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By EconMatters
We analyze the Gold Market ahead of the Federal Reserve`s Policy Rate Decision, and the Bank of Japan`s Monetary Decision this week. The bottom line: No rate hike this week means buy Gold. Just another example of kicking the rate hike can down the road.
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Submitted by Pater Tenebrarum via Acting-Man.com,
As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth.
What’s left of the Brooklyn Domino Sugar Refinery.
Contrary to what one often hears from central bankers and their courtier economists, we cannot consume ourselves to prosperity. Rising consumption is a possible effect of economic growth, not a cause of it. Debt-funded capital consumption promoted by loose monetary policy can only lead to impoverishment.
Our friend Jonathan Tepper of Variant Perception (VP) is doing a lot of excellent and highly creative econometric work. It is strongly focused on the discovery and creation of proprietary leading indicators that can provide actionable information to stock market investors.
In the course of an email discussion with him and several others on the above-mentioned topic, he has provided a number of charts developed by VP that bring the current weakness in a number of economic data into context with the stock market’s performance.
We felt that one of these charts (which he has created only two days ago), was particularly striking. It shows past instances when both the manufacturing and services ISM headline indexes were below the level of 52 (50 is the threshold between expansion and contraction, readings between 50 and 52 indicate a weak expansion).
This state of affairs has recently returned, after both the August manufacturing and services ISM numbers came in well below expectations, with the former actually dipping into contraction territory slightly below the 50 level. It is incidentally quite funny (but not unusual) that the Fed is musing about hiking rates at this particular juncture. Here is Jonathan’s chart:
The Variant Perception ISM signal: The red bars indicate times when both the manufacturing and non-manufacturing ISM headline readings were below the level of 52. Evidently, this kind of environment has not been particularly friendly to stock market investors in the past – click to enlarge.
Will brisk money supply growth and ample liquidity combined with financial engineering by listed companies overrule the signal this time? That is of course possible. After all, we only have one reading to go on so far, which may yet turn out to be an outlier (we actually don’t think it is, as it is corroborated by other data as well).
In any case, we thought this is a very interesting data point and we will keep readers posted on future developments. At the very least this should be seen as an important heads-up.
US broad true money supply TMS-2: as of July 2016 its y/y growth rate stands at a brisk 8.43%; since early 2008 it has grown by a cumulative 128%. This is the main driver of asset price inflation – click to enlarge.
The stock market can defy economic weakness up to a point, particularly during times of strong money supply growth – but this isn’t going to last if the weakness continues or worsens. Ultimately it will hinge on the state of the economy’s pool of real funding, and all indications are that it is increasingly in trouble.
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If the latest news out of Syria are confirmed, one can not only kiss last weekend’s so-called “ceasefire” goodbye, but a full blown war may be about to erupt. The reason: moments ago the Syrian Army General Command reported, and shortly thereafter the Russian military confirmed, that US-coalition forces struck the Syrian airbase at Deir el-Zour, killing at least 62 Syrian army troops, “paving the way” for ISIS militants to advance in the fiercely contested area..
#Syria State TV: U.S. warplanes hit Syrian army base in Deir ez-Zor http://pic.twitter.com/Ont9tEuBi7
— Zaid Benjamin (@zaidbenjamin) September 17, 2016
According to Syria’s official SANA news agency, the bombing took place on al-Tharda Mountain in the region of Deir ez-Zor and caused casualties and destruction on the ground.
Sixty-two Syrian soldiers were killed and over 100 injured in the airstrike by the US-led coalition, Russia’s Defense Ministry spokesman, Major-General Igor Konashenkov, confirmed citing information received from the Syrian General Command.
There was no immediate comment from Washington. If confirmed, the attack could be tantamount to an act of war as it would be the first time the coalition has targeted Syrian government forces. Subsequently, the Pentagon told RT that it is “aware of the reports and checking with Centcom and CJTF (Combined Joint Task Force).”
U.S. Secretary of State John Kerry (R) and Russian Foreign Minister
Sergei Lavrov walk into their meeting room in Geneva, Switzerland
In a statement Saturday, the Syrian military says the airstrikes caused casualties and damage to equipment, and enabled an IS advance on the hill overlooking the air base. The statement calls it a “serious and blatant attack on Syria and its military” and “firm proof of the U.S. support of Daesh and other terrorist groups.” Daesh is an Arabic acronym for IS.
The Russian Defense Ministry said on Saturday that the aircraft which carried out the bombings had entered Syrian airspace from the territory of Iraq. Four strikes against Syrian positions was performed by two F-16 jet fighters and two A-10 support aircraft, it added.
“Immediately after the airstrike by coalition planes, Islamic State militants launched their offensive. Fierce fighting with the terrorists is currently underway in the area of the airport where for a long a time humanitarian aid for civilians was parachuted,” Konashenkov said.
“If the airstrike was caused by the wrong coordinates of targets than it’s a direct consequence of the stubborn unwillingness of the American side to coordinate with Russia in its actions against terrorist groups in Syria,” Konashenkov stressed. Alternatively, the Syrians – and Russians – may claim that the US coalition attack meant to cripple Syrian army forces, taking the lethal conflict to an entirely new level, one where Syria and Russia are effectively at war with the US coalition.
Meanwhile, it appears that the Assad regime, which recently also garnered the support of Chinese military forces, is preparing for a full-blown escalation: the Syrian General Command has called the bombing a “serious and blatant aggression” against Syrian forces, and said it was “conclusive evidence” that the US and its allies support IS militants.
* * *
Earlier on Saturday, Russia accused the US of being reluctant to take measures to force rebels under its control to fall in line with the terms of the Syrian ceasefire. As RT reported, numerous Russian appeals to the American side remain unanswered, which “raises doubts over the US’s ability to influence opposition groups under their control and their willingness to further ensure the implementation of the Geneva agreements,” senior Russian General Staff official, Viktor Poznikhir, said. Poznikhir also said that the truce is being used by the militants to regroup, resupply and prepare an offensive against government troops.
Last week, Moscow and Washington agreed to influence the Syrian government and the so-called moderate rebel forces respectively in order to establish a ceasefire in the country “over pizza and vodka.” We were skeptical, and for good reason: one week later it appears that not only is the ceasefire over but a whole new phase in the war may have broken out.
Russia has repeatedly alleged that the US is failing to keep its part of the bargain. The US, on its part, has blamed Russia for not pressuring Damascus enough to facilitate humanitarian access to Syria.
Both allegations may now be moot if Russia decides to retaliate against members of the US-led coalition, or directly against US forces.
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"There will be blood on your hands" if Hillary is killed, rages an angry tweeting Senator Chris Murphy following Trump's comments this morning with regard Hillary's anti-gun policies. With Clinton campaign manager Mook spinning Trump's comments as in some way calling for Hillary's assassination, we suspect – once again – the Democrats will demand a Secret Service investigation, desperate for any distraction from the declining poll numbers and lagging millennial vote.
As The Hill reports, Sen. Chris Murphy (D-Conn.) is accusing Donald Trump of suggesting his supporters kill Hillary Clinton, tweeting furiously that “blood will be on your hands.”
“Hey @realDonaldTrump, if you keep suggesting your supporters kill @HillaryClinton, someone will listen. The blood will be on your hands,” Murphy tweeted Saturday morning.
Hey @realDonaldTrump, if you keep suggesting your supporters kill @HillaryClinton, someone will listen. The blood will be on your hands.
— Chris Murphy (@ChrisMurphyCT) September 17, 2016
As we detailed earlier, Trump said Friday night at a campaign rally that Clinton’s Secret Service detail should have their guns taken away to “see what happens to her.”
“I think that her bodyguards should drop all weapons,” he said. “Take their guns away. She doesn’t want guns … let’s see what happens to her. Take their guns away, OK? It’d be very dangerous.”
And, as The Hill reports, Democrats have reacted angrily to Trump’s comment, calling it an incitement of violence.
Clinton’s campaign called on Republican leaders to denounce the statement.
"Whether this is done to provoke protesters at a rally or casually or even as a joke, it is an unacceptable quality in anyone seeking the job of Commander in Chief," campaign manager Robby Mook said.
Former Rep. Gabby Giffords — the victim of a mass shooting in 2011 — said Trump’s comments prove he is “reckless, irresponsible and unworthy of the office he seeks.”
Trump’s Friday comment appeared to be similar to another gun rights remark he made in August when he suggested that “Second Amendment people” could stop Clinton from nominating Supreme Court justices if she’s elected.
Murphy reacted similarly to that, saying it qualified as an assassination threat and calling for a Secret Service investigation.
As we concluded earlier, it was unclear if this latest attempt to redirect the media's attention from the only topic that has fascinated the public over the past week, namely Hillary's health, will succeed. To be sure, the newsflow has been so saturated with "shock value" developments in September, that reverting back to what was an August news item may be generally frowned upon by the mainstream media, which while it may not like Trump, certainly loves the soaring ad spending.
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The Fraternal Order of Police, the largest police union in the U.S., endorsed Donald Trump president, citing his “his real commitment to American law enforcement” and desire to “make America safe again.”
In a press release, the FOP, which says it represents 330,000 law enforcement officials, said Trump secured the endorsement with the support of more than two-thirds of the FOP’s board, where members were given a choice between Trump, Hillary Clinton, or neither candidate.
“[Trump] has seriously looked at the issues facing law enforcement today,” national FOP president Chuck Canterbury said in a statement. “He understands and supports our priorities and our members believe he will make America safe again.”
Earlier this year, the FOP sent both candidates a questionnaire on their positions regarding law enforcement issues in the country. Clinton didn’t respond, a snub that did not go unnoticed.
Trump, on the other hand, has courted law enforcement over his campaign. In his response to the FOP questionnaire, he supported, among other things, reviving the controversial transfer of some military equipment, like grenade launchers and armored personnel carriers, from the Pentagon to local and state police departments.
On the stump, Trump has portrayed himself as the “law and order” candidate, invoking rising murder rates in some major cities and vowing to crack on crime. “Decades of progress made in bringing down crime are now being reversed by this Administration’s rollback of criminal enforcement,” Trump warned in his July speech accepting the Republican nomination for president.
As I’ve reported, criminal justice groups say the rise in violent crime is clustered in a few major cities, and they’ve decried Trump’s rhetoric as fear-mongering.
“Obviously this is an unusual election,” FOP president Canterbury continued. “We have a candidate who declined to seek an endorsement and a candidate without any record as an elected official. Donald Trump may not ever have been elected to public but he is a proven leader and that’s what we need for the next four years—a leader unafraid to make tough choices and see them through.”
The FOP declined to endorse a candidate in the 2012 presidential election, reportedly over concerns with Mitt Romney’s position on collective bargaining rights. In 2008, it endorsed John McCain.
The Clinton campaign’s decision to not respond to the FOP survey or actively seek its endorsement reflect the heated politics surrounding law enforcement this election year. Amid the widespread protests over police shootings, Clinton has worked to distance herself from her old statements and positions on criminal justice, which mirrored much of the “tough on crime” rhetoric of the 1990s.
Meanwhile, the fatal shooting of five Dallas Police Officers in July led to a renewed push in Congress and state legislatures for so-called “blue lives matter” bills, which can make assaulting or killing a law enforcement officer a hate crime.
Earlier this summer, Black Lives Matter Activists held protests at both the Fraternal Order of Police legislative headquarters in Washington, D.C. and the Patrolmen’s Benevolent Association, which represents NYPD officers, in New York City. The protesters said the unions were a major force behind “blue lives matter” bills and blocking efforts to improve police transparency and accountability.
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Authored by George Friedman via MauldinEconomics.com,
Italy has been in a crisis for at least eight months, though mainstream media did not recognize it until July. This crisis has nothing to do with Brexit, although opponents of Brexit will claim it does. Even if Britain had voted to stay in the EU, the Italian crisis would still have been gathering speed.
The high level of non-performing loans (NPLs) has been a problem since before Brexit. It is clear that there is nothing in the Italian economy that can reduce them. Only a dramatic improvement in the economy would make it possible to repay these loans. And Europe’s economy cannot improve drastically enough to help. We have been in crisis for quite a while.
Banks were simply carrying loans as non-performing that were actually in default and discounting the NPLs rather than writing them off. But that only hid the obvious. As much as 17 percent of Italy’s loans will not be repaid. This will crush Italian banks' balance sheets. And this will not only be in Italy.
Italian loans are packaged and resold, and Italian banks take loans from other European banks. These banks in turn have borrowed against Italian debt. Since Italy is the fourth largest economy in Europe, this is the mother of all systemic threats.
Bail-Ins, Not Bail Outs
The only way to help is a government bailout. The problem is that Italy is not only part of the EU, but part of the eurozone. As such, its ability to print its way out of the crisis is limited. In addition, EU regulations make it difficult for governments to bail out banks.
The EU has a concept called a bail-in, which means the depositors and creditors to the bank will lose their money. This is what the EU imposed on Cyprus. In Cyprus, deposits greater than 100,000 euros ($111,000) were seized to cover Cypriot bank debts. While some was returned, most was not.
The bail-in is a formula for bank runs. The money seized in Cyprus came from retirement funds and payrolls. Rome wants to make sure depositors don’t lose their deposits. A run on the banks would guarantee a meltdown. A meltdown would topple the government and allow the Five Star Movement, a Euroskeptic party, a good shot at governing.
The bail-in rule exists because Berlin doesn't want to bail out banking systems using German money. Anti-European sentiment in Germany is already growing, with the rising popularity of the nationalist Alternative for Germany party. The Germans feel that they are fiscally responsible, and they resent paying for others' irresponsibility.
Therefore, the German government’s hands are tied. It cannot accept a Europe-wide deposit insurance system, as it would put German money at risk. Nor can it permit overprinting of the euro. That would come out of the German hide as well.
The Italians can only try to manage the problem by ignoring EU rules, which is what they are doing.
Crisis Spreading
And another European economic crisis is brewing. Germany derives nearly half of its GDP from exports. All the discipline and frugality of the Germans can’t hide the fact that their prosperity depends on their ability to export. The ability to export depends on the demand of their customers.
Germany exports heavily to the EU, and the Italian crisis could cause an EU-wide banking crisis. That would cut deeply into German exports, slashing GDP and driving up unemployment. Logically, the Germans should be desperately trying to head off an Italian default. But Chancellor Angela Merkel is not eager to announce to the German people that their economy depends on Italy’s well-being.
Clearly, German businesses are aware of the danger. German production of capital goods fell nearly 4 percent from last month. German production of consumer goods rose only 0.5 percent.
German consumption can’t possibly make up for half of Germany’s GDP. In addition, the IMF recently said Deutsche Bank is the single largest contributor to systemic risk in the world. A rippling default through Europe will hit Deutsche Bank.
The US Piece of the Puzzle
However, the real threat to Germany is a U.S. recession. Recessions are normal, cyclical events that are necessary to maintain economic efficiency by culling inefficient businesses. The U.S. has one on average once every six to seven years. Substantial irrationality has crept into the economy. The yield curve on interest rates is beginning to flatten. Normally, a major market decline precedes a recession by three to six months. That would indicate that it likely won’t happen in 2016, but it could in 2017.
Given the stagnation in Europe, Germany has been shifting its exports to other countries, particularly the U.S. If the U.S. goes into recession, demand for German goods, among others, will drop. But in the case of Germany, a 1 percent drop in exports is nearly a half percent drop in GDP. With Germany’s minimal growth rate, drops of a few points could drive it into recession and high unemployment.
A U.S. recession would not only hit Germany, but the rest of Europe. Many countries export to the U.S., either directly or through producing components for German and British products. The U.S. is somewhat exposed to foreign debt defaults, but not enough to bring down the American system. The United States, with relatively low export percentages and low exposure, can withstand its cycle. It is not clear that Europe can.
The Big Picture
The EU must address Italy’s and Germany’s problems, but its regulations make finding solutions very difficult. This all was put in motion in 2008, but it is not a 2008 crisis. This is most of all a political and administrative crisis. The European system was created to administer peace and prosperity, not to manage the complex gyrations of an economy.
The argument from those who are against internationalism is simple. Sometimes the major international systems fail. The less entangled you are with these systems, the less damage you suffer. And since such systemic failures historically leads to political conflict and crisis, the case for nationalism increases – assuming you aren’t already trapped in the systemic crisis. In any event, increasing nationalism follows systemic failure like night follows day.
* * *
Watch George Friedman's Ground-breaking Documentary ‘Crisis & Chaos: Are We Moving Toward World War III?’
Italy’s contagious crisis is part of a storm of instability engulfing a region that’s home to 5 billion of the planet’s 7 billion people.
In this provocative documentary from Mauldin Economics and Geopolitical Futures, George Friedman uncovers the crises convulsing Europe, the Middle East and Asia … and reveals the geopolitical chess moves that could trigger global conflict. Register for the online premiere now.
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Dick Zimmer, who served as a Republican congressman from New Jersey from 1993 to 1997 and ran unsuccessfully for U.S. Senate in 1996 and 2008, has endorsed the Libertarian ticket, Gary Johnson and Bill Weld, for president and vice president, the New Jersey Libertarian Party announced today.
“As far as I can recall, I’ve never publicly endorsed any candidate except a Republican,” Zimmer wrote. “I’ve split my ballot and have occasionally voted Libertarian, but always as a private matter.” Not this time, wrote Zimmer, describing Donald Trump as “neither a conservative nor a Republican.” Trump, according to Zimmer, does not believe in the Republican “founding principles of human equality and national unity.
Zimmer declined to go the route of some other anti-Trump Republicans, who have actually endorsed Hillary Clinton, calling her “one of the most left-wing members” of the Bill Clinton administration who has only “moved much farther to the left since then.”
Clinton, wrote Zimmer, “believes in far too large a role for the federal government in our economy and in our private lives.” Zimmer also dismissed the Trumpkin argument that a vote for Johnson is a vote for Clinton. “Current polling does not support that assumption,” Zimmer wrote, “but even if it did, I think the Republic can survive four years of Hillary as it has survived eight years of Obama. I’m not sure I can say the same about Trump.”
Zimmer wrote that he had never met Johnson in person, but that he admired Johnson’s record as a two-term governor in New Mexico, where was a “principled, fearless small-government fiscal conservative” and similarly admired Weld’s record as governor of Massachusetts.
Zimmer noted that he did not agree with everything in the Libertarian platform, but that the same could be said of the platforms of Republican candidates he’s endorsed in the past. Yet, “the Libertarian ticket is clearly superior to that of either party,” wrote Zimmer. “Both Gary Johnson and Bill Weld have far more experience and success as government executives than either of the major-party presidential candidates. They are both men of honor and integrity who deeply believe in the principles of the Constitution.”
Zimmer is the third former member of Congress to endorse Johnson, who was also endorsed by sitting member of Congress Rep. Scott Rigel (R-Va.) and a slew of state legislators. Johnson also so far has more daily newspaper endorsements in the general election than Donald Trump.
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Obama crushed Republicans in the past two presidential elections with young voters. In fact, 18-29 year old voters skewed toward Obama by 34 points in 2008 against McCain and 24 points in 2012 against Romney. Meanwhile, Republicans have typically fared better with the Baby Boomers with Romney coming out ahead of Obama with all voters above 45 years old in the 2012 contest and McCain winning with voters above 65.
This is not a recent phenomenon. As the Pew Research Center points out, Democrats have relied heavily on the youth vote throughout history with John Kerry and Obama pushing the support spread between young and old voters to the widest margins since the 70’s.
Young voters skewed even more toward Obama in the swing states with Obama beating Romney among 18-29 years by 34 points in Florida, 27 points in Ohio and Pennsylvania and 25 points in Virginia.
Therefore, it shouldn’t be surprising that the Hillary camp is panicked about their sudden collapse in support from millennial voters. According to the Wall Street Journal, Hillary led Trump by an average of 26 points nationally among 18-35 year old voters back in August but that lead has now collapsed to just 7 points.
The outreach comes as polls show younger voters moving away from Mrs. Clinton. Among those under age 35, Mrs. Clinton’s lead over Republican presidential rival Donald Trump fell from 24 points in late August to just 5 points this month in Quinnipiac surveys. That was one reason her overall lead among likely voters fell from 7 points to 2 points.
Similarly, Mrs. Clinton bested Mr. Trump by 27 points among voters under 35 in a Fox News survey in early August. That lead fell to 9 points in a new Fox News survey.
Meanwhile, state polling data is also starting to reflect the shift in young voters as well with Hillary’s 24-point lead among young Michigan voters back in August collapsing to just 7 points in September.
The trend is appearing in some state-level surveys, as well: In a new poll of Michigan voters, Mrs. Clinton’s 24-point lead among young voters a month ago fell to 7 points. That change helped account for why her 11-point lead among voters overall fell to 3 points in the survey, conducted for the Detroit Free Press and WXYZ.
Democratic strategists are panicked with one former Clinton aide admitting to The Hill that Hillary has to win among voters saying there is “No other way around it.”
“Those are tough numbers,” said Democratic strategist Jamal Simmons, calling support from millennials “critical” to a Clinton victory in November. “You have to have enough millennials to offset the baby boomers that she loses, and right now, she’s underperforming with white voters.”
“She has got to do better there,” a former Clinton aide acknowledged. “No other way around it.”
The panic among the Hillary camp has prompted yet another campaign “reset” as Bernie Sanders and Elizabeth Warren have been lined up to storm universities in swing states across the country over the next couple of days/weeks. Of course, the two will be highlighting the many free goodies that the Hillary campaign will be offering young students including a plan to make community college free and proposals to have students graduate from college without debt. They are also expected to discuss other issues including health care, immigration and an increase in the minimum wage. The problem, at least according to Democratic strategist Jamal Simmons, is that Hillary needs to do the leg work with Millennials on her own as sending surrogates isn’t as effective.
“You have to go talk to the voters, the campaign can’t outsource the outreach to surrogates and expect that person to seal the deal for them,” he said. “President Obama can’t do it. Elizabeth Warren can’t do it. Hillary is going to be their president. She’s the one who needs to do it.”
A travel schedule we suspect will be a bit too exhausting for Hillary as she continues to recover from her “pneumonia.”
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Submitted by EconomicPrism's MN Gordon (Annotated by Acting-Man's Pater Tenebrarum),
Swing voters are a fickle bunch. One election they vote Democrat. The next they vote Republican. For they have no particular ideology or political philosophy to base their judgment upon.
The primacy of the wallet.
They don’t give a rip about questions of small government or big government. Nor do they have any druthers about the welfare or warfare state.
In effect, they really don’t care. What’s important to the swing voter is much simpler. In fact, it can be boiled down to the following essential question. What have you done for me lately?
The answer to this question, of course, comes back to money. As far as the swing voter’s concerned, if their brokerage account’s growing they vote the incumbent party. If it’s shrinking, they vote the challenger party.
It doesn’t matter if the source of the stock market inflation is a fraud. Nor does it matter that a stock market correction will help reestablish financial markets on a firmer foundation.
In this respect, the mere trajectory of the swing voter’s portfolio tells them everything they need to know about whom to vote for.
Earlier this week Republican Presidential Candidate Donald Trump took issue with the Federal Reserve’s stock market inflation games.
He remarked on CNBC that the Fed has created a “false stock market,” and that Fed Chair Janet Yellen and central bank policymakers are very political, and should be “ashamed” of what they’re doing to the country, “The Fed is not even close to being independent.”
Certainly, the idea that the Federal Reserve influences elections is not a novel concept. For this reason, at the recent central banker’s summit in Jackson Hole, Wyoming, former Democrat Congressman, and overall repulsive being, Barney Frank, told the Fed, “Don’t raise rates before election.”
With his tireless work for the poor and the middle class finally done, Barney Frank waved good-bye, to sail off into the well-appointed retirement of a Congressman. Recently he felt the need to pipe up again, dispensing advice to the “independent” Federal Reserve.
Obviously, a monetary policy change toward tighter credit, and the subsequent stock market swoon prior to an election can mean death for an incumbent party. Just ask former President George H.W. Bush. He’ll tell you that former Fed Chairman Alan Greenspan cost him the 1992 election.
From an axiomatic perspective, the truth of a political accusation is equal to the denial that follows. In other words, the greater the subsequent denial is, the greater the truth of the allegation.
Shortly after Trump’s shaming of Fed Chair Yellen, Minneapolis Fed President Neel Kashkari took to Squawk Box to offer this denial:
“Politics simply does not come up,” said Kashkari. We suppose Kashkari had his fingers crossed behind his back when he uttered this. Because given his checkered past, he’s simply not a man to be trusted.
Kashkari, without question, is an extreme economic interventionist. If you recall, as federal bailout chief, he functioned as the highly visible hand of the market. In early-2009, he awoke each morning, put on his pants, drank his coffee, and rapidly dispersed Henry Paulson’s $700 billion of TARP funds to the government’s preferred corporations.
Kashkari’s former partner in crime, Hank Paulson. They had to destroy the village to save it – or so they said, anyway.
Incidentally, the experience had an ill effect on Kashkari’s mental health. Following his position of federal bailout chief, he became a hermit, took to a cabin in the Sierra Nevada Mountains – near Donner Pass – and found his purpose in life chopping wood (for an image of Kashkari the wood-chopper, see here).
We thought we’d seen the last of him. But alas, after a failed gubernatorial campaign in California in 2014, Kashkari resurfaced earlier this year as Minneapolis Fed President. The world is a worse place because of it.
Kashkari’s a man with crazy eyes. But he’s also a man with even crazier ideas. After stating that politics is not part of presidential election year Fed policy, Kashkari explained how Fed policy is set.
Neel Kashkari: Crazy eyes and even crazier ideas.
“We look at the data,” he said. In hindsight, this clarification was more revealing than the initial denial.
Clearly, Kashkari has never thought about what exactly it is he is looking at when looking at the data. If he had, he’d likely conclude that the approach of using data to identify apparent aggregate demand insufficiency and perceived supply gluts is crazy.
Unemployment. Gross domestic product. Price inflation. These data points are all fabricated and fudged to the government number crunchers’ liking. What’s more, for each headline number there is a long list of footnotes and qualifiers.
Hedonic price adjustments. Price deflators. Seasonal adjustments. Discouraged worker disappearances. These subjective adjustments greatly affect the results.
Yet what’s even crazier is that Kashkari believes that by finagling around with the price of money the Fed can improve the output of bogus data. According to central planners, better data – i.e. higher GDP, greater consumer demand, 2 percent inflation – means a better economy.
But after 100-years of mismanagement, the last eight being in the radically extreme, the Fed has scored a big fat rotten tomato. The data still stinks – GDP’s still anemic. But the downside of their actions is downright putrid.
How much economic progress has monetary central planning actually cost us? This cannot be quantified, but we are willing to bet that in combination with the socialistic welfare/ warfare state that is partly funded by this surreptitious theft, we have lost the equivalent of one or two centuries of real wealth creation as a result of compounding effects and historical political developments (primarily war) that would have been impossible without limitless credit expansion. Once this gigantic bubble implodes for good the damage will become even greater – click to enlarge.
Policy makers have pushed public and private debt well past their serviceable limits. They’ve debased the dollar to less than 5 percent of its former value and propagated bubbles and busts in real estate, stock markets, emerging markets, mining, oil and gas, and just about every other market there is.
Aside from enriching private bankers, we now know the answer to why the Fed destroyed the market economy. According to Kashkari, the data told them to.
* * *
Addendum: Have you Seen this Man?
We came across this excellent mugshot of the above-mentioned Barney the Destroyer which we didn’t want to keep from you…
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By the SRSrocco Report,
The Death of the Great Bakken Oil Field has begun and very few Americans understand the significance. Just a few years ago, the U.S. Energy Industry and Mainstream media were gloating that the United States was on its way to “Energy Independence.”
Unfortunately for most Americans, they believed the hype and are now back to driving BIG SUV’s and trucks that get lousy fuel mileage. And why not? Americans now think the price of gasoline will continue to decline because the U.S. oil industry is able to produce its “supposed” massive shale oil reserves for a fraction of the cost, due to the new wonders of technological improvement.
I actually hear this all the time when I travel and talk to family, friends and strangers. I gather they have no clue that the Great Bakken Oil Field is now down a stunning 25% from its peak in just a little more than a year and half ago:
The mighty Bakken oil field located in North Dakota reached peak production in December 2014 at 1.26 million barrels per day (mbd) and is now down to 942,000 bd. This decline is no surprise to me or to my readers who have been following my work for the past several years.
I wrote about the upcoming crash of the Bakken oil field in my article (click here to read article)– Published, NOV. 2013:
I ended the article with these sobering words:
There are only so many drilling locations available and once they run out, the Great Bakken Field will become a BUST as the high decline rates will push overall oil production down the very same way it came up.
Those who moved to the frigid state of North Dakota with Dollar signs in their eyes and images of sugar-plums dancing in their heads will realize firsthand the negative ramifications of all BOOM & BUST cycles.
Well, the Bust of North Dakota economy has arrived and according to the article, “The North Dakota Great Recession“:
Unfortunately by April 2015 it was clear that the oil markets were in a secular decline brought on by oversupply in the global energy markets fueled by a deep recession in China. As a result, companies started to lay off workers, and over the following months caused a massive exodus of people as jobs were eliminated. Nobody is exactly sure how many people have left the state, but some put estimates as high as 25,000.
The strongest real estate market continues to be Watford City with the weakest in Minot. However, even in Watford City the price of a three-bedroom rental home has come down from $2,500 in 2015 to a current price of $1,400. This represents a 44 percent decline of the rental price in the market.
Some folks believe the reason for the decline in oil production at the Bakken was due to low oil prices. While this was part of the reason, the Bakken was going to peak and decline in 2016-2017 regardless of the price. This was forecasted by peak oil analyst Jean Laherrere. I wrote about this in my article below (click here to read article)– Published, APRIL 2015:
I took Jean Laherrere’s chart and placed it next to the current actual Bakken oil field production:
As we can see in the chart above, the rise and fall of Bakken oil production is very close to what Jean Laherrere forecasted several years ago (shown by the red arrow). According to Laherrere’s chart, the Bakken will be producing a lot less oil by 2020 and very little by 2025. This would also be true for the Eagle Ford Field in Texas.
According to the most recent EIA Drilling Productivity Report, the Eagle Ford Shale Oil Field in Texas will be producing an estimated 1,026,000 barrels of oil per day in September, down from a peak of 1,708,000 barrels per day in May 2015. Thus, Eagle Ford oil production is slated to be down a stunning 40% since its peak last year.
Do you folks see the writing on the wall here? The Bakken down 25% and the Eagle Ford down 40%. These are not subtle declines. This is much quicker than the U.S. Oil Industry or the Mainstream Media realize.
And… it’s much worse than that.
The U.S. Oil Industry Hasn’t Made a RED CENT Producing Shale
Rune Likvern of Fractional Flow has done a wonderful job providing data on the Bakken Shale Oil Field. Here is his excellent chart showing the cumulative FREE CASH FLOW from producing oil in the Bakken:
I will simply this chart by explaining that the BLACK BARS are estimates of the monthly Free Cash flow from producing oil in the Bakken since 2009, while the RED AREA is the cumulative negative free cash flow. As we can see there are very few black bars that are positive. Most are negative, heading lower.
Furthermore, the red area shows that the approximate negative free cash flow (deducting CAPEX- capital expenditures) is $32 billion. So, with all the effort and high oil prices from 2011-2014 (first half of 2014), the energy companies producing shale oil in the Bakken are in the hole for $32 billion. Well done…. hat’s off to the new wonderful fracking technology.
According to Rune Likvern in his article on the Bakken, he stated the following:
Just to retire estimated total debts (about $36 Billion, including costs for DUCs, SDWs, excluding hedges and income/loss of natural gas and NGLs) would require about 7 years with extraction and prices at Jun-16 levels.
Nominally to retire all debts (reach payout) would take an (average) future oil price close to $65/bo (WTI) for all the wells in operation as of end June – 16. This is without making any profit.
For the wells in production as per Jun-16, the total extraction of these will decline about 40% by Jun-17, and depletes their remaining reserves with about 20%. By assuming the operations remain cash flow neutral, total debt remains at $36 B in Jun-17.
As from Jul-17 this would now require an average oil price of about $73/bo (WTI) for these wells to nominally retire all debts (reach payout). Additional wells will add to what price is required to retire the total debt.
What Rune is stating here is that the $36 billion in total cumulative debt will occur by June 2017. Thus, it would take an average $65 a barrel to just pay back the debt in seven years. With the way things are going in the U.S. and world economies, I doubt we are going to see much higher oil prices.
Furthermore, the work by Louis Arnoux and the Hills Group suggest the price of oil will fall, not rise due to a Thermodynamic Collapse. More about this in an upcoming interview.
The United States Is In Big Trouble & Most Americans Have No Clue
As I have been documenting in previous articles (going back until 2013) the U.S. Shale Oil Industry was a house-of-cards. Readers who have been following my work, based on intelligent work of others, understood that Shale Oil is just another Ponzi Scheme in a long list of Ponzi Schemes.
From time to time, I look around different websites that publish my work and read some of the comments. I am surprised how many individuals still don’t believe in Peak Oil even though I explained the Falling EROI – Energy Returned On Investment quite clearly.
For some strange reason, some individuals cannot use deductive reasoning to destroy lousy conspiracy theories. Moreover, if they do believe in Peak Oil, then they think there is a wonderful “Silver-Bullet Energy Technology” that will save us all. I gather they believe this because the REALITY and IMPLICATIONS of Peak Oil are just too horrible, to say the least. So, holding onto HOPE that something will save us, just in the nick of time, is better than accepting the awful reality heading our way.
And the awful reality of Peak Oil will be felt more by Americans as their lifestyles have been highly elevated by the ability to extract wealth and resources from other countries through the issuing of massive amounts of paper Dollars and debt. Basically, they work, and we eat.
Unfortunately, the propping up of the U.S. market by the Fed and the domestic shale energy Ponzi scheme is running out of time. This is why it is imperative for investors to start moving out of Bonds, Stocks and Real Estate and into physical gold and silver to protect wealth.
For the wealthy investor or institution that believe a 5-10% allocation in physical gold is good insurance, you are sadly mistaken. While Donald Trump is receiving more support from Americans in his Presidential race, his campaign motto that he will “Make American Strong Again”, will never happen. The America we once knew is over. There just isn’t the available High EROI – Energy Returned On Investment energy supplies to allow us to continue the same lifestyle we enjoyed in the past.
So, now we have to transition to a different more local or regional way of living. This new living arrangement will be based on capital that is “STORED ECONOMIC ENERGY or WEALTH.” This can only come via the best sources such as physical gold and silver.
If individuals and countries have been acquiring physical gold and silver, they will be in better shape and will be able to enjoy more options than those who have been selling their gold and accumulating lots of debt and derivatives.
Lastly, if you haven’t checked out our new PRECIOUS METALS INVESTING section or our new LOWEST COST PRECIOUS METALS STORAGE page, I highly recommend you do.
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