July 31…Debt Ceiling Deal – July 31st of this year, Senate Democrats carried President Trump’s budget deal eliminating the debt ceiling through July 31st of 2021. This after a majority of Trump’s House Republicans voted against the budget deal but House Democrats overwhelmingly passed it. And thus the debt ceiling was no more. Since July 31st, the Treasury has issued over $1 trillion in net new debt but that is just the start.
July 31…Federal Reserve begins series of interest rate cuts – On July 31st, the Federal Reserve begins cutting rates and has cut rates from 2.4% to 1.55% or a 35% reduction on the cost of overnight intra-bank lending, the foundation of credit.
August 21.. Federal Reserve restarts QE – Since August, the Fed ceased quantitative tightening (QT) and restarted quantitative easing (QE). The Federal Reserve balance sheet has expanded by over $300 billion in short order, with an $180 billion increase in Treasuries held.
Excess Reserves Not Restarted – With all the new QE, hardly any of it has been added to bank excess reserves…just a paltry $16 billion out of the $306 billion in new currency digitally conjured.
Direct Monetization – That is $290 billion in new dollars directly in banks hands…and banks do what banks do, which is leverage those dollars by 5x’s to 10x’s (or more), resulting in…
Asset Explosion – Using the Wilshire 5000 as a proxy (as it represents all publicly traded US equities), US equities have risen $2.42 trillion over the 4 month period as all the new digitally conjured cash has been passed to large banks for the “assets” they held…or about a 8.5x the quantity of new “not QE” and “not excess reserves”.
What does that look like?
In dollar terms over the past four months, US debt up over $1 trillion, Federal Reserve held assets up over $300 billion, Fed held Treasuries up $180 billion, Excess Reserves up only $16 billion, direct monetization of $270 billion…resulting in an increase of $2.4 trillion in the Wilshire 5000 market weighted capitalization (chart below).
In percentage terms in just four months, total US debt is up 4.8%, Federal Reserve held assets up over 8%, Fed held Treasuries up 8.6%, excess reserves up just 1.2%, direct monetization up over 18%, and equities up over 8% (chart below).
Not shown is in addition to all this, the Federal Funds rate was also reduced by 35%.
Summary
Trump and the Democrats agreed to spend without limits, Trump and the Federal Reserve agreed to QE4 and mainlining the digitally created cash into the economy (errr…financial assets) via direct monetization. The result has been to massively enrich the few who own the vast majority of all assets which are surging upwards and pass all the debt along to the working stiffs.
Trump is truly an evil genius…Dem’s are truly self serving dolts…and the Fed is truly the best central bank money can buy. Or the Fed is the evil genius, Dem’s still self serving dolts, and Trump is the best president money can buy. Either way, Trump, the Democrats, Republicans, and the ultra-wealthy are laughing all the way to the bank. And the vast majority of Americans have been sold into debt slavery.
Post Script – Context
And for those who stuck around, I’ll try and put the above in a wider context. The chart below details why this is the greatest asset bubble in modern history. The chart shows the market value of all household assets (stocks, bonds, real estate, etc.) as a percentage of disposable personal income (simply put, the value of all assets held by US citizens versus their total national income that may be invested or saved after all taxes are paid). As the chart below details, as rates go up, asset valuations go down…and vice versa. And never have asset valuations been so far beyond underlying incomes to support those valuations as now.
Since 1981, household assets as a percentage of disposable personal income versus federal funds rate with primary sources of debt detailed below. The breakdown of mortgage debt and surge of federal debt since 2008 are not so hard to see. Plus the Federal Reserve balance sheet is included as those assets will only be increasing from here on out.
Debt creation by periods, 1960 through 2000, 2000 through 2008, and 2008 through 2019. Relatively stable corporate debt creation, collapsing mortgage debt, and surging federal debt. And collapsing mortgage debt and surging federal debt is only just getting started, because…
And finally, why mortgage debt won’t be rising anytime soon and all debt creation will be up to the federal government. The chart below shows the annual change in young (working age) versus elderly…a surging population of elderly versus huge deceleration of growth among the working age population.
Just a reminder, elderly earn and spend half as much as working age persons and “destroy money” via deleveraging while working age persons “create money” via undertaking new loans (debt). The current and future situation is one of collapsing credit and collapsing money creation as the growth of deflationary elderly overwhelms inflationary working age growth…and into that entirely predictable situation, steps the Federal government, Federal Reserve, and ludicrous politicians to serve the interests of the few at the expense of the many.
It isn’t that Mr. Bloomberg doesn’t have a solid record of accomplishments as a private citizen and elected official. He built one of the world’s most successful financial-media companies and is now worth an estimated $54 billion. According to the Chronicle of Philanthropy, last year he donated $767 million to various charities, second only to Amazon’s Jeff Bezos. And as mayor of New York from 2002 to 2013, he oversaw an expansion of school choice for low-income minorities and sharp reductions in violent crime and incarceration.
Mr. Bloomberg’s problem is that these past accomplishments in business and politics are liabilities among today’s Democrats. To win the support of teachers unions, Sens. Bernie Sanders and Elizabeth Warren have attacked the charter-school movement that Mayor Bloomberg championed. And the social-justice activists now ascendant in the party are far more interested in racial parity among people arrested than in reducing crime rates and keeping the streets safe. Progressives view the Mike Bloombergs of the world primarily as rhetorical punching bags who should have their wealth confiscated by politicians and then sprinkled among others in society who are considered more deserving.
Mr. Bloomberg is very much aligned with today’s Democrats on any number of other issues. He can check off all the right boxes on climate change, tax hikes and gun control, for example. But none of those views distinguish him in the current field or justify his decision to join the race.
Pandering to the Radicals
Riley is correct that a majority of Democrats don’t like Bloomberg.
So what?
Forget the Base
Why appeal to the radicals? Where are they going? I ask the same questions of Republicans and Democrats alike.
If given a choice between Biden or Bloomberg vs Trump, Progressives will vote for Biden or Bloomberg.
Q: Why?
A: Under no circumstances will they vote for Trump.
So how is Bloomberg a liability?
What About Independents?
Independents might easily vote for Biden or Bloomberg. In contrast, they might not easily vote for Kamala Harris or Elizabeth Warren.
In fact, Harris and Warren, darlings of the Progressives, might be the only people that Trump could beat.
These kinds of honest assessments get me in hot water.
I discussed “Yes We Can“, an excellent campaign slogan, and concluded “Destiny: Barack Obama will be the next president of the United States of America.“
It was a political opinion, and a correct one. I didn’t even vote for Obama (I did not vote Republican either), but I was accused of being an Obama lover for years.
Hot water
I am again in hot water today. I responded to a Tweet about Kamala Harris. I called her unqualified.
Why? Because, and I explained, I do not believe she can be elected. This of course brought out all sorts of Tweets about me being a racist male, especially from a self-proclaimed black feminist.
Both Extremes
This post, no doubt will bring attacks from Republicans who believe Trump to be invincible and radical progressives on the other end.
Simple Question
Q: Why did Trump Win?
A: Democrats nominated, Hillary Clinton, the most radical lightning rod at the time. Then Clinton ran what is likely the worst campaign in history.
Let’s get to the heart of the matter.
Republicans Cannot Re-Elect Trump, Democrats Can!
Trump has upset so many people, even in his own party, that I believe the only way he can win is if Democrats nominated another lightning rod.
At the top of the list are Elizabeth Warren and Kamala Harris.
The US simply is not ready for an extreme radical leftist person like Warren.
Independents would not vote for her. Independents did vote for Obama, en masse.
Merely making such statements gets me in hot water.
But It’s not my desire to elect another white male boomer fogey. I could care less. I do care about ideas.
Candidate Appeal
I am a staunch anti-war, fiscal conservative, Libertarian, who does not give a damn about race, religion, sex, or age. I believe in equal rights. I also believe in the right to choose. If two women or two men want to get married, I believe it’s none of my business.
If either party nominated such a person, young or old, black or white or purple, I would vote for that person.
I believe many independents feel the same way.
None of these candidates appeal to me. Among other things, Trump fails the fiscal conservative test.
Electoral Crapshoot
Q: Once again, where are the radicals going?
A: Nowhere, in both parties. The core will vote core.
To win the election then, a candidate must appeal to the middle. Otherwise, it’s an electoral crapshoot as Democrats found out with Hillary.
So, if Democrats want to help re-elect Trump, they should nominate the most radical person they can find. One of them just backed out. Elizabeth Warren is still in the batter’s box.
This does not mean I back Biden. I don’t. Nor do I back Bloomberg. Nor do I back men.
I back ideas, not people. Age, race, or sex, does not matter.
Biden And Pelosi Snap On The Same Day, Anti-Impeachment Witness Threatened; What’s Going On With Democrats?
As public support for impeachment continues to fade, Democrats appear to be coming unglued – with rabid outbursts in public, and privately threatening anyone who might derail their ill-advised gambit.
To wit, George Washington University Law School professor Jonathan Turley says he’s been “inundated with threatening messages” following his Wednesday testimony in front of the House Judiciary Committee, where he argued that Democrats have launched a “slipshod impeachment” based on flimsy evidence against President Trump.
“Before I finished my testimony, my home and office were inundated with threatening messages and demands that I be fired from George Washington University for arguing that, while a case for impeachment can be made, it has not been made on this record,” Turley wrote in a Thursday Op-Ed.
Turley was the lone expert at Wednesday’s hearing to warn Democrats that pushing forward with impeachment would be ill-advised because they can’t prove that Trump inappropriately pressured Ukrainian President Volodomyr Zelensky to investigate 2020 Democratic candidate Joe Biden and his son Hunter. Moreover, Zelensky has stated multiple times that there was no pressure, no quid pro quo, and that he didn’t know that nearly $400 million in US military aid had been paused until after his discussions with Trump.
On edge
On the same day that Joe Biden snapped at an Iowa voter who pressed him on his son’s sweetheart board seat in Ukraine – calling the man a “damn liar” and challenging him to a push-up contest and an IQ test (his go-to, apparently) – House Speaker Nancy Pelosi bit a reporter’s head off for asking why she hates Trump.
Q: “Do you hate the president?”@SpeakerPelosi: “I don’t hate anybody…As a Catholic, I resent your using the word hate in a sentence that addresses me. I don’t hate anyone…So, don’t mess with me when it comes to words like that.”
Meanwhile, a growing number of Democrats have backed away from impeachment.
🚨BREAKING🚨
Democrat Jeff Van Drew says he plans to vote against all the articles of impeachment “unless there’s something that I haven’t seen, haven’t heard before.” pic.twitter.com/swsGl9k7Bz
Perhaps Democrats are losing it because they’re effectively trapped in their own catch-22, thanks to Rep. Adam Schiff – who hired a former colleague of alleged whistleblower Eric Ciaramella the day after the Trump-Ukraine call.
If House Democrats move forward with impeachment, it will mean a trial in the GOP-controlled Senate, exposing their leading 2020 candidate and his crackhead son to potentially disastrous testimony next year. We’re guessing the Bidens, like several Trump administration officials, will refuse to comply with Congressional subpoenas and instead ask the courts to decide. Not a good look for two guys who supposedly did nothing wrong.
If Democrats back down from impeachment and instead censure Trump – avoiding a Senate trial which would ‘exonerate’ Trump, they will look weak for backing down, and exonerate Trump just the same.
Nancy Pelosi warned her party that this is exactly what would happen if they pushed forward with impeachment. Now, much like Hunter Biden, they’ve gone in unprotected and can’t pull out.
Today’s strong jobs numbers are going to make it even harder for the 31 House Dems in Trump-leaning districts to vote for his impeachment. If Pelosi was wigging out yesterday, imagine her angst today.
Japan faces a wall of debt that can only be addressed by printing more money and debasing its currency. This means they will be paying off their debt with worthless yen where possible and in many cases defaulting on the promises they have made. Japancurrently has a debt/GDP ratio of about 250% which is the highest in the industrialized world. With the government financing almost 40% of its annual budget through debt it becomes easy to draw comparisons between Greece and Japan. While adding to the markets move higher across the globe the latest move by Prime Minister Shinzo Abe should do little to boost confidence in the small island nation.
Entering the third quarter of 2019 Reuters reported their monthly Tankan survey showed that Japanese manufacturers had again turned pessimistic about business prospects. Confidence in the service sector also plunged. Amid the escalating Sino-U.S. trade war, and problems in China the prospects for a global downturn remain large.
Japan. the world’s third-largest economy is highly dependent on exports.The U.S.- China trade war in conjunction with Japan’s export curbs to South Korea and the rising yen has put a lid on sales. This has stoked the fears of recession and raised questions over how much longer domestic demand can remain resilient enough to offset rising external pressures. Private consumption constitutes about 60% of the Japanese economy.Adding to the stress is the fact Japan’s economy is now under pressure from a hike in the consumption tax to 10 percent from 8 percent. This increase took place on Oct 1st. The Bank of Japan has estimated this will generate a net burden of 2.2 trillion yen on households in fiscal 2020.
As part of its economic package to spur consumer spending, the government has created a program to give rebates for cashless payments at small shops from October through June next year. For this, the government will set aside about 280 billion yen. To stimulate personal spending the government is also thinking about giving 5,000 yen to consumers they can spend at stores across Japan if they load 20,000 yen in their account for purchases to be made through their smartphone. This would start in September next year say people familiar with the matter. The stimulus package also contains public sector spending of 13.2 trillion yen which would include low-interest loans to companies involved in building infrastructure projects. Nearly half of the outlay will be used for reconstruction from recent natural disasters and strengthening infrastructure to reduce future damage.
Abe’s package broadly aims to improve labor conditions, support small companies and promote advanced technology development. This means the government will increase job training services to help people in their 30s and 40s as well as provide subsidies to small and medium-sized companies to spur their capital spending. It will also supply more computers to public schools and support companies in developing wireless technologies that will follow 5G networks. The package also contains steps to help expand exports of farm products to take advantage of a bilateral trade agreement between Tokyo and Washington that is set to take effect next year.
Still, the key issue here is that after decades of slow growth Japan again finds the need to stimulate its economy. This should be considered more proof that its decades long easing has miserably failed to produce the promised results. Several earlier posts focusing on how trends in Japan, such as the BOJ buying stocks, how Japan’s tight ties with China, and Japan’s reliance on exporting to America help explain how Japan has held its economy together. Years ago before the “Bernanke has all the answers” era, many of us criticized Japan for failing to own its problems. Rather than face up to the mess they had created and do the right thing by letting its zombie banks and industries fail so the economy could move forward.
Instead, the Government of Japan ran huge deficits and ran up massive debt. While they claim otherwise, in many ways Bernanke and the Fed have put America and the world on a path that mirrors the same unsuccessful path taken by Japan.Since 2008 central bankers have chosen to flood the world with money bailing out the very people that caused many of our problems.
The Japanification of the world’s economy, however, may play out far worse for the global financial system than it did for Japan. Over the years Japan has been able to sidestep default due to the good fortune of sporting a huge trade surplus with America and forming tight economic ties with China during its years of very rapid growth. Unfortunately, for Japan, the benefit of both those forces may be waning.
Not all economists see more deficit spending as the answer to Japan’s problems and argue that more spending will only hurt efforts such as the recent consumption tax hike to improve Japan’s overall fiscal health. Japan holds the title of havingthe industrial world’s heaviest public debt burden. Its debt is more than twice the size of its $5 trillion economy.
The world’s negative-yielding debt hit a record $17 trillion at the start of September, mostly as a result of most Japanese debt trading in negative territory as the Bank Of Japan continues to monetize the country’s debt.Since that time the amount of negative-yielding debt has fallen. This folds back into what might be viewed as the BOJ’s stealth tapering. Kuroda is now monetizing just a tiny fraction of the bonds the BOJ was mandated with buying because it has almost run out of monetizable debt.
What we see occurring in Japan stems from a far greater problem than simply slow growth. At some point, reality will set in and the yen will suffer as a result of these policies. The collapse of the yen would debunk the myth that major currencies in our modern world are immune to failure and release a slew of new problems across the world. While this has been expected for some time it most likely will not be the catalyst for global financial collapse since the yen constitutes around only 4% of the world’s reserve currency, however, it would gravely wound fiat currencies and alter how they are viewed.
A Sinking Deutsche Bank Faces An Existential Question: How Much Can It Spend On Bonuses?
After he backed away from a merger with Commerzbank earlier this year, Deutsche Bank CEO Christian Sewing was pressed by the bank’s board and its biggest investors to unveil a sweeping restructuring program to save Germany’s biggest and most unwieldy financial institution from system-threatening insolvency.
Christian Sewing
Businesses – including pieces of the bank’s equity-trading apparatus – were either shuttered, sold off or moved to a revived “bad bank” unit. Sewing also embarked on what has been, by some counts, the biggest mass layoffs to rock Wall Street since Lehman’s bankruptcy. So far this year, the bank has fired 5,000 employees, mostly from its investment banking businesses, with another 13,000 to go.
Amid all of the bloodletting and legal chaos (it wouldn’t be Deutsche Bank without a raft of new civil and criminal actions by regulators across the globe, though the bank recently settled with Frankfurt prosecutors for a small fine, according to Bloomberg), Sewing must now confront a serious problem: With everybody, including senior employees who have been fleeing to rivals en masse, running scared, how will DB retain top talent, especially with a slimmed-down bonus pool, the culmination of several years’ of cuts.
A team of BBG reporters address this question in a Q&A that examines how Sewing can make the best use of his under-€2 billion bonus pool.
* * *
How can Deutsche Bank balance departures with hires?
More than a dozen high-profile executives from the investment banking units that Sewing wants to keep have joined rivals since May, when the CEO dropped the first big hint that he was going to take an ax to the business. Many top performers are only staying because compensation is still comparatively good, even though morale has slumped after years of piecemeal cuts to the business, according to people familiar with the matter. The bank points to new hires and says that attrition in the investment bank is actually down compared with the prior two years. It has hired almost 30 managing directors and directors in corporate finance since the beginning of the year, investment bank head Mark Fedorcik said by phone. “We pay for performance and our clients and team understand and appreciate our strategy and areas of strength,” he said.
How much money can Sewing spend?
Deutsche Bank spent 1.9 billion euros ($2.1 billion) last year on bonuses. The bank has said the size of the pool this year will reflect the shrinking workforce, which is down 5% so far, and the fact that it has shuttered equities trading. European investment bankers more generally are facing smaller bonuses this year. The CEO maintains that the bank still has the means to compensate top talent even as it undertakes one of the most radical restructurings in its history. “We will compensate our people according to their operating performance,” he said in July after announcing 18,000 job cuts and a retreat from equities trading. The bank will pay “in a competitive way.”
What businesses will Sewing focus on?
Fedorcik said his corporate finance unit seeks to grow advisory and debt origination and he pointed to several recent hires including Paolo Cicchine while promising more next year. He’s also vowed to keep a sizable equity capital markets business despite shuttering equities trading.
However, that unit — along with M&A advisory — has been particularly hard hit by departures since May.
As for securities trading, equities is essentially gone but the bank wants to remain strong in fixed-income trading, a business overseen by Ram Nayak. The lender has highlighted credit and foreign exchange and the unit has recently added a few people.
How has the investment bank performed?
While the CEO has vowed to at least stabilize the investment bank, revenue was down 11% in the first nine months of the year and pretax profit plummeted 47%. The units where most of the departed executives used to work are no exceptions. Income from helping companies raise money through share sales is down 40% over the period. The business of advising companies on deals did better, rising 3%. The malaise is being reflected in a comparison with peers. Deutsche Bank slipped to 15th rank in advising on mergers and acquisitions this year, from 11th in 2018 and eighth the year before, according to data compiled by Bloomberg. It has fallen to 12th place in global equity offerings, from eighth. “When I look at our revenues and where we’re heading from a 2019 perspective, I’m very confident versus where we were in ’18,” said Fedorcik.
What other options does Sewing have?
The bank in the past increased the spread between bonus payments for top performers and the rest as a way to save money while making sure the most important people stay. To replace expensive executives who leave, Deutsche Bank brought in more junior hires. There’s also an internal debate about how many departures can be filled through reassigning bankers from other parts of the business, the people familiar said, asking not to be identified discussing internal deliberations.
At the end of 1984, Slavery is Freedom, two plus two equals five, and Winston Smith loves Big Brother. The Party has destroyed Smith’s mind, he embraces whatever narratives it promulgates. The fictive Party has solved the conundrum that bedevils any individual or organization seeking to exercise power: coercion can exact physical compliance and the desired verbalizations, but how do you compel the subjugated to think and believe as you want them to think and believe?
Our Party, the confederation of powerful people who promulgate the narratives that always point the same direction—more government and power for the powerful, less freedom for the subjugated—has yet to reach the mind control of Orwell’s Party, but not for want of desire or effort. We know the Party’s narratives: globalism, climate change, surveillance, incarceration, political correctness, open borders, free migration, fiat debt, central economic planning, socialized education and medical care, and wars on terrorism, drugs, poverty, any regime that refuses to toe the Party line, hydrocarbons, private firearms, individual rights, privacy, precious metals and cash, and socialized education and medical care. We know the Party’s institutions: governments, central banks and their central banks, intelligence agencies, military forces, police, permanent bureaucracies, multinational corporations, multilateral economic, political, and financial institutions, foundations, universities, nonprofits, and NGOs. We know the Party’s overlapping mouthpieces: the mainstream media, think tanks, government and intelligence agency propaganda organs, crony executives and their companies, Hollywood, and academia. And we know the figureheads who stock governments and their allied institutions, and the Party puppeteers who pull their strings.
We also know the Party is not omnipotent. Just as Orwell’s Party went to all that trouble to ensure Winston Smith thought the right thoughts, our Party wants our belief, acceptance, and consent. Control is far easier to exercise on a population that accepts being controlled and gives carte blanche to its controllers. That Donald Trump, who occasionally tells inconvenient truths but has done precious little to actually change the way the government operates, elicits paroxysms of spastic rage shows just how important it is to the Party that we all think the right thoughts.
There are two problems with the Party’s narrative management: the people who don’t believe it, and the people who do. In the Party’s perfect world, it would have a monopoly on information and interpretation. However, it’s battling a trend that began with the invention of writing: the ever-increasing availability and dispersion of information. The latest untoward development is the Internet, which allows virtually anyone to disclose a secret, reveal a lie, express an opinion, satirize, post a photograph or video, or otherwise challenge Party narratives. The many that wither under Internet scrutiny reveal the Party for what it is: a serial, unrepentant liar.
Looking at threats to or from the Internet—intelligence agency surveillance, state censorship, and social media companies’ exclusion and elimination of disfavored political views—there is cause for concern. The threats are certainly threatening, but looking at what the Internet has already wrought argues against total despair.
Twenty years ago, the whole concept of a Deep State was fringe, a notion embraced only by kooks and so-called conspiracy theorists. There was an American Deep State with international connections and it had been running the country since at least WWII, but it really was deep, few people on the outside were aware of it. Now, the phrase is routinely cited by the president, deployed every day in the alternative media, and even the mainstream media occasionally use it.
In fact, the mainstream media has gone from denying the Deep State to telling us what a great thing it is, the last bulwark against a Trump dictatorship. So the witnesses against Trump in the House impeachment hearings aren’t State Department bureaucrats in love with their own deeply flawed Ukraine policies, protecting themselves and their Democratic cronies from revelations of involvement in Ukraine’s rampant corruption, and using second-, third-, and fourth-hand conversations in an attempt to depose the elected President. No, they’re heroes.
However, unlike the not too distant past when both bureaucrats and mainstream media commanded a certain respect among most of the populace, the House impeachment hearings got shredded in real time by the alternative media. Somewhere between 45 to 50 percent of the population refuses to believe what they’re told to believe, and that percentage is always growing (once you understand the con you don’t go back to believing it). Even a few Democrats recognized that the hearings flopped and have suggested a face-saving motion to censure Trump rather than refer the case to the Republican-controlled Senate, where it would be a nonstop embarrassment.
To counter the “Epstein didn’t kill himself” meme that’s run riot on the Internet, Attorney General William Barr recently restated the official conclusion that Jeffrey Epstein’s death was suicide by hanging, resulting from “a perfect storm of screw-ups.”
It was years before those who questioned the Warren Commission’s conclusions didn’t have their sanity questioned. Now within four months of Epstein’s death the Attorney General felt compelled to respond to the Internet and the alternative and social medias it has spawned. Barr didn’t change a single mind―the meme is still viral—but he has prompted a new SLL word coinage for any effort by the powerful to whitewash their own lies and corruption: Epstein-Barr Syndrome, or EBS.
Thanks to the Internet, those of us who are paying attention know our Party’s narratives, institutions, mouthpieces, and personnel are evil to their rotten core. We don’t know all the details, but we don’t have to, the incontrovertible truths we have are enough. Epstein could have disclosed devastating truths about Party pedophiles, perverts, and pimps, and we’ve been Epstein-Barred too often to believe he killed himself. Once your eyes are opened, they stay open and you become an expert at spotting EBS. You reflexively reject Party propaganda and by implication, the Party itself.
Popular discontent and protests, some violent, are breaking out all over the world. A number of causes have been cited: corrupt governments, wealth inequality, domestic interference by foreign governments and institutions, rising taxes, fees, and the overall cost of living, and disconnected politicians, bureaucrats, and institutions. While all of these undoubtedly play a role, there’s one constant that is rarely cited: people are fed up with the lies. They’re enraged by the hidden agendas, incompetence, and evil the lies are meant to hide.
The Chinese government is typical, it rests on lies. You don’t need to censor the internet or institute a social credit system if truth is your lodestar. It has told a whopper regarding Hong Kong: that a totalitarian system can accommodate a second system that confers substantially more freedom.
Undoubtedly the US and British governments are covertly encouraging Hong Kong’s protestors and are trying to capitalize on the Chinese government’s discomfiture. While the Chines government regards the outside influences as illegitimate, it cannot tolerate a free Hong Kong even were the protests to stop because a substantial portion of their own billion-plus repressed citizens would get wind of it and ask why they cannot enjoy the same freedom.
If China finds the protests of around two million Hong Kong residents troublesome, protests from even one percent of mainland Chinese—roughly ten million people—would be a nightmare. Freedom and totalitarianism are self-evidently incompatible, and sooner or later the Chinese government will try to impose its system on Hong Kong. That’s the truth it cannot tell. The protests may serve as the pretext, or there may be some sort of creeping consolidation before the “One Country, Two Systems” charade ends in 2047. Either way, Hong Kong’s days as a semi-free enclave are numbered. Its citizens know it, and that’s the main fuel for the current conflagration, regardless of what the American and British governments are doing to fan the flames.
As I say on the Welcome page of Straight Line Logic: The truth always threatens those whose power and wealth rests on lies. Through history that has meant governments and those who align their fates with governments.However, the unbelievers may not be as big a problem for the Party as the believers.
The Party has morons on its team: those who still believe its narratives. It doesn’t matter if true believers are PhDs, Mensa members, or billionaires, in real-world intelligence they’re not the sharpest tools in the shed. The problem with having morons on your team is that they’re, well, morons. They’re the Party’s allies, but that’s like a military alliance with Haiti. They’re too stupid or lazy to try to figure out the world they live in and aren’t going to get their first clue until the handouts stop. As collapse accelerates and reaches full fruition, the ranks of the disbelieving and cynical will only grow. You quit believing when you’re starving. The Party’s already faltering mind control effort will fail, even among the morons.
Most of the PhDs, Mensa members, and billionaires who profess belief know the con but go along with it for pelf and power. They have everything but principles and will spout Party proper-speak as long as it’s in their interest. So the Party can count on the support of the venal and the duplicitous, but how staunch and steadfast will that support be when collapse accelerates, chaos reigns, and it’s every man for himself? We’ll see.
The Party narrative is problematic not just because of the quality of people who believe or profess to believe it. The more significant deficiency is that it doesn’t correspond to reality. You can have millions, even billions, of believers who fervently believe that two plus two equals five, but that means you have millions, even billions, of intellectual cripples who can’t balance a checkbook or perform any other elementary arithmetic function. Or any of the higher operations arithmetic supports—like science and technology.
The climate change debate is instructive. For years people have tried to model financial markets. There’s a built in incentive: incalculable wealth awaits anyone who gets it right even 60 percent of the time. Yet nobody has done so, because financial markets are extremely complex, are influenced by myriad variables, the relationship among variables and between the variables and the markets change, and we don’t know all the relevant variables.
The same things can be said about climate modeling, except with more emphasis, because climate is more complex and has more potentially interacting variables—some of which we undoubtedly don’t know about—than financial markets. Climate models should be considered inherently unreliable, and models that purport to explain and predict climate based on one or two variables laughably so. If we can’t predict financial markets we certainly can’t predict climate. The state of human knowledge and predictive acumen just isn’t there.
Yet, on the basis of these inherently faulty climate models, many of which have already revealed their deficiencies, the world is supposed to reduce its standard of living, embrace radical, costly, and potentially deadly changes in power generation, food consumption, modes of travel, and economic activity, and hand power over to multilateral and global institutions, supposedly the only way with which the predicted consequences can be dealt.
The problem with morons and what they believe is that reality-based non-morons can’t wall them off to live with each other and the consequences of their collective irrationality and neuroticism. They insist we live according to their moronic dictates. Conflict is inevitable. However, the quality of the two sides will be far more important than their quantity.
The Party got what it wanted from Winston Smith—a dolt who believed its self-contradictory narratives, but wasn’t much good for anything else. It’s not clear if it was even economically worthwhile for the Party to keep Smith alive. As a dolt could he produce more than he consumed?
In the coming conflict, one motivated hacker rebel will be worth at least 10 million Winston Smiths. A military specialist rebel able to organize and lead guerrilla operations will be worth at least a million Winston Smiths. And any rebel who refuses to be Epstein-Barred, sees through the Party’s narratives, fights its dictates, and has a unwavering dedication to the truth will be worth at least 100,000 Winston Smiths.
Social Media Goes Wild After Ryan Reynolds Pounces On “Peloton Wife”
After the internet was triggered by a Peloton ad featuring a yuppie buying a $2,500 exercise bike for his already-thin girl, not known on Twitter as “Peloton wife,” actor Ryan Reynolds came up with a brilliant idea;
He hired Peloton Wife – since identified as actress Monica Ruiz, and made a commercial for his Aviation Gin brand.
Seen by over 6 million people since its Friday release, the ad features Ruiz sitting at a bar, flanked by two supportive friends. Clearly shaken from her Peloton experience, she looks at her drink and says “This gin is really smooth,” before downing the entire drink.
“You look great, by the way” says one of the other actresses – playing off the recent outrage over the Peloton commercial in which “Grace from Boston” documents a year in her life since her male partner gave her the expensive exercise bike.
The ad sparked a mass triggering – with some suggesting it was about a thin woman under pressure to lose even more weight for her man. On Monday, writer and comedian Eva Victor made a parody that went viral, in which she passive aggressively thanks her man for a “fucking workout bike for Christmas.”
Ruiz told Deadline that the Peloton team “was lovely to work with,” adding “Although I’m an actress, I am not quite comfortable being in spotlight and I’m terrible on social media.”
“So to say I was shocked and overwhelmed by the attention this week (especially the negative) is an understatement,” she added.
“When Ryan and his production team called about Aviation Gin, they helped me find some humor in the situation.”
On Thursday afternoon, the Washington Post sent out a news alert headlined “John Kerry Endorses Biden in 2020 Race, Saying He Has the Character and Experience to Beat Trump, Confront the Nation’s Challenges.” Meanwhile, in Iowa, Joe Biden was also touting his experience. “Look,” Biden said as he angrily lectured an 83-year-old farmer at a campaign stop, “the reason I’m running is because I’ve been around a long time and I know more than most people know, and I can get things done.”
But Kerry and Biden don’t want to acknowledge a historic tie that binds them: Both men were important supporters of the Iraq war, voting for the invasion on the Senate floor and continuing to back the war after it began. Over the years, political winds have shifted – and Biden, like Kerry, has methodically lied about his support for that horrendous war.
Then Senate Democrats John Kerry, Carl Levin, Majority Leader Harry Reid and Joseph Biden take part in a news conference on March 14, 2007 following a procedural vote on Iraq. (Photo: Karen Bleier/AFP via Getty Images)
The spectacle of Kerry praising Biden as a seasoned leader amounts to one supporter of the Iraq catastrophe attesting to the character and experience of another supporter of the same catastrophe.
The FactCheck.org project at the Annenberg Public Policy Center has pointed out: “Kerry agreed that Saddam Hussein had weapons of mass destruction and should be overthrown, and defended his war authorization vote more than once – including saying in a May 2003 debate that Bush made the ‘right decision to disarm Saddam Hussein.’ . . . Kerry also told reporters in August 2004 that he would have voted for the resolution even if he had known that the U.S. couldn’t find any weapons of mass destruction.”
As for Biden, he can’t stop lying about his major role in pushing the war authorization through the Senate five months before the March 2003 invasion. During his current presidential campaign, more than 16 years after the invasion, Biden has continued efforts to conceal his pro-war role while refusing to admit that he was instrumental in making possible the massive carnage and devastation in Iraq.
Three months ago, during a debate on ABC, Biden claimed that he voted for the war resolution so it would be possible to get U.N. weapons inspectors into Iraq – saying that he wanted “to allow inspectors to go in to determine whether or not anything was being done with chemical weapons or nuclear weapons.” But that’s totally backwards.
An explosion rocks Baghdad during air strikes March 21, 2003, via Reuters.
It was big news when the Iraqi government announced on September 16, 2002 – with a letter hand-delivered to UN Secretary General Kofi Annan – that it would allow the UN weapons inspectors back in “without conditions.” The announcement was a full 25 days before Biden joined with virtually every Republican and most Democratic senators voting to approve the Iraq war resolution.
That resolution on October 11 couldn’t rationally be viewed as a tool for leverage so that the Iraqi government would (in Biden’s words) “allow inspectors to go in.” Several weeks earlier, the Iraqi government had already agreed to allow inspectors to go in.
Biden keeps trying to wriggle out of culpability for the Iraq war. But he won’t be able to elude scrutiny so easily. In a mid-October debate, when Biden boasted that he has a record of getting things done, Bernie Sanders (who I actively support) made this response:
“Joe, you talked about working with Republicans and getting things done. But you know what you also got done? And I say this as a good friend. You got the disastrous war in Iraq done.”
Indeed, Biden – as chair of the Senate Foreign Relations Committee – presided over one-sided hearings that greased the war-machine wheels to carry the war resolution forward. He was the single most pivotal Senate Democrat for getting the Iraq invasion done. While sometimes grumbling about President George W. Bush’s diplomatic performance along the way, Biden backed the invasion with enthusiasm.
Now, dazzled by Kerry’s endorsement of Biden, mainstream news outlets are calling it a major boost. Media hype is predictable as Kerry teams up with Biden on the campaign trail.
“The Kerry endorsement is among Mr. Biden’s most significant to date,” the New York Times reports. “His support provides Mr. Biden the backing of the Democratic Party’s 2004 presidential nominee and a past winner of the Iowa caucuses.” Kerry praised Biden to the skies, declaring that “I believe Joe Biden is the president our country desperately needs right now, not because I’ve known Joe so long, but because I know Joe so well.”
This year, many progressives have become accustomed to rolling their eyes at the mention of Biden’s name. A facile assumption is that his campaign will self-destruct. But that may be wishful thinking.
The former vice president has powerful backers in corporate media, wealthy circles and the Democratic Party establishment. Deceitful and hidebound as he is, Joe Biden stands a good chance of becoming the party’s nominee – unless his actual record, including support for the Iraq war, catches up with him.
Israel Conducted Nuclear Missile Test “Aimed At Iran”: FM Zarif
Iran is crying foul after Israeli’s Defense Ministry confirmed a major test of a mystery new “rocket propulsion system” on Friday morning.
“The defense establishment conducted a launch test a few minutes ago of a rocket propulsion system from a base in the center of the country,” the ministry said. “The test was scheduled in advance and was carried out as planned.”
Giving no further details, international reports were rife with speculation over the nature of the rocket, with many saying it was a nuclear-capable ballistic missile. This was enough for Iran’s Foreign Minister Mohammad Javad Zarif to go off, saying in a statement posted to Titter: “Israel today tested a nuke-missile, aimed at Iran.”
Israel today tested a nuke-missile, aimed at Iran.
E3 & US never complain about the only nuclear arsenal in West Asia—armed with missiles actually DESIGNED to be capable of carrying nukes—but has fits of apoplexy over our conventional & defensive ones. https://t.co/r4EqXkhcCN
And he further complained that the West looks the other way when it comes to“about the only nuclear arsenal in West Asia,” but that it “has fits of apoplexy over our conventional defensive [rockets].”
The mystery Israeli test was significant enough to require the temporary diversion of all inbound flights to Tel Aviv’s Ben Gurion Airport.
Israeli media publications also considered the possibility that it was a ballistic missile test, likely nuclear warhead capable surface-to-surface Jericho system, an intercontinental ballistic missile which according to foreign reports can support a nuclear payload.
It comes at a tense time in the region following Israeli airstrikes on Syria and even Iraq, against what the IDF alleges were ‘Iranian targets’. According to the Times of Israel:
Israel does not publicly acknowledge having ballistic missiles in its arsenals, though according to foreign reports, the Jewish state possesses a nuclear-capable variety known as the Jericho that has a multi-stage engine, a 5,000-kilometer range and is capable of carrying a 1,000-kilogram warhead.
And according to a Avi Scharf, the editor of the English version of Haaretz newspaper, the missile test may have had a flight trajectory deep into the Mediterranean, as far West as past the island of Crete.
To track and handle it all, IAI telemetry plane + at least two Israeli AF g550 aewc/shavit spyplanes + hercs flew all the way out past Crete pic.twitter.com/s9VyBQLVKJ
Tehran officials, while complaining about the provocative rocket test which they claimed was an ICBM, vowed they are still “determined to resolutely continue its activities related to ballistic missiles and space launch vehicles.”
Israeli residents captured part of the rare launch on video:
#Israel#IDF a effectué un essai du système de propulsion de missiles depuis la base aérienne de Palmachim, au sud de #TelAviv, en ce matin du 6 décembre 2019.
Le test a été pré-planifié et réalisé comme prévu.#Tsahalpic.twitter.com/TFOg8PPAIc
Washington has repeatedly condemned similar Iranian launches, even while the program is not formally banned under the 2015 JCPOA, and has leveled sanctions targeting the Islamic Republic’s ability to produce advanced missiles.
Macro Hive: “When We Fall Back Into A Recession And Real QE Returns, Watch Out”
Submitted by George Goncalves of MacroHive; Goerge is a twenty years fixed income markets veteran. Over that time he has covered rates, structured products and credit. He worked both on the buy-side and sell-side.
Fed’s Challenge To Administer Liquidity Into Year-End And Beyond
Even with hundreds of billions of dollars in new liquidity created out of thin air, it’s too soon for the Fed to signal a clear coast for repo markets. On the one hand, through heavy liquidity dosages the Fed has doused the fire; but on the other hand, we do not know if that dosage was too much or too little. The true test still lies in the weeks around year-end.
Fed Fears the Worst
The Fed has not idled in wait of potential new flare-ups. Since our last update on Fed policy dynamics, it has rolled out more repo operations and added 42-day calendar repos to help provide funding over the year-end turn. These operations have seen nearly double the amount of submissions versus the offering size of $25bn each. This demonstrates that primary dealers aren’t taking any chances either.
In addition to daily and term repo operations, the Fed has purchased over $100bn T-bills for its SOMA portfolio since October. These so-called ‘not QE’ asset purchases, along with the repo operations, have led to the Fed’s balance-sheet growing at a faster clip than that experienced in the first twelve weeks of QE2 and QE3 (Chart 1). Luckily it’s not QE though, right?
If that’s true, we come to our primary question: what comes next in 2020? But before we brainstorm that and the implications thereof, we should take stock of what has changed in the key Fed balance sheet categories.
Source: St Louis FRED and Macro Hive
The Balance Sheet Changes Since September
As of November’s last week, the Fed’s balance sheet has grown in size by nearly $300bn since the repo flare-up. This speed goes to prove a concept well known in the marketplace: the Fed tightens slowly and eases quickly. In less than three months the Fed unwound basically half of QT.
The Fed has imperfect control over its liabilities, so investors should never assume a one-for-one relationship exists between asset purchases and the expansion of excess reserves. For starters, currency in circulation has been on cruise control since the financial crisis (rising at ~6% a year). But it’s the non-reserve items, foreign central bank (FCB) reverse repos, and Treasury general account (TGA) that make it challenging to predict reserve trends.
Source: St Louis FRED and Macro Hive
As seen above (Chart 2), total reserves have increased. But the TGA grew much more in total (in fact, the first week post 9/11 was the week that led to the reserve shortfall/repo spike as TGA expanded). It’s as if most of the Fed repos since that period indirectly provided short-term cash to the Treasury as dealers are able to purchase more USTs and ‘temporarily’ fund them with the Fed.
Now, it’s not that simple and there is overlap with the T-bill purchases which are producing more permanent excess reserves. Nonetheless, the amount of Fed repos nearly matches the growth in TGA. If the Fed had not expanded, its balance sheet there would have been more reserve draining because UST issuance would have mopped up cash needed to restock the TGA. Meanwhile, FCBs have pulled some money from the Fed and are providing relief by reducing their F-RRP allocation.
Source: St Louis FRED and Macro Hive
The Hand-off From Repo to ‘Not QE’ Reserve Growth
The effective Fed funds rate is back under control as are repo rates for the most part. That said, there is the occasional drift up in rates and the year-end turn is trading hundreds of basis points above the Fed target. The rest of this month could still see further pressures build as dealers pull back balance sheet usage and shy away from Fed term repos. Dealers will also aim to run a tight ship and will likely operate one day at a time in December.
But here is the tricky part (and another example of falling into a false sense of security). Clearly with the Fed on notice and providing a laddered safety net of repo liquidity, this year-end should theoretically be better than last year. And once we turn the calendar into 2020, commercial banks should start to open up their balance sheets and so Fed’s repo should decline as well.
The 2020 Path
So back to our main concern: 2020. Assuming there isn’t something more nefarious going on in the banking system by some point in early next year, Fed repo assets should decline in size. That said, the handoff from temporary liquidity to ‘not QE’ T-bill purchases may end up being more abrupt than risk markets are comfortable with.
Case in point: as seen in Chart 3, in the months after the initial spike due to Lehman, some of the Fed’s temporary liquidity programs started to see less usage as the panic subsided. This led to actual reserve declines as QE1 took some time to replace them. On a smaller scale, there is risk of a similar sort of repeat in 1H20. For example, if repo usage dropped to normal levels (i.e. as they were used pre-crisis), repo assets at the Fed could drop by over $200 bn (it would take over 3 months to replace those reserves via T-bill purchases).
Curve Could Steepen
Further complicating matters, if the Fed only buys T-bills they may end up enriching enough to encourage money market funds to start using the RRP again (which would drain reserves from banks). If that were to occur, the Fed would likely need to start buying out the curve and buy less T-bills (maybe via a curve control process through 5s). At that point they would need to stop their line that their purchases are “not-QE” (it would clearly be QE). This would favour staying with steepeners outright and/or on a forward basis as the front part of the curve (eg 2ys) would start to get depressed by this QE.
One way the Fed could avoid having to morph the T-bill purchases into outright QE would be to figure out how to launch a standing repo facility soon. This would be akin to ‘QE on demand’ but more so for reserve expansion for banks whenever they actually need it. All of these moving parts highlight how difficult it becomes for a central bank that is increasingly active on providing cash and collateral to the marketplace.
Bottom Line: This all feels very technical but, unfortunately, it’s the world we live in since the Fed needs to provide reserves in ample supply to keep using the floor system to set rate policy. If and when we fall back into a recession and real QE returns, watch out. In many ways that is what risk markets are yearning for: forward expectations of QE. Meanwhile, as we wait the risk is that the Fed’s balance sheet can actually temporarily shrink before growing (slowly via the T-bill purchases). Such a scenario is not priced into most asset classes.
