Economics Professor: Negative Interest Rates Aimed at Driving Small Banks Out of Business and Eliminating Cash

More than one-fifth of the world’s total GDP is in countries which have imposed negative interest rates, including Japan, the EU, Denmark, Switzerland and Sweden.

Negative interest rates are spreading worldwide.

And yet negative interest rates – supposed to help economies recover – haven’t prevented Japan and Europe’s economies from absolutely going down the drain.

Nor have they even stimulated spending. As ValueWalk points out:

Japan has had ultra-low rates for years and its economy has been terrible. Trillions of debt in Europe now trades at negative interest rates and its economy isn’t exactly booming.  Denmark, Sweden and Switzerland all have negative interest rates, but consumer spending isn’t going up there. In fact, savings rates have been going up in lockstep with the decrease in interest rates, exactly the opposite of what the geniuses at the various central banks expected.

 

Why is this happening? Simply, savers are scared. Lower interest rates have wrecked their retirement plans. Say you were doing some financial planning 10 years ago and plugged in 3% from your savings account.  Now its 0%.  You still have to plan for your retirement. Plug in 0%. What happens to your planning now?  0% compounded for X years is 0%.  The math is simple. So in order to have your target savings at retirement, you need to save more, not spend more. But for some reason, the economists that run central banks around the world can’t see this. They are all stuck in their offices talking to one another and self-reinforcing this myth that they can drive spending up by reducing the rate of return on investments.  Want to see consumer spending go up?  Don’t wreck their savings plans so that they are too scared to spend.  But that’s too simple. Instead, central banks use a chain of causation that doesn’t exist to try to create change 3 or 4 steps down the line. It hasn’t worked, and it won’t work. It isn’t in an individual’s self-interest to go out and spend their money on more “stuff” in order to spur economic growth.

So what’s really going on? Why are central banks worldwide pushing negative interest rates?

Economics professor Richard Werner – the creator of quantitative easing – notes:

The experience of Switzerland [shows that] negative rates raise banks’ costs of doing business. The banks respond by passing on this cost to their customers. Due to the already zero deposit rates, this means banks will raise their lending rates. As they did in Switzerland. In other words, reducing interest rates into negative territory will raise borrowing costs!

 

If this is the result, why do central banks not simply raise interest rates? This would achieve the same result, one might think. However, there is a crucial difference: raised rates will allow banks to widen their interest margin and make their business more profitable. With negative rates, banks’ margins will stay low and the financial situation of the banks will stay precarious and indeed become ever more precarious.

 

As readers know, we have been arguing that the ECB has been waging war on the ‘good’ banks in the eurozone, the several thousand small community banks, mainly in Germany, which are operated not for profit, but for co-operative members or the public good (such as the Sparkassen public savings banks or the Volksbank people’s banks). The ECB and the EU have significantly increased regulatory reporting burdens, thus personnel costs, so that many community banks are forced to merge, while having to close down many branches. This has been coupled with the ECB’s policy of flattening the yield curve (lowering short rates and also pushing down long rates via so-called ‘quantitative easing’). As a result banks that mainly engage in traditional banking, i.e. lending to firms for investment, have come under major pressure, while this type of ‘QE’ has produced profits for those large financial institutions engaged mainly in financial speculation and its funding.

 

The policy of negative interest rates is thus consistent with the agenda to drive small banks out of business and consolidate banking sectors in industrialised countries, increasing concentration and control in the banking sector.

 

It also serves to provide a (false) further justification for abolishing cash. And this fits into the Bank of England’s surprising recent discovery that the money supply is created by banks through their action of granting loans: by supporting monetary reformers, the Bank of England may further increase its own power and accelerate the drive to concentrate the banking system if bank credit creation was abolished and there was only one true bank left – the Bank of England. This would not only get us back to the old monopoly situation imposed in 1694 when the Bank of England was founded as a for-profit enterprise by private profiteers. It would also further the project to increase control over and monitoring of the population: with both cash and bank credit alternatives abolished, all transactions, money creation and allocation would be implemented by the Bank of England.

If this sounds like a “conspiracy theory”, the Financial Times argued in 2014 that central banks would be the real winners from a cashless society:

Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began…

 

***

 

The introduction of a cashless society empowers central banks greatly. A cashless society, after all, not only makes things like negative interest rates possible, it transfers absolute control of the money supply to the central bank, mostly by turning it into a universal banker that competes directly with private banks for public deposits. All digital deposits become base money.


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Trump, Sanders Set To Dominate As New Hampshire Votes In Nation’s First Primary

Last week, the “teflon Don” took a hit in Iowa.

Despite the fact that the last Des Moines Register poll before the caucus showed the brazen billionaire pulling ahead of Ted Cruz in the state for the first time since August, Donald Trump lost, in what many deemed a surprising outcome.

Initially, Trump congratulated Cruz. Later, he called the senator a cheater and accused him of “stealing” the state by bilking the hapless Ben Carson out of votes.

Tonight, we get the nation’s first primary as voters head to the polls in New Hampshire, where Bernie Sanders and Donald Trump hold commanding leads. “Trump, who has held a sizable lead in the Republican race in New Hampshire, appears poised to win his first contest of the 2016 campaign after finishing second in Iowa a week ago” WaPo writes. “In the Democratic race, Sen. Bernie Sanders maintained his double-digit lead over former secretary of state Hillary Clinton.”

“Sanders’ 54% to 40% advantage over Hillary Clinton is down slightly from a 55% to 37% lead in the previous Poll of Polls,” CNN reported on Monday. “Trump tops the GOP field with 31%, well ahead of Marco Rubio” who is polling at 15% and “has picked up four points since the previous New Hampshire Poll of Polls, the biggest change in the averages in the last week.”

Ted Cruz has 13%, John Kasich is sitting on a respectable 11% and Jeb Bush has 10%.

Rubio – who put up a strong showing in Iowa before stumbling in the last GOP debate – is keen to keep up the momentum. “It’s great to be targeted, because it means you’re doing something right,” he told ABC. “Rubio’s stumble under New Jersey Gov. Chris Christie’s ferocious fire at Saturday’s GOP debate, meanwhile, threatens to stall his momentum heading into New Hampshire,” CNN notes. “Voters in New Hampshire are serious about, they understand what’s at stake here,” Rubio told CNN. “The future of America is at stake.”

“I think the people of New Hampshire deserve better than someone just throwing mud and insulting the other candidates,” Cruz said, in a jab at Trump. “He doesn’t like the fact that he lost in Iowa, so he’s chosen to go down the road of insults.”

In a particularly inauspicious move, Ben Carson is set to skip his own “victory” party in order to get a head start in South Carolina. “Ted Cruz’s campaign and surrogates seized on the news, inferring that the trip meant Carson would be suspending his campaign and encouraging his supporters to caucus for Cruz,” Politico notes.

As for Trump, the real estate mogul taunted protesters at his final rally before the ballot. “Oh, they’re getting rid of some protesters. Look. Are the police the greatest?” he asked a crowd of some 12,000 people. “I like protesters because that’s the only way the cameras show how big the crowd is.”

Here’s The Oregonian with some of the key themes for Tuesday’s vote:

Marco Rubio really might be a robot — or, rubot, as he’s been dubbed. At his last rally before New Hampshire voters headed to the polls, he showed that his tendency to repeat scripted lines — sometimes the same ones over and over in a single short speech — isn’t reserved for TV debates. At Nashua Community College on Monday he said it was difficult for he and his wife “to instill our values in our kids instead of the values they try to ram down our throats.” Then he said it two more times before stepping down from the podium, seemingly unaware that he was repeating himself.

Hillary Clinton is progressive. No, really. Sanders, seeking to clearly differentiate himself from Clinton, tweeted out last week, “You can be a moderate. You can be a progressive. But you cannot be a moderate and a progressive.” This claim has received a fair amount of pushback. ‘Moderate’ is a practical term. Broadly speaking, it refers to a candidate who focuses on consensus building and incremental progress, someone who doesn’t believe the US political system is capable of sudden, lurching change, or just doesn’t want that kind of change. A moderate’s opposite is a radical, someone who believes rapid, revolutionary change is both possible and necessary.” Clinton, meanwhile, has been trying to shore up her progressive credentials all week. “I won’t cut Social Security,” she tweeted last Friday. “As always, I’ll defend it, & I’ll expand it. Enough false innuendos.”

As for Jeb Bush, the candidate who has received the most money from Wall Street, it’s do or die time and the former Florida governor is coming out swinging. 

Trump’s response: “He’s a stiff who you wouldn’t hire in private enterprise, OK? This is a stiff. This is a guy that if he came looking for a job, you’d say, ‘No thank you.’ And that’s the way it is.”

Tonight we’ll find out who the “stiffs” really are in New Hampshire where America’s political aristocracy is set to suffer a punishing defeat at the hands of the so-called “protest candidates.”

Asked who he thought would prevail on Tuesday evening, President Obama said only this: “I have no idea.”

More from Google



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Is the Fact that More People Aren’t Libertarian Proof that Libertarianism Is a Failure?

If libertarianism is so right, and if “markets work,” why is it not obviously winning out in either the political marketplace or the marketplace of ideas? This is a question raised recently by Jerry Taylor, chief of the Niskanen Center, who concludes there must be something seriously deficient in either libertarian ideas or how most libertarians attempt to sell or actuate them.

George Mason University economist Bryan Caplan thinks that there’s a lot of misunderstanding to unpack in that formulation. (Disclosure: both Taylor and Caplan are old pals of mine.)

Here’s the thing, says Caplan:

Most markets work well, but the market for ideas doesn’t.  Why not?  Because ideas have massive externalities.  The market for pollution works poorly because strangers bear almost all the cost of your pollution. The market for ideas, similarly, works poorly because strangers bear almost all the cost of your irrationality.  This is the heart of my argument in The Myth of the Rational Voter.

2′. Truth doesn’t largely win out in a well-functioning market for ideas, because consumers primarily seek not truth, but comfort and entertainment….

Like Jerry, I reject dogmatic libertarianism.  And I’m all for better marketing of libertarian ideas.  But no matter how true libertarianism is, we shouldn’t expect it to be popular.  Why not?  Because it tells people an ocean of things they deeply resent…..Treating its verdict as a test of truth is a terrible mistake.  

People can be won over to libertarian thought by the more traditional means of the existing libertarian movement. My 2007 book Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement tells the tale of how that happened to likely hundreds of thousands in America, via books and policy papers and journals of political opinion (like the one whose website you are now enjoying).

My 2012 book Ron Paul’s Revolution: The Man and the Movement He Inspired was, I thought at the time, a tale of how that slow walk to possible victory happened in a more concentrated way in the context of electoral politics. No doubt, a lot has happened in the political market since then to make it seem I overestimated (based on the best data I had at the time, the hundreds of Paul fans I was able to meet and communicate with in reality and online) the extent to which the mass of 2.1 million 2012 Paul voters were picking up the same libertarianism the Ron Paul on the stump and in his bestselling books during the campaign was selling.

That said, to the extent policy entrepreneurs as Jerry Taylor is trying to be with Niskanen Center or political entrepreneurs of any variety should certainly keep experimenting as they see fit to discover what methods or techniques might make the world a freer place, in ideas or in actuality. (My suspicion is the only one right answer is that there is no one right answer to argumentative techniques or policy change styles.)

But there might be less reason for utter hopelessness than you might guess if you insist on viewing political or idea marketplaces as efficient mechanisms for reaching truth.

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Good News! The Establishment Is Gaining on Donald Trump. Bad News! The Establishment Is Gaining

Two down, four to go! ||| ReasonJust before Christmas I detailed in this space about how the entrance of Donald Trump into the Republican presidential race delivered a sucker-punch to the candidacies of Jeb Bush, Marco Rubio, and Chris Christie. “Overnight,” I wrote, “the establishment went from 40%, where it had been surfing for months, to 25%, from which it never came back.”

While it’s true that the word “establishment” has been overused this cycle to the point of near meaninglessness, it is also true (if tautological!) that there is a group of GOP voters, financiers, and commentators who are appalled by Donald Trump, distrustful of Ted Cruz, and uncomfortable with the libertarianism (especially on foreign policy and surveillance) of Rand Paul. These people worry about the long-term health of the Republican brand, and are concerned about electability. For lack of better terminology, I’m going to call them the establishment, and the aforementioned three kneecapped presidential aspirants (along with Ohio Gov. John Kasich), the establishment candidates. If you’ve got a better term, I’m all ears.

Now then. If you go month by month, here are the combined national polling averages of the Establishment Four, starting in August:

E4: 22%-21%-22%-24%-22%-21%.

In other words, the flight to perceived quality was just not happening, no matter what outrage was tumbling forth from Donald Trump’s mouth.

The Outsider Four, on the other hand (Trump + Ben Carson, Carly Fiorina, and Ted Cruz, only the latter of whom has ever held elective office), was busy over that same time period doing this:

O4: 40%-49%-56%-60%-63%-64%

The same broad trend—outsiders steadily gain toward two-thirds, while insiders stagnate below a quarter—was present over the same August-January time period in Iowa:

E4: 18%-18%-21%-22%-20%-23%

O4: 55%-61%-62%-65%-69%-67%

Ah! But meticulous observers will note that the trajectories finally changed, if slightly, in January, just before the Feb. 1 Iowa caucuses. In fact, it was only in the final two pre-election polls that the Establishment Four cracked the 30 percent barrier (while the Outsider Four netted just 55 percent). Final score once the votes were tallied? O4 61%, E4 30%. That “establishment lane,” long derided as too narrow by Ted Cruz, appears to have widened up at the last minute.

As it has nationwide. There have only been three national GOP polls taken so far this month, but the numbers are striking. Whereas the Establishment Four collectively have failed to attract even one-quarter of Republican voters in any average month’s worth of polls over the past half year, they are jumping out of the gate in February at 32 percent. And the Outsiders are back down to their November level of 60 percent. It looks like you don’t have to be Ted Cruz to beat Donald Trump for the Republican nomination.

That’s the numerical backdrop to tonight’s dogfight in New Hampshire, where Bush, Kasich, and Christie have all chosen to bet the farm on, much in the way that Rand Paul put all his chips on Iowa. Due in part to their exertions, plus the Live Free or Die State’s independent streak, the establishment lane has been widening steadily since September—25%-30%-33%-39%-41%, with the last five pre-election polls putting the E4 nearly at parity with the O4, 46 percent to 51 percent. If any among Rubio-Kasich-Bush-Christie create real separation from the rest tonight, he’ll have a case to make to the donor class that this is their last, best hope to prevent a crazy person from carrying the GOP banner. There hasn’t been a battle for second place this intense since Sept. 28, 2011.

So that’s the good news, for those of us who want to see Donald Trump taken down a peg or three. The bad news? Well, have you looked at those four guys?

Start with foreign policy. Bush, the $100 million loser, says fantastical crap like “We need to eliminate the sequester which is devastating our military.” (On planet earth, Congress eliminated the sequestration cuts in late October.) Rubio, who thinks Jeb’s brother did a “fantastic job” on foreign policy, supported Libyan regime change and is a denialist about military spending impacting the national debt. Christie—did you hear that he was a federal prosecutor after 9/11?—is a grade-A fearmonger who says stuff like “we have people across this country who are scared to death” and “everywhere in America is a target for these terrorists.” And Kasich, the liberal media darling du jour, answers FoPo questions with a combination of resume-recitation and pure word salad. Example:

Should definitely crush his sweet hands. ||| TwitterSo look, in foreign policy—in foreign policy, it’s strength, but you’ve got to be cool. You’ve got to have a clear vision of where you want to go. And I’m going to tell you, that it—I’m going to suggest to you here tonight, that you can’t do on-the-job training.

I’ve seen so much of it—a Soviet Union, the coming down of a wall, the issues that we saw around the world in Central America, the potential spread of communism, and 9/11 and Gulf War. You see what the Saudi’s—deliver them a strong message but at the end of the day we have to keep our cool because most of the time they’re going right with us. And they must be part of our coalition to destroy ISIS and I believe we can get that done.

One of the primary values of any GOP subset you could define as “establishment” is a foreign policy that is considerably more hawkish than that of Republican voters at large. Which is likely one reason that Donald Trump is ratcheting up his rhetoric against wasteful defense spending and the military-industrial complex: There are votes there.

As the establishment lane widens, so does the chance that we’ll have another Bush/McCain/Romney on our hands when it comes to advocating the expenditure of American money and blood in the name of “defense.” And so does the likelihood that Jeb Bush, Kasich, and even the hapless, serially lying drug warrior Chris Christie—who hasn’t topped 6 percent in a national poll since last April—will hang around until at least Super Tuesday.

So enjoy the bloodsport tonight, but know that the more the establishment gains, the more that establishmentarians will be emboldened. As in seemingly everything else with the 2016 presidential race, there is no such thing as unalloyed good news.

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What The Charts Say: “Complacent” Bulls Remain As S&P Support Under Pressure

The S&P 500 is down 8.02% YTD through the first five sessions of February. This is the second worst start to the year going back to 1928 and the weakest since 2008, when the S&P 500 dropped 8.95% YTD through the first five days of February. This, as BofAML's Stephen Suttmeier details, compares to an average 1.16% gain for this period. The S&P 500 also has bearish signals for the Nov-Jan and January barometers. This is a risk for 2016.

We have made a case for a “sell into strength” tactical rally but the S&P 500 has not gotten much strength to sell. Many short-term indicators are becoming less supportive. The 5 and 10-day put/call ratios look complacent. Indicators that recently generated tactical oversold buy signals, such as the VXV/VIX ratio, Williams %R, the NYSE McClellan Oscillator, and slow stochastic, are rolling over. Both the 14-day Williams %R and McClellan Oscillator hit overbought before falling. Daily slow stochastic generated a sell signal below overbought on Friday.

The 5 and 10-day put/call ratios look complacent
Both the 5 and 10-day CBOE Total Put/Call ratios have dropped back toward the more complacent levels that coincided with the prior S&P 500 highs from early November and late December.

There is some room for the put/call ratios to move lower before hitting these complacent levels, but the put/call ratios are much closer to overbought or complacent levels than they are to oversold or fearful levels.

The rally for the S&P 500 from mid October through early November occurred with diminishing price momentum. Following this bearish divergence between the S&P 500 and daily slow stochastic (see red arrows below), buy signals on stochastic have preceded lower S&P 500 highs and sell signals have preceded lower S&P 500 lows.

Daily slow stochastic generated a fresh sell signal on Friday. The risk is for a lower S&P 500 low.

First support under pressure
We previously highlighted using the rising channel from January 20 as a guide for a “tactical” and “sellable” rally.

This channel came in at 1884 on Friday vs. an S&P 500 close at 1880. The channel rises approximately 6 points per session, which means that a failure for the S&P 500 to close above 1890.21 on Monday (2/8) increases the risk for a decisive break of the channel and perhaps 1872 chart support as well. This would expose the 1820-1812 lows. First resistance moves to 1917-1927. This is below the more important 1947-1950 resistance, where a break is required to put in a base for a stronger tactical bounce.

Weak VIGOR & most active A-D line say SPX risk below 1812
Tops for VIGOR, our longer-term volume model, and our US top 15 most active A-D line remain in place.

Both indicators continued to hit new lows last week to reflect a US equity market under distribution. New lows for these indicators increase the risk for new lows in the S&P 500 below 1812.

If SPX follows VIGOR & Most active A-D line, risk of top
Both VIGOR and the US top 15 Most Active A-D line show big tops.

In addition, tops for the Value Line Arithmetic, NYSE Comp, Russell 2000 and the S&P Midcap 400 are also potentially bearish for the S&P 500 (Chart Talk: 02 Feb 2016). In our view, this says that the S&P 500 shows risk below 1812 with the rising 200-week moving average at 1787 and the 38.2% retracement of the October 2011 to May 2015 rally at 1730.

We still are not ruling out a cyclical correction within the larger secular bull market with risk toward 1600-1575.


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The Justice Dept. Wants to Punish Abusive Ferguson Police with Massive Raises

So the solution is essentially to bribe the police to not do this?Tonight while everybody is focused on the New Hampshire primaries, the City Council of Ferguson, Missouri, will be voting whether to accept an agreement with the Department of Justice designed to eliminate the abusive and predatory practices of the town’s police and court system.

Readers may recall that while the officer who shot and killed Michael Brown was cleared by both a grand jury and a Department of Justice (DOJ) investigation, the DOJ nevertheless took a deep look at the city’s operations and found serious civil rights abuses. The town of 21,000 in northern St. Louis County clearly wasn’t getting enough tax revenue to support its operations, so it resorted to preying on its citizenry with fees and fines, dragging its poor residents into an arcane court system designed to wring them dry.

The DOJ is demanding Ferguson change its ways or face a federal civil rights lawsuit. City leaders have agreed—in theory—but today is the day they decide whether they will actually accept the DOJ’s plan.

And what a plan it is. The DOJ’s demands of the City of Ferguson fill up 127 pages of a consent decree. The agreement touches on nearly every aspect of law enforcement and court operations in the city, calling for bias-free training, making sure officers don’t engage in unconstitutional stops and searches, making sure officers respect the First Amendment rights of citizens to observe and record police behavior without threatening to arrest them, updating use of force policies, implementing body cameras, and repealing ordinances that have been used to harass (and even imprison) citizens over minor infractions.

And it is not a cheap plan, which is a bit awkward for Ferguson. Ferguson not only suffered quite a bit of damage from unrest there that needed to be repaired (giving it another hit in tax revenue); Missouri also implemented legislation capping how much of a city’s budget can be drawn from traffic citations. As such, the city is already operating at a deficit ($2.8 million, according to the Associated Press). Ferguson officials have calculated that implementing this massive plan could cost up to $3.7 million the first year and up to $3 million in the second and third years.

What could account for such a huge expense? It’s not just the training and the price of the DOJ monitor to make sure the plan is being implemented. Buried in the consent agreement, down on page 65, are a bunch of demands of the city’s recruitment plan. The very first item requires “that the City will offer salaries that will place [Ferguson Police Department] among the most competitive similarly sized agencies in St. Louis county.”

Yes, that’s right: The DOJ is demanding control over pay levels for police officers. Mayor James Knowles III says he is interpreting that demand to mean that police salaries be among the top 25 percent among similar cities. That would mean an average pay and benefits increase of $14,600 annually for its 50 or so police officers. That’s approaching $750,000 a year, and obviously it would have to be a permanent change. And that’s not all: There are parts of this deal with the Department of Justice that read like something that would be part of police contract negotiations, like demanding that officers have access to fitness facilities operated by the city free of charge and access to special identity fraud protection services (though it does not demand this benefit be free).

The result, Knowles warns, is that the city may have to cut non-police jobs in order to pay for this increase, given the city’s $14.5 million annual budget.

Incidentally, this approach to public safety funding is what bankrupted San Bernardino. Its city charter required it to pay its police and fire employees based on an average wage paid to employees in nearby communities of similar sizes. The problem was that San Bernardino is the poorest of these cities and ultimately couldn’t sustain these costs. When the city couldn’t convince citizens to vote to change the city’s charter, it was left having to dump its fire department entirely to contract with the county.

So just to make it clear, the city stands accused of having an abusive law enforcement agency that violates the rights of its citizenry in order to fund itself and its court employees, and the correction being imposed by the Department of Justice is to force the city to have to find sources of even more money to fork over to the very officers that have been abusing residents.

You can’t say I didn’t warn you. The Department of Justice has its own ways of contributing to a terrible police and prosecutorial culture. And as we can see, they have ways of making it even more expensive.

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New Hampshire to Anoint a Second-Place Finisher, Censorship at Mount St. Mary’s, Liberal War on Science: P.M. Links

  • Trump is going to win New Hampshire, but who’s coming in second?
  • Is there a libertarian case for Bernie Sanders? I personally think so.
  • The Liberal War on Science: Politicizing transgender kids’ health.
  • An impressively brazen act of censorship at Mount St. Mary’s: the president straight-up fired professors who disagreed with him.
  • The Federalist‘s Ben Domenech is a national hero.
  • Reason will host several panels at the 2016 International Students for Liberty Conference. Check them out.
  • Watch my interview with Mary Koss—debunker of the serial campus rapist theory—below.

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School Zero Tolerance Policy Costs Vermont Taxpayers $83,750

Justice

The taxpayers of Barre Town, Vermont, just spent $83,750 settling a lawsuit that should never have happened. The money is going to one mother who was banned from her child’s school last year. Her offense? An off-handed comment she made about a 2006 school shooting. 

Katie Sherman had been fighting with the school district already, asking them to give her special-needs son the accommodations his Individualized Education Plan (IEP) requires. According to The Barre Montpeliar Times Argus, the dispute goes back to November 2014, when the school first issued the IEP. Sherman expressed concerns and then filed an official complaint in January 2015. 

She enlisted the help of advocacy group Vermont Family Network (VFN) and later commented to VFN’s Martha Frank that she could understand how Christopher Williams, an Essex, Vermont, man convicted of killing two elementary school teachers, had been “pushed to the edge.”

Little did Sherman know the Supervisory Union would use that comment as justification to issue a no-trespass order, which kept her from going to meetings to complain about the IEP problem. The order also prevented her from voting in elections, since her son’s school is also her polling place. In July, Sherman sued, claiming the order violated her constitutional right to vote as well as her right to participate in public meetings. 

According to school officials, the order was meant to protect students and staff, but Sherman’s lawyer, Ron Shems, doesn’t buy it. As VTDigger.org reports: 

It was after (Sherman) told Frank that she was planning to attend Barre Town school board meetings “to express her concerns and opinions regarding the abilities of the BTSD staff” that Frank told school officials of Sherman’s reference to the Essex shooting, according to the lawsuit.

“There was no need to issue a no-trespass order. They were just getting rid of a thorn in their side,” Shems said. “She had been complaining and vociferously challenging the school in terms of their failures to comply with her son’s IEP, as any mom should.”

Sherman has moved to a different school district that she believes is better able to serve her child’s needs. She says the settlement money will help cover those costs. 

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Crude Confused After API Reports Across-The-Board Inventory Builds

WTI crude had tanked into the NYMEX close (by the most in 5 months) but managed to get back above $28 before fading into inventory data. Against expectations of a 3.6mm build, API reported a 2.4mm barrel crude build (the 5th weekly build in a row). Even more critically, API reported a 3.1mm Gasoline build (notably above the expected +400k build) and Cushing saw a 2nd weekly build of 715k. WTI ignored it initially but then decided to rally modestly before fading to unch.

 

Builds across the complex..

 

The reaction… lower…

 

Charts: Bloomberg


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The Return Of Crisis

Submitted by Chris Martenson via PeakProsperity.com,

Financial markets the world over are increasingly chaotic; either retreating or plunging. Our view remains that there’s a gigantic market crash in the coming future — one that has possibly started now.

Our reason for expecting a market crash is simple: Bubbles always burst. 

Bubbles arise when asset prices inflate above what underlying incomes can sustain. Centuries ago, the Dutch woke up one morning and discovered that tulips were simply just flowers after all. But today, the public has yet to wake up to the mathematical reality that over $200 trillion in debt and perhaps another $500 trillion of un(der)funded liabilities really cannot ever be paid back under current terms. However, this fact is dawning within the minds of more and more critical thinkers with each passing day.

In order for these obligations to be reset to a reality-based level, something has to give. The central banks have tried to modify the phrase “under current terms” by debasing the currency these obligations are written in via inflation. Try as they have, though, they’ve been unable to create the sort of "goldilocks" low-level inflation that would slowly sublimate that massive pile of debt into something more manageable.  

Wide-spread inflation has not happened. Why not? Because they've failed to note that plan of handing all of their newly printed money to a very wealthy elite — while a socially popular thing to do among the cocktail party set — simply has concentrated the inflation to the sorts of assets the monied set buys: private jets, penthouse apartments, fine art, large gemstones, etc. So yes, their efforts produced price inflation; just of the wrong sort.  

Even worse, all the central banks have really accomplished is to assure that when the deflation monster finally arrives it will be gigantic, highly damaging and possibly uncontrollable.  I'll admit to being worried about this next crash/crisis because I imagine it will involve record-setting losses, human misery due to lost jobs and dashed dreams, and possibly even the prospect of wars and serious social unrest.

Let me be blunt: this next crash will be far worse and more dramatic than any that has come before. Literally, the world has never seen anything like the situation we collectively find ourselves in today. The so-called Great Depression happened for purely monetary reasons.  Before, during and after the Great Depression, abundant resources, spare capacity and willing workers existed in sufficient quantities to get things moving along smartly again once the financial system had been reset.

This time there’s something different in the story line: the absence of abundant and high-net energy oil. Many of you might be thinking “Hey, the price of oil is low!” which is true, but only momentarily. Remember that price is not the same thing as net energy, which is what's left over after you expend energy to get a fossil fuel like oil out of the ground. As soon as the world economy tries to grow rapidly again, we’ll discover that oil will quickly go through two to possibly three complete doublings in price due to supply issues. And those oil price spikes will collide into that tower of outstanding debt, making the economic growth required to inflate them away a lot more expensive (both cost-wise and energetically) to come by. 

With every passing moment, the world has slightly less high-net energy conventional oil and is replacing that with low-net energy oil.  Consider how we're producing less barrels of production in the North Sea while coaxing more out of the tar sands. From a volume or a price standpoint right now, the casual observer would notice nothing. But it takes a lot more energy to get a barrel of oil from tar sands. So there's less net energy which can be used to grow the world economy after that substitution.

Purely from a price standpoint, our model at Peak Prosperity includes the idea that there’s a price of oil that’s too high for the economy to sustain (the ceiling) and a price that’s too low for the oil companies to remain financially solvent (the floor). That ceiling and that floor are drawing ever closer. When we reach the point at which there’s not enough of a gap between them to sustainably power the growth our economy currently is depending on, there’s nothing left but to adjust our economic hopes and dreams to more realistic — and far lower — levels.

When this happens most folks will undergo a "forced simplification" of their lifestyles (as well as their financial portfolios), which they will experience as disruptive and emotionally difficult. That's not fear-mongering; it's just math. (And it's the reason why we encourage developing a resilient lifestyle today, to insulate yourself from this disruption, as well as be able to enter the future with optimism.)

Too Much Debt

Our diagnosis of the fatal flaw facing the global economy and its financial systems has remained unchanged since before 2008. We can sum it up with these three simple words: Too much debt.

The chart below visualizes our predicament plainly. It has always been mathematically impossible (not to mention intellectually bankrupt) to expect to grow one's debt at twice the rate of one's income in perpetuity:

All but the most blinkered can rapidly work out the fallacy captured in the above chart. Sooner or later, borrowing at a faster rate than income growth was going to end because it has to.  Again, it's just math. Math that our central planners seem blind to, by the way — all of whom embrace "More debt!" as a solution, not a problem.

Despite being given the opportunity to re-think their strategy in the wake of the 2008 credit crisis, the world’s central banks instead did everything in their considerable power to create conditions for the most rapid period of credit accumulation in all of history:

Lesson not learned!

The chart's global debt number is only larger now, somewhere well north of $200 trillion here in Q1 2016.  But consider, if you will, that entire world had ‘only’ managed to accumulate $87 trillion in total debt by 2000 (this is just debt, mind you, it does not include the larger amount of unfunded liabilities). Yet governments then managed to pour on an additional $57 trillion just between the end of 2007 and the half way point of 2014, just seven and half short years later. 

Was this a good idea? Or monumental stupidity? We’re about to find out.

My vote is on stupidity.

Banks In Trouble

In just the first few weeks of 2016, the prices of many bank stocks have suddenly dropped to deeply distressed territory. And the price of insurance against default on the bonds of those banks is now spiking.

While we don't know exactly what ails these banks — and, if history is any guide, we probably won’t find out until after this next crisis is well underway — but we can tell from the outside looking in that something is very wrong.

In today’s hyper-interconnected world of global banking, if one domino falls, it will topple any number of others. The points of connectivity are so numerous and tangled that literally no human is able to predict with certainty what will happen.  Which is why the action now occurring in the banking sector is beginning to smell like 2008 all over again:

Gundlach Says 'Frightening' Seeing Financial Stocks Below Crisis

Feb 5, 2016

 

DoubleLine Capital’s Jeffrey Gundlach said it’s “frightening” to see major financial stocks trading at prices below their financial crisis levels.

 

He cited Deutsche Bank AG and Credit Suisse Group AG as examples in a talk outlining bearish views at a conference in Beverly Hills, California, on Friday. Both banks fell this week to their lowest levels since the early 1990s in European trading.

 

“We see the price of major financial stocks, particularly in Europe, which are truly frightening,” Gundlach said. “Do you know that Credit Suisse, which is a powerhouse bank, their stock price is lower than it was in the depths of the financial crisis in 2009? Do you know that Deutsche Bank is at a lower price today than it was in 2009 when we were talking about the potential implosion of the entire global banking system?”

(Source)

This time it looks like the trouble is likely to begin in Europe, where we’ve been tracking the woes of Deutsche Bank (DB) for a while. But in Italy, banks are carrying 18% non-performing loans and an additional double digit percentage of ‘marginally performing' or impaired loans. Taken together, these loans represent more than 20% of Italy's GDP, which is hugely problematic.

The Italian banking sector may have upwards of 25% to 30% bad or impaired loans on the books. That means the entire banking sector is kaput. Finis. Insolvent and ready for the restructuring vultures to take over.

On average, in a fractional reserve banking system operating at a 10% reserve ratio, when a bank's bad loans approach its reserve ratio, it's pretty much toast. By 15% that's pretty much a certainty. By 20% you just need to figure out which resolution specialist to call. At 25% or 30%, you probably should pack a bag and skip town in the dead of night.

This handy chart provides some of the context for Europe more broadly. I’ve highlighted everything from Europe in yellow, showing how the banks there currently top the list of awfulness:

(Source)

The extreme weakness in European financial shares, combined with other factors, is dragging down Europe’s stock market dramatically. The decline has now wiped out all of 2015’s market gains and has broken convincingly below the neckline (yellow line, below) of a typical “Head & Shoulders” formation: 

Since the beginning of the year, the stock prices of these select banks are down (as of COB Friday 2/5/16):

  • DB -28.3%
  • Credit Swiss -29.9%
  • MS -22.6%
  • C -22.0%
  • Barclays -21.7%
  • BAC -21.2%
  • UBS -20.3%
  • RBS -19.6%

Those are pretty hefty losses over a short period of time, and that’s meaningful. While the headline equity indexes are managing to keep their losses minimized, these bellwether stocks from the critical finance sector are stampeding out the back door.

And when I say ‘critical’, I mean in the sense that a hefty amount of the overall earnings within the S&P 500 and other major stock indexes were fraudulent profits were derived from the banks feeding on central bank thin-air money and front-running central bank policy.

What's there to worry about? Well, just pick something. It could be a combination of headwinds conspiring to drag down bank earnings from here. Take your pick: reduced trading and M&A revenue, and lower profits from ridiculously flat yield curves and negative interest rates.

However, we have to include the possibility that No more bailouts are coming. Why not? Mainly because it would be politically incendiary at this moment to even try such a thing. Public resentment of the banks is high all over the world, and in the US specifically, there’s an election primary that is hinging for the Democrats on Wall Street coziness. Maybe the markets are pricing that in? 

Or it could be that these banks have been playing with fire (again) and got burned (again). We know for sure that a number hold a boatload of junk debt from the energy sector that will need to be written off. And we suspect many are staring at losses from writing too many derivative contracts that have turned against them.

But It Gets Worse; A Lot Worse

If only the greatest near-term risks were limited to the bad actions of the banks. But that's sadly not the case.

The collapse in the price of oil has been vicious, but it's likely not done. The oil patch has morphed into a capital-destruction zone for many drillers and as we have been warning all last year, the fallout is going to be worse than we can imagine. And it's just getting underway.

In Part 2: The Breakdown Has Begun, we lay out our prediction for the terrifying wave of defaults that will swamp the energy sector soon, as well as the many, many related industries that service it. Avoiding losses during this period will be the key priority. And precious metals will regain their role as a preferred save-haven asset class — a victory long-suffering bullion holders should cheer.

We are now in the chaos management phase of this story. Take care to make smart choices now. Your future prosperity depends on it.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

 


via Zero Hedge http://ift.tt/1o0XHNM Tyler Durden