Month: May 2016

Authored by Brendan McGarry via DoDBuzz.com,

 

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By EconMatters

 

The mild winter has Nat Gas stocks at record levels, but the last time this many natural gas rigs went offline in 2012, prices rebounded to the $5 level nicely on a long trending trade. Traders and Investors are trying to anticipate and evaluate the likelihood of this move in Natural Gas happening again.

 

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Today the IRS published the latest figures on renunciation, showing that yet another 1,158 Americans have renounced their citizenship in the first quarter of 2016.

 

 

While this may not be setting a record for a single quarter, the trend is quite clear.

Source: SovereignMan.com

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Submitted by Nick Bernabe via TheAntiMedia.org,

Longtime congressman and former presidential candidate Ron Paul made it clear in a recent interview on CNN that he will vote 3rd party if the presidential race comes down to Donald Trump versus Hillary Clinton.

Though Paul didn’t specify which candidate he would vote for, he did say Libertarian or Independent party candidates are a possibility. Paul also said he couldn’t support Ted Cruz, who has since dropped out of the race, because he’s a “theocrat” who wants to rule with religion. Paul didn’t comment on his specific reasons for not supporting Clinton, but one can speculate the fiercely anti-war Paul opposes her militaristic tendencies.

Then Paul went even further, saying both the Republican and Democratic parties — from Reagan to Obama — are controlled by the “Deep State” and powerful special interests.

Watch the interview below:

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The frenzied trading that smashed Chinese commodity markets through the roof in the last month has begun to unfurl rapidly as authorities crackdown on the speculative fever and force exchanges to curve excess ‘churn’. Of course, there are still some who cling to the belief that any of this was ‘real’ demand, real buying, and real economic growth (just don’t look at The Baltic Dry in the last few days) but, as Bloomberg reports, it was nothing but “churn baby churn” as trading volume exploded but open-interest remained flat.

“With more speculators being let in on this secret, more money poured in
the game,” Fu said. “Prices went higher and higher with explosive
growth in trading volumes.”

 

As Bloomberg reports,

The slowdown marks a return toward normality after a frenzy that drew comparisons with the credit-driven stock market rally last year that preceded a $5 trillion rout. Investor appetite has waned after the exchanges raised transaction fees and margins amid orders from regulators to limit speculation.

 

“It’s pretty crazy to see such a quick move in trading volumes, compared with historical levels,” Zhang Yu, an analyst with Yongan Futures Co., said by phone from Hangzhou in Zhejiang Province. “Some investors are exiting after the exchanges’ measures.”

Crazy Indeed…

 

Open interest, or the amount of outstanding contracts at the end of the day, has remained relatively unchanged throughout, indicating that the trading was short-term speculation, with traders holding positions for a few hours and cashing out before the end of the day. At the peak of the trading boom, daily aggregate volume across the contracts was more than four times open interest. It was 1.4 times by May 4.

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Submitted by Emad Mostaque via GovernmentsAndMarkets.com,

“Erdogan once said that democracy, for him, is a bus ride … ‘once I get to my stop, I’m getting off’ ”

Jordan’s King Abdullah recalling a conversation with the Turkish President

Tonight is H?drellez in Turkey, celebrating spring and the day on which the Prophets al-Khidr and Elijah.

Traditionally wishes come true today and it would seem that President Erdo?an’s wish for an executive Presidency has come one step closer to reality with the resignation of Prime Minister Davuto?lu.

When we downgraded Turkey in last week’s Governments and Markets update, it was primarily due to negative shifts in governance as the pressure to move to a Presidential system and crack down on the Kurds increased. We weren’t sure of the timing of these events, although key factors like the HDP being effectively banned and the President needing to assert control over more elements of the government seemed certain.

Taking some cash off the table after a period of Turkish outperformance seemed sensible and we must now consider where we go from here with Turkish equities having fallen 10% this week alone.

Fighting for the right not to be prosecuted

AKP and HDP members of parliament express their disagreements

While the resignation of the Prime Minister is the main headline news, the start of this week saw jitters following a brawl in the Turkish parliament as the process to strip MP’s of immunity to prosecution began, something that would impact HDP members given accusations of PKK ties, but also some MHP members.

This move was in line with our expectations and unsurprising given the continued escalation of deadly suicide attacks by the Kurdish TAK, linked by the government to the PKK, who are in turn linked by them to the HDP. The March 13th suicide car bomb attack on Ankara was particularly alarming as it confirmed the return of Kurdish attacks on civilian targets, with 37 being killed.

The Syrian civil war has dramatically increased the available ordinance for such attacks, designed to maximize casualties with the car in this case being packed with nails and pellets, injuring a further 127 individuals. The moves by the security forces to push Kurdish separatists out of their urban areas are likely to increase the frequency of such attacks, providing a grim echo of the 90s when they first started.

This is a continuation of the process of reducing Kurdish political influence that we outlined in our notes “A Kurdish Conundrum” on July 31st last year and “Ankara: Cui Bono?” on 20th October 2015, where we predicted the AKP majority and continued political polarization that has occurred.

We also saw continued developments in the chaos that has surrounded the MHP and efforts to oust Bahçeli as leader after 19 years, with the judiciary blocking the proposed extraordinary congress that could make the rule change necessary for a vote to kick him out and accusations by Bahçeli that Gülenist forces are behind this move.

This puts the opposition to the AKP in a bad spot even as the leadership of the AKP becomes ever more streamlined, a process that we saw with Cabinet III and likely required after the public splits that we started to see last March with the running of Fidan and the Gökçek-Ar?nç feud.

There can be only one

Given the current constitutional powers of the President versus the Prime Minister, Davuto?lu was the only potential political force that could stop the President from exercising almost unlimited executive powers, although this would have amounted to a semi-coup within the AKP that Erdo?an officially left upon taking up the Presidency, but clearly still controls.

The expectation of Davuto?lu that he would be able to exercise his constitutionally mandated powers versus being effectively a Vice President appears to have been the real catalyst that led to the current situation, something hinted at with the arrival of the “Pelican Brief” blog on May 1st, a pro-Erdo?an blog accusing Davuto?lu of helping the cause of Erdo?an’s enemies (conspiracy theories are popular in Turkey) and not doing enough to advocate the Presidential system. He was also accused of not protecting Erdo?an against attacks, notable when 1,800 have been charged with insulting the President as the space for public dissension continues to narrow, supporting Kurdish peace, something that Erdo?an no longer cared for and other such calumnies.

While the blog is anonymous, it fit with news that broke shortly after that, after agreeing a politically important military base in Qatar for Turkey, Davuto?lu had been stripped of many of his powers as party leader by almost all of the members of the AKP’s Central Decision and Administration Board, backed by Erdo?an.

This was referred to by Davuto?lu as a key reason for his resignation, although he still voiced his full support for Erdo?an.

Any new Prime Minister is now certain to be a Erdo?an loyalist when the party congress meets at the end of May, raising the question as to why any constitutional amendment is now needed given the President controls almost all elements of governmental power and has consolidated influence over key institutions such as the central bank.

We may see elections in October if they decided to try and kill off the HDP and MHP, for now it appears that, absent a possible reshuffling of some of the AKP ranks, this is merely the latest step in the formalisation of the President’s rule. Polls show support for a Presidential system isn’t tremendously high, which would argue against putting it to a public vote when the powers are all in place already.

What foreign investors dislike

Where does that leave Turkey in terms of governance and likely asset performance?

Markets were troubled last year by the prospect of a shake up in the AKP as they lost their parliamentary majority, before jumping after elections and subsiding once more.

By and large, the bourse, dominated by foreign investors, tends to favour a firm hand at the tiller and predictability, which should augur well for the Presidential system.

Turkish assets have outperformed broader Emerging Markets since last summer’s elections as fears of decision-making chaos proved unfounded and double digit carry proved attractive, particularly on a Euro investor basis. This can be seen in the below chart of dollar returns for equities, although the performance has started to reverse dramatically with this week’s events

 

Source: Ecstrat, Bloomberg. Indexed to 1st June 2015, just before summer general elections

 

Economic policy is unconventional, but now quite predictable and Turkey has benefited from the tailwind of lower oil prices, although we are now starting to see pressures resume upon the economy and current account.

What investors hate, however, are governance regimes in which the state interferes with private enterprise, something that we have seen in the crackdown on and seizure purported Gülenist companies and continued consolidation of the press, with the takeover of Feza Media and Zaman the latest in this series on terror support charges.

It should now be the case that Erdo?an has sufficient support and has shown enough strength not to go after additional targets like Isbank, where the CHP has a 28% stake.

If so, our neutral rating is optimistic.

If not and we now get a period of relative stability as all challengers have been dealt with, then the market looks good here on a relative basis, with banks in particular the second cheapest in EM after Chinese banks and in a supportive rate policy environment, but still offers little upside on an absolute basis with most of the action likely continuing to be on FX and bonds.

If this rally in EM is just that and not a secular turning point as we expect as Chinese vulnerabilities continue to expand, then the real test for the government and its relationship to the corporate sector will be when the market turns south once more.

Will Turkey become an “Islamic” state?

On a final note, we have had a couple of queries as to whether Turkey is headed toward Shariah law implementation as the Presidency is consolidated, particularly given Parliament Speaker Ismail Kahraman’s comments that secularism should be taken out of Turkey’s new constitution last week, moving it instead to a “religious constitution”.

While we are dubious on the impact of any constitution (look at North Korea’s, its fabulous), we think that an overall shift to an Islamic state is unlikely in Turkey as the impact the AKP is looking to achieve, namely normalisation of Islamic practice in public as a foundational support for party control and roll back of the restrictions of prior governments.

This doesn’t require a change in the constitution, nor does it require a formalisation of Islamic law within the country as a guide to government policy, something which is better served by the use of “public interest” (maslaha) doctrine by the government in any case, which provides significant flexibility in promulgating policy.

This is similar to the interaction between religion and government we are seeing today in Russia and a sensible step to take as Turkey goes down a more conservative route for a leader who wants to consolidate control.

The decisions made on state capitalism on this path will likely be the ones that determine the success of Turkey in the coming years and something the President will be judged on as he gets his wish.

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Two weeks ago, long before the outcome of the Indiana primary was known, we first reported that it was Jeff Gundlach‘s opinion that Donald Trump would be the winner of the 2016 presidential race. For those who missed it, here are the key excerpts from his interview posted on April 22.

Q. Who do you think will win the race for the white house?

 

Gundlach: Trump is going to win. I think Clinton and Sanders are both very poor candidates. I know the polls are signaling the opposite. But the polls said the opposite four years ago, too.

 

Q. How would the financial markets react should Trump win?

 

Gundlach: In the short term, Trump winning would be probably very positive for the economy. He says a lot of contradictory things and things that are not very specific. But he does say that he will build up the military and that he will build a wall at the border to Mexico. If he wins he’s got at least to try those things. Also, he might initiate a big infrastructure program. What’s his campaign slogan? Make America great again. What that means is let’s go back to the past, let’s go back to the 1960s economy. So he might spend a lot of money on airports, roads and weapons. I think Trump would run up a huge deficit. Trump is very comfortable with debt. He’s a debt guy. His whole business has had a lot of debt over time and he has gone bankrupt with several enterprises. So I think you could have a debt-fuelled boom. But the overall debt level is already so high that you start to wonder what would happen after that. 

 

Q. How do you explain that a guy like Trump might actually win the election?

 

Gundlach: His popularity is very similar to the popularity of unconstrained bond funds. About two or three years ago, unconstrained bond funds became the most popular thing in the United States retail market and in the institutional market probably, too. Because when investors analyzed all the bond segments they were familiar with, they didn’t like what they saw. They didn’t like treasuries, they were scared of the Fed, they didn’t like traditional strategies. So, if everything you think you know looks unattractive, you go for something that you have no idea about. And that’s an unconstrained bond fund. The thinking was: «Don’t even tell me what you are doing, I do not want to know. Because if I know, I won’t like it. » The same is true with respect to the elections: «Don’t give me a traditional candidate. Give me someone who I have no idea what he is going to do» – and that’s basically Donald Trump.

* * *

Two weeks later, CNBC caught up with Gundlach to report essentially the same: following the Sohn Conference, Gundlach once again stated that he believes that Trump would become president.

The CEO of DoubleLine, which manages $84 billion for clients, told CNBC he’s apolitical but said, “I think it’s important for investors to deal with reality.” Repeating his previous comment, Gundlach said that Trump will have a very large deficit while in the Oval Office. “He’s very comfortable with debt. We know that about Donald Trump.” 

Gundlach added that the presumptive Republican presidential nominee is just like another man many in the GOP idolize: former President Ronald Reagan. “Reagan was a debt-based economic guy and I think Trump will be,” Gundlach noted.

“It will probably look like it’s working at first. The question is, will the boost to the economy from infrastructure projects and the like off-set the potential drag from shrinking global trade.”

So how is Gundlach preparing and trading in advance “Trump presidency”? “Look at arms manufacturers, said Gundlach. He would avoid companies that are susceptible to global trade slowdowns, particularly those related to Mexico and China.“

A Trump presidency would also be perceived as negative by the market. Recall that on April 26, Gundlach told Reuters that Trump’s protectionist policies could mean negative global growth: “As he gets the nomination, the markets and investors are going to worry about it more. You will see a downgrading of global growth based on geopolitical risks. You must factor this into your risk-management.”

In summary: buy guns, stay away from FedEx, start legging into market shorts, oh and also Gundlach seemed to fully agree with Druckenmiller’s speech, which to us simply means Gundlach is yet another advocate for the Fed “dead end” trade which ultimately ends in gold.

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Authored by James Grant via Grant's Interest Rate Observer,

April 15 comes and goes but the federal debt stays and grows. The secrets of its life force are the topics at hand— that and some guesswork about how the upsurge in financial leverage, private and public alike, may bear on the value of the dollar and on the course of monetary affairs. Skipping down to the bottom line, we judge that the government’s money is a short sale.

Diminishing returns is the essential problem of the debt: Past a certain level of encumbrance, a marginal dollar of borrowing loses its punch. There’s a moral dimension to the problem as well. There would be less debt if people were more angelic. Non-angels, the taxpayers underpay, the bureaucrats over-remit and everyone averts his gaze from the looming titanic cost of future medical entitlements. Topping it all is 21st-century monetary policy, which fosters the credit formation that leads to the debt dead end. The debt dead end may, in fact, be upon us now. A monetary dead end could follow.

As to sin, Americans surrender, in full and on time, 83% of what they owe, according to the IRS—or they did between the years 2001 and 2006, the latest period for which America’s most popular federal agency has sifted data. In 2006, the IRS reckons, American filers, both individuals and corporations, paid $450 billion less than they owed. They underreported $376 billion, underpaid $46 billion and kept mum about (“nonfiled”) $28 billion. Recoveries, through late payments or enforcement actions, reduced that gross deficiency to a net “tax gap” of $385 billion.

This was in 2006, when federal tax receipts footed to $2.31 trillion. Ten  years later, the U.S. tax take is expected to reach $3.12 trillion. Proportionally, the 2006 gross tax gap would translate to $607.7 billion, and the net tax gap to $520 billion. To be on the conservative side, let us fix the 2016 net tax gap at $500 billion.

Then there’s squandermania. According to the Government Accountability Office, the federal monolith “misdirected” $124.7 billion in fiscal 2014, up from $105.8 billion in fiscal 2013. Medicare, Medicaid and earnedincome tax credits accounted for 75% of the misspent funds—i.e., of those wasted payments to which government bureaus confessed. “[F]or fiscal year 2014,” the GAO relates, “two federal agencies did not report improper payment estimates for four risk-susceptible programs and five programs with improper payment estimates greater than $1 billion were noncompliant with federal requirements for three consecutive years.” It seems fair to conclude that more than $125 will go missing in fiscal 2016.

Add the misdirected $125 billion to the unpaid $500 billion, and you arrive at a sum of money that far exceeds the projected fiscal 2016 deficit of $534 billion.

Which brings us to intergenerational self-deception. The fiscal outlook would remain troubled even if the taxpayers paid in full and the bureaucrats stopped wiring income-tax refunds to phishers from Nigeria. Not even a step-up in the current trudging pace of economic growth would put right the long-term fiscal imbalance. So-called non-discretionary spending, chiefly on Medicare, Medicaid and the Affordable Care Act, is the beating heart of the public debt. It puts even the welladvertised problems of Social Security in the shade.

Fiscal balance is the 3D approach to public-finance accounting. It compares the net present value of what the government expects to spend versus the net present value of what the government expects to take in. It’s a measure of today’s debt plus the present value of the debt that will pile up if federal policies remain the same. To come up with an estimate of balance or—as is relevant today, imbalance—you make lots of assumptions about life in America over the next 75 years. Critical, especially, is the interest rate at which you discount future streams of outlay and intake. Jeffrey Miron has performed these fascinating calculations over the span from 1965 to 2014.

The director of economic studies at the Cato Institute and the director of undergraduate studies in the Harvard University economics department, Miron has projected that, over the next 75 years, the government will take in $152.5 trillion and pay out $252.7 trillion —each discounted by an assumed 3.22% average real rate of interest. Add the gross federal debt outstanding in 2014, and—voila!—he has his figure: a fiscal imbalance on the order of $120 trillion. Compare and contrast today’s net debt of $13.9 trillion, GDP of $18.2 trillion, gross debt of $19.2 trillion and household net worth of $86.8 trillion. Compare and contrast, too, the estimated present value of 75 years’ worth of American GDP. Miron ventures that $120 trillion  represents something more than 5% of that gargantuan concept.

There’s nothing so exotic about the idea of fiscal balance. In calculating the familiar-looking projection of debt relative to GDP, the Congressional Budget Office uses assumed rates of growth in spending and revenue, which it also discounts by an assumed rate of interest. It’s fiscal-balance calculus by another name, as Miron notes.

Nor is the fiscal-balance idea very new. Laurence J. Kotlikoff, now a chaired professor of economics at Boston University, has been writing about it at least since 1986, when he shocked the then deficit-obsessed American intelligentsia with the contention that the federal deficit is a semantic construct, not an economic one. This is so, said he, because the size of the deficit is a function of the labels which the government arbitrarily attaches to such everyday concepts as receipts and outlays. Thus, the receipts called “taxes” lower the deficit, whereas receipts called “borrowing” raise it. The dollars are the same; only the classification is different.

Be that as it may, Miron observes that the deficit and the debt tell nothing about the fiscal future. Each is backward-looking. “The debt,” he points out, “. . . takes no account of what current policy implies for future expenditures or revenue. Any surplus reduces the debt, and any deficit increases the debt, regardless of whether that deficit or surplus consists of high expenditure and high revenues or low expenditure and low revenues. Similarly, whether a given ratio of debt to output is problematic depends on an economy’s growth prospects.”

Step back in time to 2007, Miron beckons. In that year before the flood, European ratios of debt to GDP varied widely, even among the soon-to-be crisis-ridden PIIGS. Greece’s ratio stood at 112.8% and Italy’s at 110.6%, though Ireland’s weighed in at just 27.5%, Spain’s at 41.7% and Portugal’s at 78.1% (not very different from America’s 75.7%). “These examples do not mean that debt plays no role in fiscal imbalance,” Miron says, “but they illustrate that debt is only one component of the complete picture and therefore a noisy predictor of fiscal difficulties.”

So promises to pay, rather than previously incurred indebtedness, tell the tale. Social Security, a creation of the New Deal, did no irretrievable damage to the intergenerational balance sheet. It was the Great Society that turned the black ink red. Prior to 1965, the United States, while it  had run up plenty of debts related to war or—in the 1930s—depression, never veered far from fiscal balance. Then came the Johnson administration with its guns and butter and Medicare and Medicaid. From a fiscal balance of $6.9 trillion in 1965, this country has arrived at the previously cited $120 trillion imbalance recorded in 2014. And there are “few signs of improvement,” Miron adds, “even if GDP growth accelerates or tax revenues increase relative to historic norms. Thus, the only viable way to restore fiscal balance is to scale back mandatory spending policies, particularly on large health-care programs such as Medicare, Medicaid and the Affordable Care Act.”

We asked Miron about the predictive value of these data. Could you tell that Greece was on the verge by examining its fiscal imbalance? And might not Japan be the tripwire to any future developed-country debt crisis, since Japan—surely—has the most adverse debt, demographic and entitlement spending profile? Miron replied that comparative statistics on fiscal imbalance among the various OECD countries don’t exist. And even if they did, it’s not clear that they would tell when a certain country would lose the confidence of its possibly inattentive creditors. The important thing to bear in mind, he winds up, is that the imbalances— not just in America or Japan or Greece but throughout the developed world—are “very big and very bad.”

Of course, government debt is only one flavor of nonfinancial encumbrance. The debt of households, businesses and state and local governments complete the medley of America’s nonfinancial liabilities. The total grew in 2015 by $1.9 trillion, which the nominal GDP grew by $549 billion. In other words, we Americans borrowed $3.46 to generate a dollar of GDP growth.

We have not always had to work the national balance sheet so hard. The marginal efficiency of debt has fallen as the growth in borrowing has accelerated. Thus, at year end, the ratio of nonfinancial debt to GDP reached a record high 248.6%, up from 245.4% in 2014 and from the previous record of 245.5% set in 2009. In the long sweep of things, these are highly elevated numbers.

In the not-quite half century between 1952 and 2000, $1.70 of nonfinancial borrowing sufficed to generate a dollar of GDP growth. Since 2000, $3.30 of such borrowing was the horsepower behind the same amount of growth. Which suggests, conclude Van Hoisington and Lacy Hunt in their first-quarter report to the clients of Hoisington Investment Management Co., “that the type and efficiency of the new debt is increasingly nonproductive.”

What constitutes a “nonproductive” debt? Borrowing to maintain a fig leaf of actuarial solvency would seem to fill the bill. Steven Malanga, who writes for the Manhattan Institute, reports that state and municipal pension funds boosted their indebtedness to at least $1 trillion from $233 billion between 2003 and 2013. Yet, Malanga observes, “All but a handful of state systems have higher unfunded liabilities today than in 2003.”

Neither does recent business borrowing obviously answer the definition of productive. To quote the Hoisington letter: “Last year business debt, excluding off-balance-sheet liabilities, rose $793 billion, while total gross private domestic investment (which includes fixed and inventory investment) rose only $93 billion. Thus, by inference, this debt increase went into share buybacks, dividend increases and other financial endeavors, [although] corporate cash flow declined by $224 billion. When business debt is allocated to financial operations, it does not generate an income stream to meet interest and repayment requirements. Such a usage of debt does not support economic growth, employment, higherpaying jobs or productivity growth.”

The readers of Grant’s would think less of a company that generated its growth by bloating its balance sheet. The composite American  enterprise would seem to answer that unwanted description. Debt of all kinds—financial and foreign as well as nonfinancial— leapt by $1.97 trillion last year, or by $1.4 trillion more than the growth in nominal GDP; the ratio of total debt (excluding off-balance-sheet liabilities) to GDP squirted to 370%.

The United States is far from the most overextended nation on earth. Last year, Japan showed a ratio of total debt (again, excluding off-balancesheet items) to GDP of 615%; China and the eurozone, ratios of 350% and 457%. Hoisington and Hunt, who dug up the data, posit that overleverage spells subpar growth. In support of this proposition (a familiar one in the academic literature), they observe thataggregate  nominal GDP growth for the four debtors rose by just 3.6% in 2015. It was the weakest showing since 1999 except for the red-letter year of 2009.

The now orthodox reaction to substandard growth is hyperactive monetary policy. Yet the more the central bankers attempt, the less they seem to accomplish. ZIRP and QE may raise asset prices and P/E ratios, but growth remains anemic. What’s wrong?

Debt is wrong, we and Hoisington and Hunt agree. With the greatest of ease do the central bankers whistle new digital money into existence. What they have not so far achieved is  the knack of making this scrip move briskly from hand to hand. Among the big four debtors, the rate of monetary turnover, or velocity—“V” to the adepts— has been falling since 1998.

“Functionally, many factors influence V, but the productivity of debt is the key,” Hoisington and Hunt propose. “Money and debt are created simultaneously. If the debt produces a sustaining income stream to repay principal and interest, then velocity will rise because GDP will eventually increase by more than the initial borrowing. If the debt is a mixture of unproductive or counterproductive debt, then V will fall.
Financing consumption does not generate new funds to meet servicing obligations. Thus, falling money growth and velocity are both symptomsof extreme over-indebtedness and nonproductive debt.”

Which is why, perhaps, radical monetary policy seems to beget still more radical monetary policy. Insofar as QE and ultra-low interest rates foster credit formation, they likewise chill growth and depress the velocity of turnover in money. What then? Why, policies still newer, zippier, zanier.

Ben S. Bernanke, the former Fed chairman turned capital-introduction professional for Pimco, keeps his hand in the policy-making game with periodic blog posts. He’s out with a new one about “helicopter money,” the phrase connoting the idea that, in a deflationary crisis, the government could drop currency from the skies to promote rising prices and brisker spending. Attempting to put the American mind at ease, Bernanke assures his readers that, while there will be no need for such a gambit in “the foreseeable future,” the Fed could easily implement a “money-financed fiscal program” in the hour of need.

No helicopters would be necessary, of course, Bernanke continues. Let the Fed simply top off the Treasury’s checking account—filling it with new digital scrip. The funds would not constitute debt; they would be more like agift. Or the Fed might accept the Treasury’s IOU, which it would hold “indefinitely,” as Bernanke puts it, rebating any interest received—a kind of zero coupon perpetual security. The Treasury would then spread the wealth by making vital public investments, filling potholes and whatnot. The key, notes Bernanke, is that such outlays would be “money-financed, not debt-financed.” The “appealing aspect of an MFFP,” says he, “is that it should influence the economy through a number of channels, making it extremely likely to be effective—even if existing government debt is already high and/or interest rates are zero or negative [the italics are his].”

Thus, the thought processes of Janet Yellen’s predecessor. Reading him, we are struck, as ever, by his clinical detachment. Does the deployment of helicopter money not entail some meaningful risk of the loss of confidence in a currency that is, after all, undefined, uncollateralized and infinitely replicable at exactly zero cost? Might trust be shattered by the visible act of infusing the government with invisible monetary pixels and by the subsequent exchange of those images for real goods and services? The former Fed chairman seems not to consider the question— certainly, he doesn’t address it.

To us, it is the great question. Pondering it, as we say, we are bearish on the money of overextended governments. We are bullish on the alternatives enumerated in the Periodic table. It would be nice to know when the rest of the world will come around to the gold-friendly view that central bankers have lost their marbles. We have no such timetable. The road to confetti is long and winding.

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As we reported yesterday, just when Hillary thought the email scandal was behind her, and she could shift her focus to the newly minted GOP presidential nominee Donald Trump, an order by Judge Emmet Sullivan of the U.S. District Court decided to lay out ground rules for interviewing multiple State Department officials, and ordered at least six current and former State Department employees to answer questions, all in an effort to finish the depositions in the weeks before the party nominating conventions.

One key name in the order was longtime Clinton personal aide Huma Abedin, who as The Hill reports, was indeed interviewed today by the FBI, along with other top aides, some multiple times.

Former Clinton employee Bryan Pagliano, who helped set up the server, has provided documents and other materials as well as interviews to the FBI under an immunity agreement, and it is widely expected that the investigation will methodically work its way to the top of the chain of command very shortly, as one of the final and most anticipated steps in the investigation would be to interview Clinton herself.

What we’re keeping a close eye on is whether or not the FBI actually does interview notorious hacker Marcel Lehel Lazar, who as we reported yesterday, claims he gained access to Clinton’s “completely unsecured” server and observed “hundreds of folders.”  

If this interview occurs and Lazar’s claims are validated, it could very well be the final piece to the puzzle in the saga that Hillary so desperately wants to go away.

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