iftttwall

Submitted by Paul Rosenberg via Free-Man's Perspective blog,

Over the last few months a stream of articles have crossed my screen, all proclaiming the need of governments and banks to eliminate cash. I’m sure you’ve noticed them too.

It is terrorists and other assorted madmen, we are told, who use cash. And so, to protect us from being blown up and dismembered on our very own street corners, governments will have to ban it.

It would actually take some effort to imagine a more obvious, naked attempt at fearmongering. Cash – in daily use for centuries if not millennia – is now, suddenly, the agent of spring-loaded, instant death? And we’re supposed to just accept that line?

But there are good reasons why the insiders are promoting these stories now. The first of them, perhaps, is simply that they can: After 9/11, a massive wave of compliance surged through the West. It may not last forever, but it’s still rolling, and if the entertainment corporations can pump enough fear into minds that want to believe, they may just get them to buy it.

The second reason, however, is the real driver:

Negative Interest Rates

The urgency of their move to ban one of the longest-lasting pillars of daily life means that the backroom elites think it will be necessary soon. It would appear that the central banks, the IMF, the World Bank, the BIS, and all their backers, see the elimination of cash as a central survival strategy.

The reason is simple: cash would allow people to escape from the one thing that could save their larcenous currency system: negative interest rates.

To make this clear, I like to paraphrase a famous (and good) quote from Alan Greenspan, back from 1966, during his Ayn Randian days: The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

That was a true statement, and with a slight modification, it succinctly explains the new war on cash:

The preservation of an insolvent currency system requires that the owners of currency have no way to protect it.

Cash is currency that you hold in your own hands, that stands more or less alone. It is primarily external to bank control. Electronic money – bank balances, credit, etc. – remains inside the banking system and fully subject to bank control.

A combination of no cash and negative interest rates would be a quiet, permanent version of what was done in Cyprus, where the government simply shut down everything, allowed only the smallest deductions via ATMs, and then stole money from thousands of bank accounts at once.

The Cypriot spectacle was fairly large, however, and that tends to undermine the legitimacy of rulership. So, it is much better to have no ATMs and no cash at all. There would be no lines of angry people talking to each other, only isolated losers with no recourse, licking their wounds while the talking heads on television tell them to stay calm and watch the flashing images.

Negative interest rates would give the banks 100% control over your purchases. They could, even in the worst pinch, allow you to purchase food while freezing the rest of your money. The average person would have no recourse and would simply be robbed… but very smoothly and with no human face to blame on.

Negative interest rates mean that your bank account shrinks day by day, automatically. Your $1000 in January becomes $950 by December. And where does that money go? To the banks, of course, and to the government. They syphon your money away, drip by drip, and there’s nothing you can do about it. This accomplishes several things for them at once:

• It finances government, limitlessly and automatically. Forget tax filings; they can just take as they please.

• It pays off the bad debt of the big banks. (And there are oceans of debt.)

• It forces you to spend everything you’ve got, as soon as you get it. (Otherwise it will shrink.)

• It gives the system full control over your financial life. Everything is monitored, everything is tracked, and every single transaction must be approved by them (or not). If they decide they don’t like you, you’re instantly reduced to begging.

In short, this is a direct return to serfdom.

via Zero Hedge http://ift.tt/1KJoHLu Tyler Durden

Since The Fed stopped its money-printing extravaganza things have changed a little for the status-quo “believers”…

 

 

So, after all this time, we were right – “It’s The Fed, Stupid”

via Zero Hedge http://ift.tt/1PQkfuU Tyler Durden

“It’s a joke. We couldn’t wish [for] more than that. If they can do it, then let them do it — but talking militarily, this is not easy for a country already facing defeat in another war, in Yemen, where after almost one year they have failed in achieving any real victory.”

That’s what one source in the Iranian military had to say about reports that Saudi Arabia is preparing to send ground troops into Syria.

If you frequent these pages you know why Riyadh (and Ankara for that matter) is considering the ground option. The effort to oust Bashar al-Assad and the Alawite government was going reasonably well right up until September. Sure, the conflict was dragging into its fifth year, but Assad’s army was on the ropes and absent a miracle, it seemed likely that his government would fall.

As it turns out, Assad did indeed get a miracle from above although instead of divine intervention it was Russian airstrikes which commenced from Latakia starting on September 30. Contrary to The White House’s prediction that Putin would find himself in a “quagmire,” Russia and Hezbollah have rolled up the opposition and are preparing to recapture Aleppo, the country’s largest city and a major commercial hub. If that happens, the rebellion is over.

That would be a disaster to the rebels’ Sunni benefactors as it would mean Iran will preserve the Shiite crescent and its supply lines to Hezbollah. It would also give Tehran bragging rights in the bitter ideological war with Riyadh. Simply put, that’s unacceptable for the Saudis and so, it’s time to call upon the ground troops.

But this isn’t Yemen where the Iranians are fighting via proxies. If the Saudis start shooting at the IRGC or at Hezbollah in Syria it’s just as likely as not that the two countries will go to war and just like that, you’d have the beginning of World War III.

Don’t believe us? Just ask Russian PM Dmitry Medvedev.

“If Arab forces entered the Syrian war they could spark a new world war,” Medvedev warned on Thursday. “Ground offensives usually lead to wars becoming permanent”. Here’s what else he told Handelsblatt:

“The Americans and our Arabic partners must think hard about this: do they want a permanent war?”

 

“Do they really think they would win such a war very quickly? That’s impossible, especially in the Arabic world. There everyone is fighting against everyone… everything is far more complicated. It could take years or decades.”

 

“Why is that necessary? All sides must be forced to the negotiating table instead of sparking a new world war.”

Yes, “all sides must come to the negotiating table.” Of course that’s easy for Medvedev to say. After all, it’s a lot easier to sit at the table when you’ve already won and are negotiating from a position of strength. 

That is, there won’t be anything left to negotiate in a couple of weeks if things keep going like they’re going. What Moscow pretty clearly wants to do is crush the opposition in Aleppo and then discuss how to proceed with some kind of political “agreement” that will prevent whatever remains of the rebels from launching a prolonged war of attrition involving periodic attacks on government forces.

In any event, don’t say Russia didn’t warn everyone when the Saudis and the Turks end up setting the world on the road to a global conflict. Below, find excerpts from an interview The Atlantic conducted with Andrew Tabler of the Washington Institute for Near East Policy.

Kathy Gilsinan: I wanted to start with what the significance of Aleppo has been to the Syrian uprising up to this point.

Andrew Tabler: Aleppo is Syria’s largest city. It’s the commercial hub. It is extremely important, particularly to the opposition, because Aleppo, along with the other northwestern cities, have been some of the strongest opponents to the Assad regime historically. I think the decision in 2012 to take [the city] was one of the first real major offensives of the armed opposition in Syria. And they hoped that by denying the regime Aleppo, it would set up an alternative capital and allow for a process where the Assad regime’s power was whittled away. Since that time, it has instead been one of the most bombed, barrel-bombed, and decimated parts of Syria, and now is much more like Dresden than anything else.

Gilsinan: If Aleppo falls, walk me through what happens next. First, how would it change the balance of power, within the civil war, between the rebels and the regime?

Tabler: I think it would cement the regime’s hold on “essential Syria”—western Syria, perhaps with the exception of Idlib province [to] the south [of Aleppo]. But basically you would have the regime presence from Aleppo the whole way down to Hama, Homs, and Damascus, and that’s the spine of the country, and that’s what concerns the regime and the Iranians in particular. It would then allow them to free up forces, potentially, to go on the offensive elsewhere, directly into Idlib province, most likely, and then eventually into the south. Then after that they could turn their attention finally to ISIS.

Gilsinan: And then what happens to the regional balance of power within that war?

Tabler: It would be a tremendous loss for the U.S. and its traditional allies: Turkey, Saudi Arabia, Qatar, and Jordan. It’s already been extremely costly for most of those allies, but it would be a defeat [in the face of] the Russian-Iranian intervention in Syria. This would also be a huge loss for the United States vis-à-vis Russia in its Middle East policy, certainly. And because of the flow of refugees as a result of this, if they go northward to Europe, then you would see a migrant crisis in Europe that could lead to far-right governments coming to power which are much more friendly to Russia than they are to the United States. I think that is likely to happen.

Gilsinan: So it changes the entire orientation, not just of the Middle East, but of Europe as well.

Tabler: It will soften up American power in Europe, yeah. And put into jeopardy a lot of the advances in the NATO-accession countries, which are adjacent to Russia, as well.

*  *  *

Or, summed up:

via Zero Hedge http://ift.tt/1Ruwkal Tyler Durden

Submitted by Richard Ebeling via EpicTimes.com,

The news is filled with the everyday zigzags of those competing against each other for the Democrat and Republican Party nominations to run for the presidency of the United States. But one of the most important issues receiving little or no attention in this circus of political power lusting is the long-term danger from the huge and rising Federal government debt.

The Federal debt has now crossed the $19 trillion mark. When George W. Bush entered the White House in 2001, Uncle Sam’s debt stood at $5 trillion. When President Bush left office in January of 2009, it had increased to $10 trillion. Now into seven years of Barack Obama’s presidency, the Federal debt has almost doubled again.

And it is going to get much worse, according to the Congressional Budget Office. On January 26, 2016, the CBO released it latest “Budget and Economic Outlook” analysis for the next ten years, from 2016 to 2026.

Continuing Deficits and Growing National Debt

The economists at the CBO estimate that the Federal budget deficit for the fiscal year, 2016, will be $544 billion, or $105 billions more than Uncle Sam’s budget deficit in fiscal year 2015. And each year’s budget deficit will continue to be larger than the previous year from here on. Indeed, the CBO estimates the Federal government’s annual deficits will once more be over $1 trillion starting in 2022 and thereafter.

Between 2016 and 2026, the Federal debt, as a result, is projected to increase by a cumulative amount of almost $9.5 trillion, for a total national debt of around $30 trillion just ten years from now.

The reason for the continuing ocean of Federal red ink is the fact that while government revenues are projected to be around 49.5 percent higher in fiscal year 2026 ($5,035 trillion) than in fiscal year 2016 ($3.376 trillion), government spending will be over 63 percent more in fiscal year 2016 ($6,401 trillion) than in fiscal year 2016 ($3,919 trillion).

Understanding the Fiscal History of America

The famous Austrian-born economist, Joseph A. Schumpeter (1883-1950), once wrote an article on, “The Crisis of the Tax State” (1918). He said the following about a country’s fiscal history:

“[A country’s] budget is the skeleton of the state stripped of all misleading ideologies – a collection of hard facts . . . The fiscal history of a people is above all an essential part of its general history. An enormous influence on the fate of nations emanates from the economic bleeding which the needs of the state necessitates, and from the use to which its results are put . . . The view of the state, of its nature, its forms, its fate [are] seen form the fiscal side . . .

 

“The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare – all this and more is written in its fiscal history, stripped of all phrases. He who know how to listen to its message here discerns the thunder of world history more clearly than anywhere else . . . The public finances are one of the best starting points for an investigation of society, especially though not exclusively of its political life.”

A hundred years ago, around 1913, before the beginning of the First World War, all levels of government in the United States – Federal, State, and local – taxed and spent less than 8 percent of national income, with the Federal government absorbing less than half of this amount.

By 1966, Federal outlays alone took 17.2 percent of Gross Domestic Product and are projected to rise to 21.2 percent in 2016 and will to 23.1 percent of GDP by 2026. Over the fifty years between 1966 and 2016, government outlays as a percentage of GDP increased by nearly 24 percent, and will be growing more over the next decade.

The Welfare State Drives the Deficits and the Debt

What can America’s fiscal history, as Schumpeter suggested, tell us about the direction and drift of government over the last half-century and looking to the future? Perhaps not too surprisingly for both supporters and critiques of the welfare state, it has been and is being driven by the continuing expansion of the “mandatory spending” of the redistributive “entitlement” programs.

In 1966, the intergenerational redistribution program known as Social Security absorbed 2.6 percent of GDP; in 2016, it will suck up 4.9 percent, for a nearly 90 percent increase. And by 2026, Social Security spending will represent 5.9 percent of GDP, for a 20 percent increase over the coming decade. (See my article, “There is No Social Security Santa Claus.”)

Major Federal-funded health care programs (Medicare, Medicaid and related programs) siphoned off a mere 0.1 percent of GDP in 1966; in 2016 this will have increased to 5.6 percent of GDP, a more than 500 percent increase over fifty years. By 2026, the CBO estimates, these Federal health care programs (now including ObamaCare) will take 6.6 percent of GDP, for a nearly 18 percent increase in the next ten years. (See my article, “For Healthcare the Best Government Plan is No Plan.”)

Summing over all of these and related mandatory entitlement spending programs, in 1966 the redistributive welfare state absorbed 4.5 percent of the nation’s Gross Domestic Product; in 2016 this will be 13.3 percent of GDP, and 15 percent of GDP in 2026. Or a 317 percent increase over the fifty years between 1966 and 2016, and an additional 13 percent increase between 2016 and 2026.

Due to all of the deficit spending to finance this redistributive largess over what the government collects in tax revenues to fund it, interest on the Federal debt will increase from 1. 4 percent of GDP in 2016 to 3.0 percent of GDP in 2026, or more than a 100 percent increase in the interest cost on the national debt over the next ten years as a percentage of GDP.

Welfare state spending plus mandatory interest payments on the Federal debt now absorbs around 60 percent of everything Uncle Sam spends.

For a point of comparison in this tilted direction of government spending, all non-entitlement spending represented 11. 5 percent of GDP in 1966, and will be down to 6.5 percent of GDP in 2016 and is projected to be 5.2 percent of GDP in 2026. This represents a decrease as a percentage of GDP in non-entitlement spending of 45 percent over the last fifty years, and another 20 percent decline as a percentage of GDP over the coming decade.

Now in absolute terms all government spending has grown over the last fifty years. But what America’s fiscal history highlights, looking over the half-century that is behind us, is that it is the dynamics of a growing domestic welfare state that is fundamentally driving the country’s financial ruin.

The Force of Collectivist Ideology and Political Privilege

This has been coming about due to two fundamental and interconnected factors at work: First, the ideology of a right to other people’s wealth and income, and, second, the democratization of political privilege.

For more than a century, now, the older American political tradition of classical liberalism, with its belief in individual liberty, economic freedom and constitutionally limited government, has been slowly but surely eroded by the “progressive” ideal of political, social and economic collectivism.

These dangers were already present in the late nineteenth century with the rise of the socialist movement, and its then appearance on this side of the Atlantic. “The workers,” however, were not the vanguard of socialism in either Europe or America. It was mostly intellectuals and political philosophers who arrogantly dreamed dreams of new and “better worlds” designed and planned according to what they considered a more moral and “socially just” society. (See my article,“American Progressives are Bismarck’s Grandchildren.”)

Its Not Your Fault and Others Owe You

Over the decades, for a century now, the socialist criticisms of capitalist society have eaten away, little by little, the understanding, belief in, and desire for a truly free market society. Your pay seems to be too low in comparison to what you think or have been told you deserve? It must be due to the exploitation and unfairness of profit-making businessmen.

You’re afraid that you might not have the health care you want or the retirement money you think you’ll need, surely it must because “the rich” have squandered their unearned wealth on things other than what “the people” really need. Your child cannot go to the topnotch college or university you would want them to attend for your offspring’s future? That can be cured along with those other injustices by taxing or regulating those who have more than you, and who don’t deserve it.

The social game is rigged; nothing is your fault, it is all due to those who have more than you, and who don’t pay their “fair share” to fund what “working people” like you need and have a “right” to.

When such thinking is repeated enough, time-after-time over years and, now, generations, a large number of people in our society implicitly take it all to be true. If only government has sufficient taxing and regulating authority, the world can be made better for “the many” against the greed and social disregard of the few (the “one percent.”)

Losing the Spirit and Practice of Individualism

The dangers in all this was warned about long ago, for instance, by J. Laurence Laughlin, an economist who was the founder of the economics department at the University of Chicago. In his 1887 book, The Elements of Political Economy Laughlin said:

“Socialism, or the reliance on the state for help, stands in antagonism to self-help, or the activity of the individual. That body of people certainly is the strongest and the happiest in which each person is thinking for himself, is independent, self-respecting, self-confident, self-controlled and self-mastered. Whenever a man does a thing for himself he values it infinitely more than if it is done for him, and he is better for having done it . . .

 

“If, on the other hand, men constantly hear it said that they are oppressed and downtrodden, deprived of their own, ground down by the rich, and that the state will set all things right for them in time, what other effect can that teaching have on the character and energy of the ignorant than the complete destruction of all self-help?

 

“They begin to think that they can have commodities which they have not helped to produce. They begin to believe that two and two make five. It is for this reason that socialistic teaching strikes at the root of individuality and independent character, and lowers the self-respect of men who ought to be taught self-reliance . . .

 

“The right policy is a matter of supreme importance, and we should not like to see in our country the system of interference as exhibited in the paternal theory of government existing in France and Germany.”

What Professor Laughlin feared and warned about nearly 130 years ago has increasingly come to pass with the social attitudes and political desires and demands of too many of our fellow countrymen. European collectivism invaded and continues to conquer America’s original spirit and politics of individualism.

The Rise of Democratized Privilege

The other force at work in bringing about our growing fiscal socialism is what I would suggest calling democratized privilege. Before the rise of democratic governments in the nineteenth century, the State was seen as a political force for exploitation and abuse. Under monarchy, kings and princes used their taxing and policing powers to plunder their subjects for their own gain as while as for the benefit of the aristocrats and noblemen who gave allegiance, obedience and support to the monarch. Power, privilege and plunder were for the political few at the expense of the many in society.

At first the call for democratic government was to place limits on the powers of kings and their lords-of-the-manor supporters, so to restrain political abuses that threatened or violated individuals’ rights in their lives, liberty and private property.

But with the rise of socialist and welfare-statist ideas as the nineteenth century progressed, there emerged a new ideal: a welfare-providing government for “the masses.” The view came to be that government was no longer a fearful master needed restraint and limits. No, democratically-elected government was now conceived as “the people’s” servant to do its bidding and to provide it with benefits.

People hoping to gain favors and privileges from new democratic governments formed themselves into groups of common economic interests. In this way, they aimed to pool the costs of the lobbying and politicking that was required to obtain what they increasingly came to view as their “right,” that is, to those things to which they were told and demanded they were “entitled.”

No longer were redistributive privileges to be limited to the few, as under the old system of monarchy. Now privileges and favors were to be available to all, heralding a new age, an Age of Democratized Privilege. More and more people are dependent upon government spending of one form or another for significant portions of their income. And what the government does not redistribute directly, it furnishes indirectly through industrial regulations price and production controls, and occupational licensing procedures.

Government Dependency and Resistance to Repeal

As dependency upon the State has expanded, the incentives to resist any diminution in either governmental spending or intervention have increased. All cuts in government spending and repeal of interventions threaten an immediate and often significant reduction in the incomes of the affected, privileged groups.

And since many of the benefits that accrue to society as a whole from greater market competition and more self-responsibility are not immediate but rather are spread out over a period of time, there are few present-day advocates of a comprehensive reversal of all that makes up the modern welfare state, and most certainly not in an election year.

While it may not be the center of political discussion and debate in this election year, the dilemma of ever-worsening government deficits and expanding national debt is not going to go away.

It will have to be, eventually, faced and confronted. But as Joseph Schumpeter pointed out to us, the fiscal history of a country tells us the underlying ideological and cultural currents at work that pull a nation in a particular direction.

The real dilemma is not whether this or that government program can be cut or reduced in terms of how fast it is growing at present and future taxpayers’ expense. The real challenge is to reverse the political and cultural trends toward more and growing fiscal redistributive socialism.

This will require a strong and articulate revival of a culture and a politics of individualism. It is, ultimately, a battle of ideas, not budgetary line items.

via Zero Hedge http://ift.tt/1O5Kwjk Tyler Durden

Over the past month, one of the more alarming developments in Europe has been the move to eliminate high denomination bank notes like the €500 bill.

Indeed, as Bank of America reports, having changed its mind on the matter over the past few years, the ECB is now considering abolishing the €500 note. In a recent interview, Executive Board member Benoit Coeure said that “the ECB is assessing the fate of the €500 euro banknote, as concerns about its use in money laundering and crime grow and its usefulness for large payments comes into question” adding that “competent authorities increasingly suspect that they are being used for illegal purposes, an argument that we can no longer ignore.” (like all other ECB matters, there appears to be infighting on this issue too, and subsequently another ECB member Yves Mersch stated that the he would like to see “proof that high-denomination notes are used by criminals”).

So what, big deal, eliminate it. The people will still have 5, 10, 20, 50, 100 and 200 euro bills right.

Well, here’s the thing: the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising.

As a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.

In other words, if overnight the €307 billion worth of €500 bills were eliminated, the notional value of the entire amount of European physical currency in circulation would decline by 30% to €700 billion!

And there you have it: while it may not be banning all European cash outright, we are confident the ECB would be delighted if one third of it was to start, while pretending to be fighting financial crime, terrorism, corruption and dryg dealers. 

Of course, what Europe would be truly doing is setting the scene for ever more aggressive NIRP, and by removing the highest denomination bank notes, it would make evading negative that much more difficult and costly (albeit would certainly favor gold).

Here Bank of America points out that while abolishing the €500 note may even end up weakening the EUR currency. This is what it said:

“we would expect that abolishing a note that represents almost 30% of the total Euros in circulation would be negative for the currency, keeping everything else constant. The share of the €500 note in the total value of Euros in circulation has been falling since 2009 and this has coincided with a weakening Euro in real effective terms. This is not evidence of causality, but we should not ignore it.

 

If we are right, the Euro will weaken, primarily against the USD and the CHF. The USD is the most liquid currency and we would expect it to capture a large share of the drop in the demand for the Euro as a store of value. However, the CHF could also benefit, having the largest note denomination in G10 economies. Indeed, the CHF1000 note is already very popular, representing more than 60% of the CHF  notes in circulation, unless the SNB follows the example of the ECB and also abolishes the CHF1000 note.

Maybe not: the EUR would certainly not weaken against the Dollar if at the same time as Europe is eliminating its highest denomination bill, the US were to likewise to eliminate its own “high denomination” bills. This is the push by current Harvard School of Government senior fellow Peter Sands who recently was booted from beleaguered British bank Standard Chartered (whose exposure to China is among the highest in Europe).

Sands appeared on CNBC earlier today to double down on his “modest proposal” that the US should eliminate its highest denominated bill, aka the Benjamins, because doing so would “deter tax evasion, financial crime, terrorism and corruption.”

 

Ok fine, remove the $100 bill: surely it won’t affect much right.

Wrong. As the latest Treasury data shows, $1.08 trillion of the total $1.38 trillion in physical US currency exist in the form of $100 bills.

 

 

In other words, there is now an all too explicit “trial balloon” push to ban the one banknote that accounts for a whopping 78% of all US currency in circulation.

So there you have the real reason why suddenly high denomination bank notes are the target: it is not because “drug dealers” and tax-evaders use them, but because between banning Europe’s €500 bill and the US $100 bill, over 56% of all physical currency currently in circulation in Europe and the US would disappear.

And all in the name of “fighting crime”, when the real reason is to set the stage for NIRP and to progressively move down the chain and ban increasingly smaller denominations.

Will this drive to start the elimination of physical cash succeed? We don’t know, but for once the Greeks are far ahead of the curve. As Kathimerini reports, “citizens who keep cash outside the banking system are running in droves to bank branches to ask for details and clarifications on reports that the European Central Bank is planning to withdraw 500-euro notes.”

With the country already in a seven-year crisis, many people have opted to hide their money at home, in vaults, mattresses and other places. Banking sources say that many people have chosen 500-euro notes because they are more practical for carrying and hiding – after all, just 20 such notes come to 10,000 euros.

 

In 2015 alone deposits in Greece declined by 40 billion euros, with banks estimating that at least 20 billion of that went into safe deposits and mattresses.

 

Following the publication that European authorities were questioning whether it makes sense to have 500-euro notes in circulation, many in Greece – especially older people – rushed to deposit the money in their accounts. ECB governing council member Benoit Coeure spoke yesterday in favor of the withdrawal of the largest notes, stressing that the ECB will make a decision to that effect soon.

 

A new Morgan Stanley survey on Greece showed that 80 percent of people who withdrew their deposits from the banking system in recent months have not returned them, with 93 percent being determined not to do so. The survey also found that confidence in the Greek banking system remains low, as 62 percent of people are uncomfortable about placing money in a bank account.

Naturally, by removing the highest denomination bank note, all Europe would do is make it that much more difficult to find alternatives to holding large amounts of money in physical form and thus outside the banking system, where money is about to be taxed with negative rates.

There is the question whether this no to clever ploy will backfire, and instead of forcing people out of cash, instead lead to a run on bank cash, which will then be converted into physical precious markets. The Greeks have already figured it out; we wonder how long until the US population follows suit.

via Zero Hedge http://ift.tt/1KJfEKA Tyler Durden

On Tuesday, Bernie Sanders swept to victory in the New Hampshire primary over rival Hillary Clinton.

To be sure, Sanders was expected to win. Handily.

Still, there’s something surreal about the fact that America is edging ever closer to a situation that will see an avowed socialist square off against one of the country’s quintessential capitalists for the keys to The White House.

As we and others have documented, the American electorate is fed up with politics as usual in Washington. Many voters have no hope that the system can be changed as long as both parties continually field mainstream, establishment candidates all of whom are connected to powerful lobbyists, Wall Street, and corporate America.

So disgruntled are Americans that the candidates with the most buzz around their campaigns are Donald Trump and Bernie Sanders.

The capitalist and the socialist.

Against that backdrop we present the following interesting chart from a recent YouGov survey and brief color from WaPo. As you can see, respondents younger than 30 now rate socialism more favorably than capitalism. We suppose it’s all that good will towards Wall Street.

From WaPo’s Catherine Rampell: 

In my column today, I mentioned that one reason millennials prefer Bernie Sanders to Hillary Clinton is that they’re not just willing to look past Sanders’s socialism — they actually like his socialism. It’s a feature, not a bug.

 

Here are some of the data I was referring to.

 

In a recent YouGov survey, respondents were asked whether they had a “favorable or unfavorable opinion” of socialism and of capitalism. Below are the results of their answers, broken down by various demographic groups.

 

Democrats rated socialism and capitalism equally positively (both at 42 percent favorability). And respondents younger than 30 were the only group that rated socialism morefavorably than capitalism (43 percent vs. 32 percent, respectively).

*  *  *

“Feel the Bern”…

via Zero Hedge http://ift.tt/1o4euin Tyler Durden

Submitted by John Browne via Euro Pacific Capital,

On January 29^th, Japan’s central bank governor, Haruhiko Kuroda, announced that the Bank of Japan would introduce a Negative Interest Rate Policy, or NIRP, on bank reserve deposits held in excess of the minimum requisite. The European Central Bank, and central banks in Switzerland, Denmark and Sweden have already partially blazed this mysterious trail. The banks have done so in order to weaken their respective currencies and to light a fire under inflation. Swiss national bonds now carry negative rates out to maturities of eleven years, meaning investors must lock up funds for eleven years to receive even a small positive nominal return!

There are economists and investors to whom these policies seem logical. After all, if low interest rates are good, wouldn’t negative rates be better? Many have argued that the “zero bound’, or the point past which rates can go no lower, is simply the same type of archaic thinking that brought us the gold standard and moral hazard.

These contemporary economists like to suggest that markets should become comfortable with negative rates and accept that they have an important role to play in the “science” of modern finance. But this analysis ignores the fundamental absurdity of the concept.

Money has a time value. Funds available today are worth more to the owner than money available tomorrow. I would imagine that, if asked, 100% of people would choose to receive $10,000 today rather than the same sum a year from now. Many might even pay for the quicker delivery. Even if we allow for the unlikely possibility that real deflation exists, and that consumers are therefore making sensible decisions in deferring purchases, life is uncertain and consumers are impatient. That’s why banks have always had to offer interest to savers to lock up their funds on account. Paying for the privilege of not spending one’s money is a completely new development in human history, and one that I believe is at odds with fundamental concepts of economics and psychology.

The ECB, as did the Bank of Japan (BoJ), cited economic stimulation as its main reason for negative rates. These sentiments were recently cited in a blog post by former Fed President Narayana Kocherlakota where he urged his former Fed colleagues to bring rates into negative territory. The logic is that people and businesses would refuse to pay to keep their money on deposit, and would instead withdraw those funds to spend and invest. However, zero percent interest rates do not appear to have had this affect. The money may, in fact, have been spent, but the growth never materialized. So will the dead horse we are beating suddenly get up if we beat it harder? Apparently so.

Only eight days before taking the dramatic and highly debatable step to trigger negative rates, Bank of Japan President Haruhiko Kuroda had assured his Parliament in Tokyo that such a policy was not even being considered (Reuters, 1/21/16). But less than six days later, after attending the World Economic Forum in Davos, his position had changed. Did private discussions with world leaders in Davos convince him that a serious international recession and credit crisis would unfold unless all central bankers could fire all available weaponry?

After the financial crisis of 2008, the U.S. Fed and the Bank of England (BoE) followed the lead of Japan to experiment with QE and ZIRP, even though those policies never delivered a recovery to the Japanese. The Fed and BoE unleashed stimulation with unprecedented vigor at home and then urged acceptance by other central banks. In essence, a huge global debt crisis was to be cured, or at least postponed, by even more international liquidity based on massive debt creation and the socialization of bank losses.

Much of the massive synthetic liquidity created by the QE experiment was funneled into financial assets. This diverted business investment away from job-creating investment in plants, equipment and employment. Wages remained stagnant and consumer demand and GDP growth were disappointingly flat. According to data from the Bureau of Economic Analysis, expansion of real U.S. GDP growth between 2009 and 2015 averaged 1.4 percent per year or less than half the average rate of 3.5 percent experienced between 1930 and 2008.

Meanwhile, ZIRP has caused mal-investment along with an unhealthy reach by banks and investors for high yield, but riskier investments. This became most obvious in the high yield debt market, which now is being hit hard by the fall in oil prices.

Negative interest rates mean that borrowers are paid to borrow. This serves as a powerful inducement for companies to borrow up to the hilt to buy other companies, to pay dividends that are unjustified by earnings levels and to invest in financial assets. Often this includes buying back their own corporate shares thereby increasing earnings per share, the share price and linked executive bonuses.

For savers, negative rates discourage savings, stifling future business investment and consumer demand. However, central banks hope that discouraged savers will instead be lured into spending on consumer products and create short-term economic growth albeit at the price of future growth.

Negative interest rates mean that lenders have to pay borrowers and that depositors have to pay banks to keep and use their money. One does not require a PhD in economics to recognize this as an unnatural distortion that will create more problems than it solves.

If individual and business depositors draw down their balances, the deposit base of banks will fall as will the velocity of money circulation. This will not only discourage lending, but, through reverse leverage, cause bank liquidity problems. Should banks with loans to high-yield companies and emerging market nations, especially those hit by falling oil prices, see their loans become non-performing at the same time as deposits are falling, a potentially catastrophic banking crisis could threaten. Since the Financial Crisis of 2008, over $50 trillion dollars of new debt have been added globally to the levels that precipitated the banking crisis in the first place.

Negative interest rates act effectively as a hidden tax funneled directly to banks. They are inherently unhealthy. Currently, they could indicate also a measure of unease among two of the four most powerful central banks. If so, that could well escalate. Depositors should be aware acutely of the hidden risks to their deposits. Already, nations with looming bank liquidity problems, such as Russia and many in Africa, are increasing their levels of bank deposit insurance to reduce potential political unrest.

Readers know that we have felt for many months that the U.S. is far from ready for interest rate increases. We are of the opinion, now echoed by others, that the U.S. will see zero and possibly even negative interest rates before it experiences a one percent Fed rate. This does not bode well for our future.

via Zero Hedge http://ift.tt/1QZ1Ivm Tyler Durden