today.  Not only have we seen large downgrades to consensus growth estimates and central banks’ expectations of GDP and inflation, leading indicators also point to a much weaker economy ahead.

There are similarities with 2008 that we should not ignore.

  • A massive China stimulus inflates risky assets and commodities.

  • Poor macro and earnings data is ignored by markets assuming that all will improve in the second half of the year.

  • Yield curves invert.  15 economies now have 30-year yields lower than LIBOR overnight rates.

  • The figure of negative yield debt rises to $11 trillion.

Financial repression is at all-time highs while leading indicators point to a growing risk of recession.

In the first quarter of 2019, stocks have added $9.3 trillion in market capitalization, bonds have gained almost $2 trillion in value.  Meanwhile, the Conference Board Index of leading indicators has plummeted for the major economies. The Citi Economic Surprise Index has also fallen, particularly in March, despite a small bounce in the Eurozone at the beginning of the year. Global trade growth, machine equipment orders and manufacturing indices remain poor… while debt soars to another record-high of $244 trillion according to the Bank of International Settlements and the IIF.

The difference with the Asian or the 2008 crisis is that this time the excess risk is hidden under central banks’ balance sheets and will continue to do so.

So, if risk is hidden under a perennial money supply-growth carpet, why should we worry? Because the endgame is not likely to be a 2008-style bang, but a slow, painful and unstoppable zombification of the global economy.  As the evidence of stagnation rises, governments get more nervous. What do they do? Stop the monetary madness? Allow high productivity sectors to thrive? Promote deleveraging and prudent investment? No. More white elephants, massive unproductive spending at the expense of taxpayers and savers in what is likely to be yet another massive transfer of wealth from salaries and savers to governments with fancy names.

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Kunstler: Central Bank Machinations Have Reached Their Limits Of Deception

kunstler-central-bank-machinations-have-reached-their-limits-of-deception

11-03-19 08:02:00,

Authored by James Howard Kunstler via Kunstler.com,

Ides & Tides

Just as presidents are expected to act presidentially, Federal Reserve chairpersons are expected to act oracularly – as semi-supernatural beings who emerge now and again from some cave of mathematical secrets to offer reassuringly cryptic utterances on mysteries of the economy. And so was Jerome Powell wheeled out on CBS’s 60 Minutes Sunday night, like a cigar store Indian at an antique fair, so vividly sculpted and colorfully adorned you could almost imagine him saying something.

Maybe it was an hallucination, but I heard him say that “the economy is in a good place,” and that “the outlook is a favorable one.” Point taken. Pull the truck up to the loading dock and fill it with Tesla shares!  I also thought I heard “Inflation is muted.” That must have been the laugh line, since there is almost no single item in the supermarket that goes for under five bucks these days. But really, when was the last time you saw a cigar store Indian at Trader Joes? It took seventeen Federal Reserve math PhD’s to come up with that line, inflation is muted.

What you really had to love was Mr. Powell’s explanation for the record number of car owners in default on their monthly payments: “…not everybody is sharing in this widespread prosperity we have.”  Errrgghh Errrgghh Errrgghh. Sound of klaxon wailing.

What he meant to say was, hedge-funders, private equity hustlers, and C-suite personnel are making out just fine as the asset-stripping of flyover America proceeds, and you miserable, morbidly obese, tattooed gorks watching this out on the Midwestern buzzard flats should have thought twice before dropping out of community college to drive a forklift in the Sysco frozen food warehouse (where, by the way, you are probably stealing half the oven-ready chicken nuggets in inventory).

Interlocutor Scott Pelley asked the oracle about “those half-a-million people who have given up looking for jobs.” Did he pull that number out of his shorts? The total number out of the workforce is more like 95 million, and when you subtract retirees, people still in school, and the disabled, the figure is more like 7.5 million.

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Central Banks v Clearing | Armstrong Economics

central-banks-v-clearing-armstrong-economics

17-01-19 09:25:00,

Delos, First Central Bank

QUESTION: Dear Martin

Wonder if you have any insights as to the history of the bank clearing process.

Was the clearing process created mainly so banks could play games and earn interest with peoples’ money

with the reasoning that it was to prevent money laundering?

With technological advances today, one can accept an hour or two for automatic name and account number checks to happen

but 3-7 days seems ridiculous.

Any insights to the creation of the clearing process would be enlightening.

Thank you again

KW

ANSWER: The function of bank clearing began with giro-banking, which originated in the Temple of Delos in Greece. The term refers to the circulation of money. It originated where you could write a check to one person and transfer the payment to their account at the same bank. Effectively, in ancient Greece, you would have an account at the Temple in Delos and instruct a transfer to their account in the Temple. The Romans adopted this concept and thus Roman banking was born.

A central bank emerged after the Dark Ages in the early modern history as a government or state-owned banks. The Dutch were pioneers and financial innovators who not only created this state banking concept, but they also invented insurance. The Wisselbank was the first such bank in Amsterdam which was founded in the Dutch Republic during 1609. The Wisselbank became the model of the central banking system and it spread throughout Europe; first in 1668 in Sweden known as the Sveriges Riksbank and then the Bank of England in 1694.

When smaller private banks began to pop up, the state-owned banks emerged as clearing banks where transfers between the accounts at the central bank took place the same as they did between accounts in ancient Delos.

The Wisselbank actually collapsed in 1790 after it was revealed that the deposits have been used secretly to fund the Dutch East India Company. The manipulation was that they represented themselves as just holding money for safe-keeping. They did not lend money out. So when the bank failed and they had been using the money to fund the Dutch East India Company,

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What the Heck Is Russia’s Central Bank Doing?

what-the-heck-is-russia8217s-central-bank-doing

21-12-18 09:41:00,

In the US money is way to easy but in Russia it’s way too tight, argues Tom Luongo

  • “I’m all for a cautious central bank that does not inflate massive bubbles but I’m also not for a central bank to do the bidding of a country’s adversaries either by undermining growth with needless austerity.

     

  • “Nabiullina should stop tinkering with rates to please foreign ratings agencies that will downplay Russia’s fiscal position anyway for political purposes.”  

I continue to wonder who Bank of Russia President Elvira Nabiullina works for.  Seriously.  On Friday, in response to solid growth in Russian economic statistics over the past few months, Nabiullina again raised interest rates 0.25%. 

She still adheres to idiotic IMF-style ‘inflation targeting’ dogma.

Price inflation in Russia finally got off the roughly 2.5% mat in August steadily rising to 3.8% in November.  This prompted Nabiullina​​​​​​​ to raise rates again, stifling growth which itself was stifled by her overly-cautious rate cutting earlier in the cycle.

The recovery in Russia after the Ruble crisis of 2014/15 was exasperated by her holding interest rates too high for too long.  The Russian bond market took way to long to normalize because of this lack of liquidity.

In 2017 and early 2018, every time the Bank of Russia cut rates the Ruble would strengthen, that’s how high demand was for them.  The Russian yield curve was approaching normalcy.

And Nabiullina​​​​​​​ is now, again, undermining it by trying to control price inflation as opposed to letting the market regulate itself.  

The short-term Russian bond market is screaming for some relief and the Bank of Russia won’t accommodate.  Remember, inflation in Russia is running just 3.8%, so we’re talking a positive real yield on overnight money of 4%.  This is not making it easy to liquefy a growing economy.  Real yields of 4% on 3 to 5 year money?  Ok. 

But overnight?   I’m all for a cautious central bank that does not inflate massive bubbles but I’m also not for a central bank to do the bidding of a country’s adversaries either by undermining growth with needless austerity.

Central Bank Fallacies

Inflation targeting is not the role of the central bank,

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The Central Bank War – Nobody Notices | Armstrong Economics

the-central-bank-war-nobody-notices-armstrong-economics

20-12-18 08:21:00,

QUESTION: Mr. Armstrong: I have watched in amazement how you connect all these elements. Everyone I spoke to agreed this was your best WEC ever. You have said the Fed needed to raise rates because of the pension crisis and it would have nothing to do with inflation but it has to normalize rates to help pensions. Then we have the ECB refusing to raise rates. Would you please comment on the Fed’s actions yesterday? Is this a central bank war?

OM

ANSWER: I understand this can get confusing because there are so many people who talk without any real-world experience. The Fed MUST raise rates to help the crisis in Pension funds. It raised the Fed Funds Rate (what banks charge each other) 25 basis points to 2.25-2.5%. While the Fed indicated there would be two more rate hikes in 2019, what has gone over everyone’s head is exactly what I have been warning about. We are witnessing indeed not a Currency War that people claim over trade since I do not see any actual counter-trend manipulation attempts as was the case with the G5 back in 1987.

This is a brand new Central Bank War that nobody seems to get I suppose since I may be the only person who actually speaks to central banks outside the USA. All the various central banks and the IMF have been lobbying the Federal Reserve since 2014 pleading with it NOT to raise rates. I have stated many times that the rate hikes by the Fed have NOTHING to do with economic growth, inflation, or trying to stop a speculative bubble in stocks.

The lobbying behind the curtain against the Fed raising rates has been very intense. What is most interesting is that BECAUSE of what the New York boys did to me, outside the country it has been a badge of honor and a CONFIRMATION that I am NOT one of them and am independent. Hence, I meet with central banks outside the USA because I am someone who knows the real game behind the curtain, have 30+ years of real-world experience, and work internationally. That has made me fill a rather unique role with a front row seat to the world.

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Estonian Central Bank Exposed As $1 Trillion Money-Laundering Nexus

Estonian Central Bank Exposed As $1 Trillion Money-Laundering Nexus

04-10-18 08:25:00,

The fallout from the Danske Bank money laundering scandal has rattled the European financial system as $235 billion that flowed through the bank’s tiny Estonian branch – an amount that dwarfs the Baltic nation’s GDP – has been deemed by the bank’s auditors to be suspicious.

Danske

And while that might seem like a staggering sum and raise questions about how regulators on the Continent managed to overlook this, the full scale of the money laundering that took place in the Baltics is even more staggering. According to data provided to Bloomberg by the Estonian central bank in Tallinn, Estonian banks handled about 900 billion euros, or $1.04 trillion, in cross-border transactions – a figure that includes the highly suspect non-resident flows – between 2008 and 2015. The central bank added that it wouldn’t be fair to say that all – or even the majority – of these non-resident flows would constitute money laundering. But then again, the notion that these foreign individuals and investors would choose to run such a large sum of their money through Estonia for explicitly legitimate purposes is difficult to swallow.

“The fact that other banks may be conducting their business in a similar way hardly detracts from Danske’s guilt,” said Mark Galeotti, an organized crime expert and senior researcher at the Prague-based Institute of International Relations.

With the echoes of the liquidation of ABLV, formerly the third largest bank in Latvia, still reverberating through the Baltics (the bank collapsed after it was caught laundering money for North Korea, eliciting a “death penalty” sanction from the US Treasury), Bloomberg published a story on Wednesday highlighting the fact that money laundering by non-residents isn’t just endemic to Estonia – it has endemic to the entire Baltic region (and possibly all of Europe).

One sign that illicit banking has been on the rise in the Baltics is that the share of dollar-denominated flows as a portion of all non-resident flows has been on the rise. The problem with handling dollars is that they require a third-party correspondent bank to become a party to the transaction. Because these banks can also be found liable for facilitating illicit transactions – and AML controls in the US banking system,

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Central Bank “Independence”: Trump Takes on the Federal Reserve | Global Research – Centre for Research on Globalization

Central Bank “Independence”: Trump Takes on the Federal Reserve | Global Research – Centre for Research on Globalization

31-07-18 08:29:00,

The president has criticized Federal Reserve policy for undermining his attempts to build the economy. The best way to make the central bank serve the needs of the economy is to make it a public utility.

For nearly half a century, presidents have refrained from criticizing the “independent” Federal Reserve; but that was before Donald Trump. In response to a question about Fed interest rate policy in a CNBC interview on July 19, 2018, he shocked commentators by stating,

“I’m not thrilled. Because we go up and every time you go up they want to raise rates again. . . . I am not happy about it. . . . I don’t like all of this work that we’re putting into the economy and then I see rates going up.”

He acknowledged the central bank’s independence, but the point was made: the Fed was hurting the economy with its “Quantitative Tightening” policies and needed to watch its step.

In commentary on CNBC.com, Richard Bove contended that the president was positioning himself to take control of the Federal Reserve. Bove said Trump will do it

“both because he can and because his broader policies argue that he should do so. . . . By raising interest rates and stopping the growth in the money supply [the Fed] stands in the way of further growth in the American economy.”

Bove noted that in the second quarter of 2018, the growth in the money supply (M2) was zero. Why? He blamed “the tightest monetary policy since Paul Volcker, whose policies in the mid-1980s led to back-to-back recessions.” The Fed has raised interest rates seven times, with five more scheduled, while it is shrinking its balance sheet by $40 billion per month, soon to be $50 billion per month.

How could the president take control? Bove explained:

The Board of Governors of the Federal Reserve is required to have seven members. It has three. Two of the current governors were put into their position by President Trump. Two more have been nominated by the president and are awaiting confirmation by the Senate. After these two are put on the Fed’s board, the president will then nominate two more to follow them.

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Central Banks Are Using The Trade War To Hide Their Direct Influence On Stocks

Central Banks Are Using The Trade War To Hide Their Direct Influence On Stocks

19-07-18 09:29:00,

Authored by Brandon Smith via Alt-Market.com,

There has been a lot of confusion lately in the mainstream economic media as well as in independent media circles as to the behavior of stock markets in the wake of the recently initiated global trade war. In particular, stocks suffered one of the longest runs of negative days in their history in June, only to then spike just after Donald Trump “officially” began trade war tariffs in July. The expectation by many was that the headlines would cause an immediate and continued downturn in equities markets, but this was not the case. Many analysts have been left bewildered.

This is an issue I have touched on multiple times since the beginning of this year, and it is something I predicted long before Trump’s election in 2016. But it is obvious that the schizophrenic nature of stocks needs to be addressed in a very concise, no-holds-barred fashion, because there are still far too many people who are looking at all the wrong causes and correlations.

First, let’s be clear: stock markets are NOT tracking the news headlines. The past month should have proved this if there was any previous doubt.

It is hard for investors and some analysts to grasp this fact, primarily because for at least the past few years it appeared as though stock markets were utterly dictated by headlines out of Bloomberg, Reuters and other mainstream media outlets. Once investors and analysts became used to this narrative it was difficult for them to adapt when the dynamic changed. They are still living in the past based on an assumption that was never quite correct to begin with.

In reality, headlines never actually dictated stock prices; it was always the Federal Reserve among other central banks.

As I and others have noted consistently, stock market valuations for the past several years have tracked almost perfectly with the Fed’s balance sheet. That is to say, every time the Fed purchased more assets and increased the balance sheet, stocks went up.

After years of the notorious “Fed Put,” we now have an entire generation of investors and market writers that have never experienced a stock environment in which equities actually fall according to the health of their corresponding companies or the economy at large.

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How Central Banks Stoke Stock Prices | Light On Conspiracies – Revealing the Agenda

How Central Banks Stoke Stock Prices | Light On Conspiracies – Revealing the Agenda

27-02-18 05:50:00,

By Thorsten Polleit

Reading through Security Analysis, the roadmap for investing first published in 1934 by Benjamin Graham and David L. Dodd, I learned something quite interesting: The basis of stock valuation had changed quite drastically in the period between 1927 and 1929. The stock buying public “departed more and more from the factual approach and technique of security analysis and concerned itself increasingly with the elements of potentiality and prophecy”, write Graham and Dodd.1

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What they mean is that in the pre-WWI world, stocks were typically valued on the basis of a three-part concept: (i) a decent track record of firms’ dividend returns, (ii) a stable and satisfactory earnings record, and (iii) a strong balance sheet, with sufficient backing by tangible assets. The “New-Era” theory of stock valuation reads, summarized in one sentence, as follows: “The value of a common stock depends entirely upon what it will earn in the future.”

Current dividends should only have a slight impact upon a stock’s valuation, and as firms’ asset values did not have an apparent relationship with their earning power, asset values were said to be devoid of importance when it comes to calculating a stock’s “fair price.” A firm’s earnings record was only relevant to the extent that it might indicate what changes in a firm’s future earnings were likely to be expected. In other words, the New-Era theory of stock valuation was quite a break compared to the valuation technique employed in the past.

A Sea Change in Pricing Stocks

According to Graham and Dodd, there were two significant causes why such a change in the approach to stock valuation occurred. First, accounting data of a firm’s past proved to be increasingly unreliable as a guide for making wise investment decisions. The reason for this was rapid changes in demand structures and product and process technologies. Second, the expectation of future rewards became increasingly attractive to many investors, in fact, “irresistibly alluring.”

The New-Era theory of stock valuation, which people followed in the hot phase of the 1927-1929 stock market rally, turned out to suffer from two weaknesses, according to Graham and Dodd.

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