Category: zerohedge

The recent shutdown sheds light on what agencies we really find important.

 

Image compliments of Masters in Accounting Degrees

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Zwr3s_DG41Y/story01.htm Tyler Durden

Submitted by Derrick Wulf via NoEasyTrade blog,

Reading between the lines of recent Fed communications, it’s becoming increasingly clear to me that the Fed wants to exit its quantitative easing policies as soon as possible. Though they’re loath to admit it, the architects of quantitative easing now recognize that their efforts are achieving diminishing marginal returns while at the same time building up massive imbalances, distortions, and speculative excesses in the capital markets. Moreover, they’re realizing that the eventual exit costs are also likely much higher than they had previously thought, and continue to rise with each new asset purchase. Never was this more clear than when the Fed first hinted at tapering its large scale asset purchases over the summer: equity prices fell, interest rates rose, volatility increased, and huge sums of hot money were repatriated from various emerging markets, causing significant disruptions to local overseas economies and currencies in the process.

The market’s strong reaction to the mere hint of a taper also threw cold water on the widely held belief among Fed officials that the primary impact of their asset purchases comes through the accumulated “stock” of their holdings rather than the ongoing “flow” of purchases. This sudden and unexpected realization among policymakers has forced a complete rethink of their strategy. Indeed, one of the most basic premises of their monetary policy assumptions has been shown to be false. Markets are, in fact, forward looking.

Fearing the economic impact of an unwanted tightening of financial conditions, the Fed quickly stepped back from the tapering abyss in September. Since then, FOMC officials, along with their staff researchers and economists, have been working diligently on devising a new strategy, floating numerous trial balloons along the way. Their primary objective is to allow for a taper and ultimate exit from QE while somehow minimizing the flow impacts of such a shift in policy. There has been a renewed focus on the Fed’s other policy tools – namely the overnight lending rates and forward guidance – as a means to that end. There have been active discussions about lowering unemployment thresholds, increasing inflation tolerances through “optimal control,” and cutting interest on excess reserves to help guide market expectations towards a lower future path of interest rates.

It is my belief that one or more of these options is likely to be adopted alongside a modest tapering of asset purchases, perhaps even as early as December. While central bank officials don’t want to disrupt the fragile economic recovery through a premature tightening of monetary policy, they are also well aware that the longer they wait, the more difficult it will become later on. In a word, they’re starting to feel trapped. They want to wriggle themselves free of this as soon as conditions will possibly allow.

I expect to see more public comments and newspaper articles indicating as much in the coming days and weeks. Economic data – namely the November employment report – will clearly play a very important role in shaping expectations as well, but barring a material deterioration in the employment and growth outlook, I expect a tapering announcement, coupled perhaps with an IOER cut or more aggressive forward guidance, to come sooner rather than later.

Implications for the markets, which may not yet be fully prepared for this outcome, are likely to be significant. In short, I would expect yield curves to steepen, the dollar to strengthen, equities to fall, credit spreads to widen, commodities to weaken (the metals in particular), and volatility to rise. How the Fed will then respond to these developments will be very telling indeed. Their hand will be forced, and we may all soon learn how strong the QE trap has become.

My preferred strategy until then is to buy inexpensive volatility, either directly or indirectly through longer-dated options, and to continue to trade the Euro and Yen from the short side.

I also like maintaining a core curve steepener, preferably in 5s / 30s (or long FVZ against a duration-neutral USZ short), and establishing some equity shorts near trend resistance around 1810 in ESZ (see yesterday’s note for charts). On the curve, with 5s / 30s now having cleared resistance at 240, I expect to see 300 tested again before much longer, with new wides to follow.

 

The first two major episodes of the current multi-year steepening trend – the crisis and the response – both widened the 5s / 30s curve by 200 basis points. If the third episode, the exit, follows a similar trajectory, we could see eventually see 5s / 30s hit 390.

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RuIMPuGYmCU/story01.htm Tyler Durden

Submitted by Derrick Wulf via NoEasyTrade blog,

Reading between the lines of recent Fed communications, it’s becoming increasingly clear to me that the Fed wants to exit its quantitative easing policies as soon as possible. Though they’re loath to admit it, the architects of quantitative easing now recognize that their efforts are achieving diminishing marginal returns while at the same time building up massive imbalances, distortions, and speculative excesses in the capital markets. Moreover, they’re realizing that the eventual exit costs are also likely much higher than they had previously thought, and continue to rise with each new asset purchase. Never was this more clear than when the Fed first hinted at tapering its large scale asset purchases over the summer: equity prices fell, interest rates rose, volatility increased, and huge sums of hot money were repatriated from various emerging markets, causing significant disruptions to local overseas economies and currencies in the process.

The market’s strong reaction to the mere hint of a taper also threw cold water on the widely held belief among Fed officials that the primary impact of their asset purchases comes through the accumulated “stock” of their holdings rather than the ongoing “flow” of purchases. This sudden and unexpected realization among policymakers has forced a complete rethink of their strategy. Indeed, one of the most basic premises of their monetary policy assumptions has been shown to be false. Markets are, in fact, forward looking.

Fearing the economic impact of an unwanted tightening of financial conditions, the Fed quickly stepped back from the tapering abyss in September. Since then, FOMC officials, along with their staff researchers and economists, have been working diligently on devising a new strategy, floating numerous trial balloons along the way. Their primary objective is to allow for a taper and ultimate exit from QE while somehow minimizing the flow impacts of such a shift in policy. There has been a renewed focus on the Fed’s other policy tools – namely the overnight lending rates and forward guidance – as a means to that end. There have been active discussions about lowering unemployment thresholds, increasing inflation tolerances through “optimal control,” and cutting interest on excess reserves to help guide market expectations towards a lower future path of interest rates.

It is my belief that one or more of these options is likely to be adopted alongside a modest tapering of asset purchases, perhaps even as early as December. While central bank officials don’t want to disrupt the fragile economic recovery through a premature tightening of monetary policy, they are also well aware that the longer they wait, the more difficult it will become later on. In a word, they’re starting to feel trapped. They want to wriggle themselves free of this as soon as conditions will possibly allow.

I expect to see more public comments and newspaper articles indicating as much in the coming days and weeks. Economic data – namely the November employment report – will clearly play a very important role in shaping expectations as well, but barring a material deterioration in the employment and growth outlook, I expect a tapering announcement, coupled perhaps with an IOER cut or more aggressive forward guidance, to come sooner rather than later.

Implications for the markets, which may not yet be fully prepared for this outcome, are likely to be significant. In short, I would expect yield curves to steepen, the dollar to strengthen, equities to fall, credit spreads to widen, commodities to weaken (the metals in particular), and volatility to rise. How the Fed will then respond to these developments will be very telling indeed. Their hand will be forced, and we may all soon learn how strong the QE trap has become.

My preferred strategy until then is to buy inexpensive volatility, either directly or indirectly through longer-dated options, and to continue to trade the Euro and Yen from the short side.

I also like maintaining a core curve steepener, preferably in 5s / 30s (or long FVZ against a duration-neutral USZ short), and establishing some equity shorts near trend resistance around 1810 in ESZ (see yesterday’s note for charts). On the curve, with 5s / 30s now having cleared resistance at 240, I expect to see 300 tested again before much longer, with new wides to follow.

 

The first two major episodes of the current multi-year steepening trend – the crisis and the response – both widened the 5s / 30s curve by 200 basis points. If the third episode, the exit, follows a similar trajectory, we could see eventually see 5s / 30s hit 390.

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RuIMPuGYmCU/story01.htm Tyler Durden

Preface: I am not so much anti-government as anti-stupid policy.  (Moreover, the problem is not bad government or even corrupt corporations. The real problem is the malignant,  symbiotic relation between the two.)

Multiple polls show that Americans are more afraid of our own government than of terrorists.

Sure, the government – not Al Qaeda – is taking away virtually all of our Constitutional rights.   And that includes reserving to itself the right to assassinate or indefinitely detain American citizens.

But stupid government policy is threatening us in other ways, as well.

The Police

For example, we’ve documented that you are 9 times more likely to be killed by a police officer than a terrorist.  (Legal experts say you should never talk to the police).

Financial Crisis

The financial crisis will also lead to quite a few early deaths.  The government – together with Wall Street – caused the financial crisis … not Al Qaeda.  (Indeed, the government and big banks – not Osama – have destroyed free market capitalism in the U.S.)

Suicide

The number of deaths by suicide has skyrocketed recently, and many connect the increase in suicides to the downturn in the economy.

Around 35,000 Americans kill themselves each year.  Indeed, Americans are 2,059 times more likely to kill themselves than die at the hand of a terrorist.

And more American soldiers die by suicide than combat (the number of veterans committing suicide is astronomical and under-reported).

The wars that are causing the soldiers so much grief were planned 20 years ago … and are being fought for oil (and here) and gas.

Killer Drugs

According to a 2011 CDC report, poisoning from prescription drugs is one of the leading cause of death. Indeed, the CDC stated in 2011 that – in the majority of states – your prescription meds are more likely to kill you than any other source of injury. So your meds are thousands of times more likely to kill you than Al Qaeda.

After drug companies were busted for using fraudulent data for drug approval, the FDA allowed the potentially dangerous drugs to stay on the market.

And when one of the most respected radiologists in America – the former head of the radiology department at Yale University – attempted to blow the whistle on the fact that the FDA had approved a medical device manufactured by General Electric because it put out massive amounts of radiation, the FDA installed spyware to record his private emails and surfing activities (including installing cameras to snap pictures of his screen), and then used the information to smear him and other whistleblowers.

Contaminated Food

Statistics from the Centers for Disease Control  show that Americans are 110 times more likely to die from contaminated food than terrorism. And see this.

Yet the government is working hand-in-glove with the giant good companies to dish up cheap, unhealthy food.

The government’s response to the outbreak of mad cow disease was simple: it stopped testing for mad cow, and prevented cattle ranchers and meat processors from voluntarily testing their own cows (and see this and this).

The EPA recently raised the allowable amount of a dangerous pesticide by 3,000% … pretending that it won’t have adverse health effects.    In response to new studies showing the substantial dangers of genetically modified foods, the government passed legislation more or less pushing it onto our plates.

When BP – through criminal negligence – blew out the Deepwater Horizon oil well, the government helped cover it up (and here).  As just one example, the government approved the massive use of a highly-toxic dispersant to temporarily hide the oil.   The government also changed the testing standards for seafood to pretend that higher levels of toxic PAHs in our food was business-as-usual.

Environmental Poisons

In fact, the government has long covered up environmental risks.

For example, the Centers for Disease Control – the lead agency tasked with addressing disease in America – covered up lead poisoning in children in the Washington, D.C. area.

The Bush administration covered up the health risks to New Orleans residents associated with polluted water from hurricane Katrina, and FEMA covered up the cancer risk from the toxic trailers which it provided to refugees of the hurricane.

And then there’s nuclear power.  The American government has:

• Wholly subsidized nuclear power (it would never have been built without 100% backing)

• Reduced American nuclear safety standards after Fukushima

• Controlled Japanese nuclear policy for decades

• Covered up the severity of the Fukushima accident, raised acceptable radiation limits and agreed to buy radioactive Japanese seafood

Indeed, the archaic nuclear design used at Fukushima and throughout the United States was  chosen solely because it helps to make nuclear bombs.

Sadly, radiation from Fukushima and U.S. reactors will kill some Americans.   The National Journal reports:

“Look at what’s going on now: They’re dumping huge amounts of radioactivity into the ocean — no one expected that in 2011,” Daniel Hirsch, a nuclear policy lecturer at the University of California-Santa Cruz, told Global Security Newswire. “We could have large numbers of cancer from ingestion of fish.”

Indeed, one doctor claims that Fukushima had already killed 14,000 Americans 9 months after the accident.  We doubt her numbers … but it is clear that even low levels of radiation can damage human health.  Whatever the number, this was caused by the government … not Al Qaeda.

(The government also created a computer virus which threatens nuclear plants world-wide.)

Bad Government
Policy Is Increasing the Risk of Terrorism

Oh and – by the way – the government’s actions are so idiotic that they are actually increasing the chance of a terrorist attack.

Postscript: Many would argue that the government will save lives by fighting climate change.  However, the U.S. military is the biggest producer of carbon on the planet.  Moreover many of the measures being promoted by the government would be ineffectual.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/UpPCaefh174/story01.htm George Washington

A few days ago, when GMO released its quarterly thoughts, most focused immediately on the claim that the market is 75% overvalued. However perhaps an even more important analysis by author Ben Inker, and one which was largely ignored by most, is what front-loading so much market gains thanks to the Bernanke surge in the S&P means for future returns especially as it pertains to pension funds the bulk of which are already underfunded. GMO’s conclusion was not a happy one.

If equity returns for the next hundred years were only going to be 3.5% real or so, today’s prices are about right. We would be wrong about how overvalued the U.S. stock market is, but every pension fund, foundation, and endowment – not to mention every individual saving for retirement – would be in dire straits, as every investors’ portfolio return assumptions build in far more return. Over the standard course of a 40-year working life, a savings rate that is currently assumed to lead to an accumulation of 10 times final salary would wind up 40% short of that goal if today’s valuations are the new equilibrium. Every endowment and foundation will find itself wasting away instead of maintaining itself for future generations. And the plight of public pension funds is probably not even worth calculating, as we would simply find ourselves in a world where retirement as we now know it is fundamentally unaffordable, however we pretend we may have funded it so far.

One person who read this part of Inker’s paper and did do the calculation is none other than Bridgewater’s Ray Dalio. His conclusion is terrifying.

The reason why public and all other pension funds are the least discussed aspect of modern finance, is that while Bernanke has done his best to plug the hole in the asset side of the ledger resulting from poor asset returns, it is nowhere near sufficient since the liabilities have been compounding throughout the financial crisis since the two grow independently. Which means that anyone who does the analysis sees a very disturbing picture.

Indeed, while the asset side can and has suffered massively as a result of the great financial crisis, the liabilities are compounding on a base that has grown steadily. As Dalio notes, each year a growing percentage of assets are paid out in the form of distributions, leaving less assets to compound at a given return.

This dynamic is shown in the chart below, which shows the change of pension fund assets over the past decade relative to the present value of liabilities discounted at a rate that has been roughly constant at around 7.5%, and rising to reflect the growth in future liabilities. Obviously, if the assets equal the value of liabilities, then the fund would be able to make its payments at a 7.5% asset return. The problem is that even with the Bernanke rally of the past five years, public pension assets are now at about the same level as in 2007 while commitments have grown. Sadly, this means that recent good returns have barely closed the gap. Needless to say, the gap grows much faster in the coming years if the future returns are less than the assumed 7.5%, something that was the basis for the GMO observations.

A key component of the pension fund calculation is the increasing portion of annual distributions less contributions as a percentage of assets. Since each year public pensions distribute about 5% of the future value of their liabilities, and these liabilities have been growing at a compounded rate of about 4%, the net cash out as a percentage of flat and/or declining assets has been progressively rising. Today, annual cash outflows amount to roughly 9% of total assets which contributions are a paltry 5% of assets, which has led to a 4% cash flow drag. This increase in net cash outflows from 1.5% of assets in 2000 to 4% most recently is shown in the second chart below.  The take home from this chart is that funds need to return 4% a year
in the near term just to avoid losing assets, and thanks to compounding,
over time the rising amount of NPVed liabilities raises the required
return even further.

 

That’s where we stand now, but where are we headed? Assuming a 4% return and a steady growth of the liabilities means the financial gap will grow at an accelerating pace, making it more and more difficult to close the funding gap. It also means that with every passing year the required rate of return to plug the gap will grow even faster. Today, for example, the required return is 8.9%. In the future, once again assuming a 4% return on assets, means the required rate of return grows to 13% in ten years and 16% in fifteen years. Naturally, if a fund has a larger funding gap, the required return is even larger and the funding gap blows out much faster. As Bridgewater summarizes this feedback mechanism, “the dynamics of compounding cause this case machine to operate like the event horizon of a black hole: the pressures rise exponentially until it is virtually impossible to recovery.“

But the scariest chart of all is the following simulation of the underfunding process over time and total fund assets held, assuming a 4% return on assets, which shows the accelerating decline in the value of asset holdings due to an increasingly negative cash flow yield, causing virtually all pension funds to run out of money. In the case of a 4% return, a pension fund that is assumed to be fully-funded today will run out of cash in 30 years; pensions that are 80% funded run out of money in 25 year, and so on. A fund with just a 20% funding ratio will have no money left in just over 5 years!

Curious what the current distribution of funds that match these criteria is? The chart below shows the percentage of current pension funds at each funding bracket. Nearly 50% of all fund are funded 80% or less.

The charts and simplistic calculations above show not only why virtually all pension funds are set for extinction in the not too distant future, but why Bernanke is stuck artificially reflating asset values if only to preserve the myth of the public pension funded welfare state. Because the biggest threat to Keynesians and monetarists everywhere is the social instability that would result once the myth of the Bismarckian welfare state unwinds.

But wait, there’s more.

Bridgewater next proceeds
to calculate what the economic impact is in a world in which a generous, consistent 4% return on assets is assumed. As Dalio’s fund notes, in such a case the path to public pension sustainability will require some combination of benefit cuts or increased contributions to net out the liabilities and assets and close the funding gap. “Any way you cut it this will reduce someone’s income, with a likely impact on their spending. Higher taxes will reduce the disposable income of workers, although the impact will be different depending on whose taxes are raised; less government spending on other things will hurt growth directly; lower benefits will reduce the disposable income of retirees who have a high propensity to spend; borrowing to finance the deficit will hurt growth less directly and over the longer term.”

Bridgewater concludes that if public pensions don’t delay and start plugging the hole now, they will need to contribute just under $200 billion per year over the next 30 years, amounting to 1.2% of GDP and 8.8% of state and local tax revenues. If funds wait a decade, the impact per year explodes to $325 billion over 30 years and will “cost” 1.2% of GDP and 12.2% of tax revenues. But the most likely, and worst case scenario, is if pension funds do nothing at all, “let the machine run its course”, then the economic damage is unquantifiable as low asset returns inevitably cause lower income through benefits after assets are fully depleted.

And that in a nutshell is why the pension system, erected on an asset-liability mismatch gone horribly wrong, is doomed: a fact well known by the Fed chairman, and whose only countermeasure is to keep doing more of what has been done to date: inflating asset value while monetizing massive amounts of debt in the hope that the higher asset return will offset the funding gap. In principle this is great assuming the Fed can keep doing QE for the foreseeable future. However here, as everywhere else, we run into the fundamental problem with QE – the Fed is currently monetizing 0.3% of all private sector 10 Year equivalents per week, or about 15% per year. Since the Fed already holds about a third of the total, it has one, at best two years of QE left, before it is in control of an unprecedented two thirds of the entire bond market, and before the complete lack of market liquidity from central-planning gone wild, grinds Bernanke’s experiment to a halt.

It is at that point that the entire flawed economic system of the past century will finally be on its last legs, as one of the core pillars of the biggest lie of all, the welfare state, resting on the flawed assumption that asset grow at a faster compounded rate than liabilities, will have no choice but to look into the abyss.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-JWxoXTsAdE/story01.htm Tyler Durden

 

Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system. Now, I realize that everyone knows the Fed is “printing money.” However, when you look at the list of bailouts/ money pumps it’s absolutely staggering how much money the Fed has thrown around.

 

Here’s a recap of some of the larger Fed moves during the Crisis:

 

• Cutting interest rates from 5.25-0.25% (Sept ’07-today).
• The Bear Stearns deal/ taking on $30 billion in junk mortgages (Mar ’08).
• Opening various lending windows to investment banks (Mar ’08).
• Hank Paulson spends $400 billion on Fannie/ Freddie (Sept ’08).
• The Fed takes over insurance company AIG for $85 billion (Sept ’08).
• The Fed doles out $25 billion for the automakers (Sept ’08)
• The Fed kicks off the $700 billion TARP program (Oct ’08)
• The Fed buys commercial paper from non-financial firms (Oct ’08)
• The Fed offers $540 billion to backstop money market funds (Oct ’08)
• The Fed agrees to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
• $40 billion more to AIG (Nov ’08)
• The Fed backstops $140 billion of Bank of America’s liabilities (Jan ’09)
• Obama’s $787 Billion Stimulus (Jan ’09)
• QE 1 buys $1.25 trillion in Treasuries and mortgage debt (March ’09)
• QE lite buys $200-300 billion of Treasuries and mortgage debt (Aug ’10)
• QE 2 buys $600 billion in Treasuries (Nov ’10)
• Operation Twist reshuffles $400 billion of the Fed’s portfolio (Oct ’11)
• QE 3 buys $40 billion of Mortgage Backed Securities monthly (Sept ‘12)
• QE 4 buys $45 billion worth of Treasuries monthly (Dec ’12)

 

The Fed is not the only one. Collectively, the world’s Central Banks have pumped over $10 trillion into the financial system since 2007. This money printing has resulted in a massive expansion of Central Bank balance sheets, spread inflation into the system, and done nothing to address the key solvency issues that lead up to the great crisis.

 

This competitive debasement has lead to increased tension between the world’s Central Banks. You will never hear their stated outright for the simple reason that the single most important responsibility of the Central Banks is to maintain confidence in the system.

 

However, underneath the veneer of goodwill and the occasional necessary coordinated intervention, tensions are rising between Central Banks. When the US debases the US Dollar it pushes the Euro higher. This hurts German exports which in turn angers the Bundesbank.

 

The Bundesbank fired a warning shot at the Fed last autumn when it announced it wanted to have its Gold reserves at the Fed audited. To be clear here: no one of major financial import has ever questioned the Fed’s trustworthiness before. However, at the time of this announcement Germany stated it had no intentions of actually moving its reserves.

 

Today, months later, Germany has not only audited and checked its Gold reserves at the Fed but it is now moving them. In plain terms, Germany has told the world that A) it does not trust the Fed and B) it is through playing around.

 

This situation will likely be getting worse going forward. The fact that Germany will be removing all of its Gold reserves from France certainly doesn’t bode well for future German French relations if push ever comes to shove (it’s not as though Europe has a history of getting along well).

 

Look for increased tension to grow between the world’s Central Banks in the coming months and years. This tension will likely result in:

 

1)   Economic warfare (see the recent situation in Iran)

2)   Political infighting

3)   Key players being sacrificed

 

Given that the financial system and economic “recovery” have been built on a house of cards, these political developments will have major impacts on the financial markets.

 

Outside of internal dissent, the power players in the global economy (the US, China, Japan, and Germany) are showing increasing signs of tension both internal (China and the US) as well as external (China vs. Japan, Germany vs. the US, the US vs. China).

 

These tensions will lead to economic warfare and very likely physical warfare in the coming years.

 

If you have not taken steps to prepare for a market collapse, we have a FREE Special Report that outlines how to prepare your portfolio. To pick up a copy, swing by:

http://phoenixcapitalmarketing.com/special-reports.html

 

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EbEVywXxi2g/story01.htm Phoenix Capital Research

 

Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system. Now, I realize that everyone knows the Fed is “printing money.” However, when you look at the list of bailouts/ money pumps it’s absolutely staggering how much money the Fed has thrown around.

 

Here’s a recap of some of the larger Fed moves during the Crisis:

 

• Cutting interest rates from 5.25-0.25% (Sept ’07-today).
• The Bear Stearns deal/ taking on $30 billion in junk mortgages (Mar ’08).
• Opening various lending windows to investment banks (Mar ’08).
• Hank Paulson spends $400 billion on Fannie/ Freddie (Sept ’08).
• The Fed takes over insurance company AIG for $85 billion (Sept ’08).
• The Fed doles out $25 billion for the automakers (Sept ’08)
• The Fed kicks off the $700 billion TARP program (Oct ’08)
• The Fed buys commercial paper from non-financial firms (Oct ’08)
• The Fed offers $540 billion to backstop money market funds (Oct ’08)
• The Fed agrees to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
• $40 billion more to AIG (Nov ’08)
• The Fed backstops $140 billion of Bank of America’s liabilities (Jan ’09)
• Obama’s $787 Billion Stimulus (Jan ’09)
• QE 1 buys $1.25 trillion in Treasuries and mortgage debt (March ’09)
• QE lite buys $200-300 billion of Treasuries and mortgage debt (Aug ’10)
• QE 2 buys $600 billion in Treasuries (Nov ’10)
• Operation Twist reshuffles $400 billion of the Fed’s portfolio (Oct ’11)
• QE 3 buys $40 billion of Mortgage Backed Securities monthly (Sept ‘12)
• QE 4 buys $45 billion worth of Treasuries monthly (Dec ’12)

 

The Fed is not the only one. Collectively, the world’s Central Banks have pumped over $10 trillion into the financial system since 2007. This money printing has resulted in a massive expansion of Central Bank balance sheets, spread inflation into the system, and done nothing to address the key solvency issues that lead up to the great crisis.

 

This competitive debasement has lead to increased tension between the world’s Central Banks. You will never hear their stated outright for the simple reason that the single most important responsibility of the Central Banks is to maintain confidence in the system.

 

However, underneath the veneer of goodwill and the occasional necessary coordinated intervention, tensions are rising between Central Banks. When the US debases the US Dollar it pushes the Euro higher. This hurts German exports which in turn angers the Bundesbank.

 

The Bundesbank fired a warning shot at the Fed last autumn when it announced it wanted to have its Gold reserves at the Fed audited. To be clear here: no one of major financial import has ever questioned the Fed’s trustworthiness before. However, at the time of this announcement Germany stated it had no intentions of actually moving its reserves.

 

Today, months later, Germany has not only audited and checked its Gold reserves at the Fed but it is now moving them. In plain terms, Germany has told the world that A) it does not trust the Fed and B) it is through playing around.

 

This situation will likely be getting worse going forward. The fact that Germany will be removing all of its Gold reserves from France certainly doesn’t bode well for future German French relations if push ever comes to shove (it’s not as though Europe has a history of getting along well).

 

Look for increased tension to grow between the world’s Central Banks in the coming months and years. This tension will likely result in:

 

1)   Economic warfare (see the recent situation in Iran)

2)   Political infighting

3)   Key players being sacrificed

 

Given that the financial system and economic “recovery” have been built on a house of cards, these political developments will have major impacts on the financial markets.

 

Outside of internal dissent, the power players in the global economy (the US, China, Japan, and Germany) are showing increasing signs of tension both internal (China and the US) as well as external (China vs. Japan, Germany vs. the US, the US vs. China).

 

These tensions will lead to economic warfare and very likely physical warfare in the coming years.

 

If you have not taken steps to prepare for a market collapse, we have a FREE Special Report that outlines how to prepare your portfolio. To pick up a copy, swing by:

http://phoenixcapitalmarketing.com/special-reports.html

 

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EbEVywXxi2g/story01.htm Phoenix Capital Research

Presented with no comment…

 

 

Source: IBD via The Burning Platform blog

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6J2OPed-3IU/story01.htm Tyler Durden

Presented with no comment…

 

 

Source: IBD via The Burning Platform blog

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6J2OPed-3IU/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

This pathology is not the result of individual psychology or character; it is the result of centralized, concentrated power itself.

It's little wonder so many sociopaths end up in positions of power: power attracts the ruthless unencumbered by empathy. No wonder the phrase pathology of power resonates: The Federal Reserve and the Pathology of Power (November 18, 2010).

There is an ontological darkness in centralized power, and it flows from the disconnect between authority, responsibility and consequence. A leader with vast centralized powers–a president, an emperor, a dictator–has the authority to send young citizens into combat in distant lands, but he does not carry an equal responsibility to ensure their lives are not lost in the vain glories of Empire. The consequences of his decisions do not fall on him; he is far from the combat and the loosed dogs of war. His concern is the domestic political squabbles of the Elites who support his centralized power.

All centralized power carries the same pathology: those with the authority are never exposed to the consequences of their authority, nor do they have any responsibility for the consequences. The president who launches an unwinnable war that chews up the nation's youth and treasure leaves office to fund-raise for his self-glorification, i.e. a presidential library.

The CEO whose strategies fail to revive the corporation and indeed send it to the brink of insolvency leaves with a "golden parachute" worth tens of millions of dollars.

This pathology is not the result of individual psychology or character; it is the result of centralized, concentrated power itself. Giving any individual or small group this kind of power–over war, over the nation's money and credit, over its healthcare–distorts the field of perception; even people who were once non-pathological become pathological once power takes hold of their being. Soon they believe they have god-like powers to "fix things;" indeed, they feel a responsibility to wield their god-like powers "to do whatever it takes."

But since there is no personal consequence of their rash policies, nor any responsibility for the devastation their powers unleash, the power becomes pathological.

When the multiple bubbles burst and the financial house of cards comes crumbling down, Ben Bernanke will be comfortably secure, far from the consequences of his policies. It is worth recalling, on today of all days, that only two U.S. presidents in the past 50 years had any experience of combat: John F. Kennedy and George H.W. Bush. Both men acted with care and restraint in matters of war and both sought a peaceful resolution to the Cold War. Was this merely a coincidence, or did experiencing combat inform their humility and sense of responsibility for the consequences of their choices?

The more power devolves to those who actually face the consequences of their actions and authority, the less pathological it becomes. This is the power structure of liberty: each person carries the responsibility and consequence of their actions, choices and words.

"But we are told that we need not fear; because those in power, being our representatives, will not abuse the powers we put in their hands. I am not well versed in history, but I will submit to your recollection, whether liberty has been destroyed most often by the licentiousness of the people, or by the tyranny of rulers.

 

I imagine, sir, you will find the balance on the side of tyranny. Happy will you be if you miss the fate of those nations, who, omitting to resist their oppressors, or negligently suffering their liberty to be wrested from them, have groaned under intolerable despotism!

 

Most of the human race are now in this deplorable condition; and those nations who have gone in search of grandeur, power, and splendor, have also fallen a sacrifice, and been the victims of their own folly. While they acquired those visionary blessings, they lost their freedom." (Patrick Henry)

 

"Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few. In war, too, the discretionary power of the Executive is extended; its influence in dealing out offices, honors, and emoluments is multiplied; and all the means of seducing the minds, are added to those of subduing the force, of the people…. [There is also an] inequality of fortunes, and the opportunities of fraud, growing out of a state of war, and … degeneracy of manners and of morals…. No nation could preserve its freedom in the midst of continual warfare." (James Madison)

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