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Authored by Paul Joseph Watson via SHTFPlan.com,

Panicked Elite Buying Bomb-Proof Luxury Survival Bunkers to Escape Civil Unrest, Disasters

Panicked members of the elite are buying luxury bomb-proof underground survival bunkers because they fear mass civil unrest might be on the horizon.

The company behind the construction of the sprawling complexes, Vivos, says the facilities are for the “protection of high net worth individuals” in the event of apocalyptic-style scenarios during which “millions will perish or worse yet, struggle to survive as victims”.

“Where will you go when pandemonium strikes?” asks a promo for the luxury shelters.

The biggest facility, called Europa One, is located in Germany and is “one of the most fortified and massive underground survival shelters on Earth, deep below a limestone mountain” and is “safely secured from the general public, behind sealed and secured walls, gates and blast doors”.

Journalist Lynn Parramore said she also visited another site in Indiana which is a former Cold War communications facility.

“Built during the Cold War to withstand a 20 megaton blast, within just a few miles, this impervious underground complex accommodates up to 80 people, for a minimum of one year of fully autonomous survival, without needing to return to the surface,” states a promo for the bunker on the Vivos website.

The main selling point is the location of the facility, which is a “safe distance away from the New Madrid fault line” and therefore a good hideaway to escape a “tsunami-type event”.

“You go underground and it feels like you’re in a very nice hotel,” said Parramore.

“This is for wealthy people who are concerned about various disaster scenarios, but a common theme among them is a fear of civil unrest, a fear of an uprising from the 99%,” she added.

Units in some of the underground shelters, which also come with a year’s supply of food and water, start at around $35,000 dollars but the largest ones sell for upwards of $3 million dollars.

“There is no assurance that our race will continue, therefore it is our responsibility to do everything we can to survive,” warns the Vivos website, which invites elitists to contact them for further information that is on a “need to know” basis only.

As we reported last week, millionaires are fleeing Chicago and other major cities due to concerns over racial tensions and rising crime rates.

“About 3,000 individuals with net assets of $1 million or more,” left Chicago in just the last year alone according to the Chicago Tribune.

Paris and Rome are also seeing a mass exodus of millionaires, while wealthy elites are also installing panic rooms in their big city apartments due to fears over potential civil unrest and skyrocketing crime.

Land and remote homes in places like New Zealand are also popular with the global 1%, with realtors citing the threat of worldwide financial instability and domestic disorder as motivating factors behind the purchases.

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As the world is now fully aware, The BOJ surprised markets in January when it set a –0.1% rate on some deposits that banks place at the central bank, effective from mid-February. Its move was designed to encourage banks to lend more, spurring higher spending and inflation. Things are not working so well…

 

And now, as The Wall Street Journal reports, some are already doubting the policy…

Trading has withered in Japan’s money markets, where big banks and others usually park their excess cash hoping to receive some interest—despite predictions from the Bank of Japan that its latest easing of monetary policy would spark more activity.

 

Traders have also pushed up the yen believing Japan’s central bank can’t do much more to ease policy.

 

“Every day is like being Alice in Wonderland,” said Tomohisa Fujiki, head of interest-rate strategy at BNP Paribas Securities Japan. “Interest-rates levels are having no effect on credit demand, the market function is declining. You can’t expect everything to go according to plan.”

 

“There’s no guarantee that lowering interest rates for retail and corporate borrowing would have the same effect [of preventing deflation] as it did in Europe,” said Nobuyuki Hirano, president of Mitsubishi UFJ Financial ??Group?Inc., Japan’s biggest bank, on Thursday, adding the negative-interest policy had caused households and businesses to rein in spending amid growing uncertainty over the future.

But it is the money markets that are becoming a major issue…

Money markets allow banks and other financial institutions to lend and borrow money for a period of less than a year, often not backed by collateral. If fewer banks invest cash in short-term markets, it is harder for other banks to get short-term loans to finance their operations.

 

One problem has been Japanese banks’ computer systems: The trade confirmation system used by money-market brokers wasn’t fully updated for negative interest rates until over a month after the BOJ rate cut. Money-market trading volumes dropped to their lowest level since at least 2011 at the end of March, according to Japan’s Money Brokers Association, down to nearly a tenth of January’s levels.

 

Japanese trust banks that manage cash on behalf of mutual and pension funds have in recent weeks been placing excess money on deposit at the Bank of Japan rather than into overnight money markets, where it might now attract a negative interest rate.

 

“If the money market dries up, if there is an event like the Lehman crisis, there won’t be the infrastructure for banks to raise capital,” said Naomi Muguruma, strategist at Mitsubishi UFJ Morgan Stanley Securities. “It could cause interest rates to rise sharply.”

 

Problems in the money markets have run counter to BOJ Governor Haruhiko Kuroda’s expectations: last month he said that as market players get used to negative rates, money-market trading should increase.

So – to sum up – NIRP has crushed liquidity (in all markets), sent foreign investors piling into JGBs to front-run chaotic BoJ buying, has actually discouraged risk-taking (breaking the back of Abe's crucial belief-based system of monetary policy), has strengthened the Yen (screwing the exporters), and finally – drum roll please – begun to drain money-market funds placing the entire Japanese financial system in a much more systemically-fragile state.

But apart from that – more of the same is just what the doctor ordered.

Given that Japan is now at QE22 with no signs of anything promised at all…

As Alhambra's Jeffrey Snider once wrote,

What none of those have amounted to is an actual and sustainable economic advance; NONE, no matter how you count them. In very simple fact, the idea that central banks “need” to keep doing them in continuous fashion is quite convincing that at the very least they don’t mean what central bankers think they mean, and perhaps worse that the more they are done and to greater extents the more harm that eventually befalls. It isn’t difficult to suggest and even directly observe that Japan’s economy has shrunk during the QE age, but that fact isn’t applicable to Japan alone (there are sure too many non-adjusted data points that uncomfortably assert the same for even the US). That would seem to at least offer a basis for a “deflationary mindset” no matter the actual economic effects.

 

This is not so much investing or even finance as it is a cult (calling it a religion or even ideology is unjustifiably too charitable). That is the usefulness of “deflationary mindset” not so much as a matter of actual economic pathology but as a built-in, squishy appeal to “we’ll get it right next time.” And there is always, always a next time which doesn’t seem to count for much inside the cult when, in fact, it is everything.

And so finally, as if you had not had enough of the farce they call Japan, we get this headline tonight:

• *BOJ SAID TO BE RECEPTIVE TO BUYING MORE ETFS: REUTERS

And scene. It really is the monetary equivalent of “the beatings will continue until morale improves.”

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Because – absent any data whatsoever and nothing but a headline about Aso and Lew having a cozy chat about FX manipulation and The BoJ’s “receptiveness” to buying more ETFs – USDJPY spiked 30 pips at the open, and drum roll please, Nikkei 225 futures went 200 points vertical without blinking an eyelid.

 

 

Efficient-markets and price-discovery – don’t you love it?

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Submitted by Peter Schiff via Euro Pacific Capital,

The Winter of 2015-2016, which came to an end a few weeks ago, has been officially designated as the mildest in the U.S. in 121 years according to NOAA. While this fact will certainly add a major talking point in the global warming debate, it should also be front and center in the current economic discussion. The fact that it isn’t is testament to the blatantly self-serving manner in which economic cheerleaders blame the weather when it’s convenient, but ignore it when it’s not. If economists were consistent (and that’s a colossal “if”), the good weather would be taken as a reason to believe the economy is weaker than is being reported.

The two previous winters were much harsher. 2013-2014 brought the infamous “Polar Vortex,” an unusual descent of frigid polar air that brought temperatures down significantly throughout most of the United States. The next winter was almost as bad, with colder than usual temperatures combined with record snowfalls in much of the country. These conditions were cited again and again by many economists to explain why Q1 GDP growth was so disappointing both years. Annualized growth came in at just -.9% and .6% respectively (Bureau of Economic Analysis). As both 2014 and 2015 got underway, economic optimism had been riding high. When both started off with such resounding stumbles, excuses were needed to explain why the forecasters were so wrong. The snow and cold provided those fig leaves.

As I quantified in a commentary on the subject two years ago, a bad winter can indeed put a chill into the economy, at least temporarily. In general, first quarter (which corresponds to the winter months of January, February, and March) shows annualized GDP growth that is roughly in line with the average of each of the other quarters. Since 1967, average annualized 1st quarter growth was 2.7%, not too far below the average 2.8% full year growth, based on BEA figures. But when winter gets nasty, the economy does slow noticeably in the first quarter.

The average annualized GDP growth for the 10 snowiest winters (not counting 2014) as reflected in Rutgers University Global Snow Lab (Seasonal Extent graph) was just .5%. While this phenomenon did not fully account for the poor results in 2014 and 2015, which missed the average by more than 2%, at least it provided a strong argument as to why we struggled unexpectedly. But that excuse is unavailable this year when the Q1 performance may be equally bad.  

While official 1st quarter GDP estimates have yet to be published, researchers at the Atlanta Federal Reserve Bank put out an estimate called “GDP Now” that attempts to offer a real time estimate of economic growth. As late as mid-February, the GDP Now estimate was 2.7% for the first quarter, far below the 3.5% projection that the Fed had offered for the quarter back in December, but at least in the same ballpark. Since mid-March, the estimates have fallen steadily throughout and last week it was taken down to just .1% (although since increased to .3%). (This comes after 4th quarter 2015 growth came in at a very disappointing 1.4%)

So if we assume that the official estimates (when they arrive in a few weeks) do not stray too far from these projections, economists will have to explain why we had a very, very bad quarter (in fact, two consecutive bad quarters) at a time when the weather should have been encouraging robust activity.

An analysis of the bad winters also reveals a clear tendency for the economy to bounce back strongly in the following quarter, confirming the theory that pent up demand in a bad winter, when it’s too cold for people to go out and shop or for construction companies to break ground, results in increased activity in the spring. In the ten 2nd quarters that followed the ten snowiest winters, annualized GDP averaged a strong 4.4%, or almost four percent higher than the prior quarter. That trend was clearly seen in 2014 and 2015 when second quarter growth was an average 4 percentage points higher than Q1.   

Most strategists are now confident that a similar rebound will occur this spring even if there has been no bad weather to create the “snap back” dynamic. But putting that aside, there is absolutely no evidence to support such an absurd conclusion, and any such beliefs are based on hope not reason. The weather was actually so warm this winter that rather than pushing economic activity forward into the second quarter, it likely could have pulled economic activity into the first. This could weigh down 2nd quarter performance.

We also should take note of the fast deceleration of the Atlanta Fed’s GDP estimates and the fact that the biggest declines came at the end of the quarter.

 

This may mean that we could be slowing down going into second quarter. Nevertheless, government and private economists still expect the traditional kind of 2nd quarter rebound.

But evidence arguing against this can be found in wholesale trade inventories for January and February that were released last week. Originally January inventories were reported as up .3% (U.S. Census Bureau), which was taken as a sign that business confidence was rising. At the time many thought that February would not sustain that pace and decline by .2%. Instead, January itself was revised to -.2% (from up .3%) and February was reported at down .5% (off of the already rolled back January number). This is a terrible outcome.

The bad dynamics have been apparent for a while in the inventory-to-sales ratio, which documents how difficult it has been for companies to move products. Last week some economists were relieved that this number had come down to 1.36 (U.S. Census Bureau). But that drop was only possible because the prior month had been revised up from 1.35 to 1.37 (a higher number indicates more stagnant inventories). Going into Q2 last year, most businesses still believed that the recovery was real, and they built their inventories throughout the quarter (which added to GDP). There is no sign that that is happening this year. I believe that based on the current high inventory-to-sales ratio companies will draw down their inventories this quarter, thus detracting further from GDP.   

Another big difference between this year and the last two is the trajectory of our trade deficits. January and February trade deficits averaged $46.4 billion per month this year. They were just $41.1 billion in 2014, and $41.0 billion in 2015 (U.S. Census Bureau). Trade deficits detract from GDP.

Despite the weather, the inventories, and the trade deficits, very few of the most influential public and private economists have marked down their full year GDP forecasts very much, if at all. Goldman Sachs even believes so strongly in the strength of the recovery that it still expects the Federal Reserve to raise interest rates three more times this year (Wall Street Journal, Min Zeng, 3/31/16).  The IMF just revised down its estimates for 2016 U.S. economic growth, but only by .2% from 2.6% to 2.4%. But if the 1st quarter matches the Atlanta Fed’s current estimate, GDP growth for the rest of the year will have to average over 3% to achieve that.  

This is likely the type of mindless optimism and herd mentality that caused only one in five U.S. large-cap fund managers to beat the S&P 500 in the first quarter. If you have no idea what’s going on economically, you are unlikely to pick the right stocks. High priced hedge fund managers did little better. In fact, the first quarter was the worst quarter for active managers in eighteen years, according to data from Bank of America Merrill Lynch. This tells me that the degree of denial is still very high, and that those who resist the stampede may be in a position to realize gains when the likelihood of recession finally becomes apparent to all.

Unlike Goldman Sachs and other big banks, I do not see any more rate hikes in 2016. Instead, I believe that it is far more likely that the Fed will have to roll out more dovish forward guidance until the point where it officially calls off rate increases for the foreseeable future. After that, I believe it will have to take us back to zero percent interest rates, restart quantitative easing, and it may even take interest rates into negative territory. Take your stand accordingly.

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It's well known that the US government is broke, and if it used accrual accounting instead of cash accounting it would be staggeringly worse, as all of its future liabilities would be shown. Knowing this, government officials are working tirelessly (and even on some weekends, much to the dismay of Jack Lew) to find ways to reduce spending. 

Thanks to all of those long nights scrubbing the budget line by line, a way to save costs has finally been found. As MarketWatch reports,

A popular tool families use to help boost retirement income known as "file and suspend" will be taken away after April 29th of this year, courtesy of the Bipartisan Budget Act of 2015.

 

File and suspend is essentially a way for one person who is eligible to file for his/her retirement benefits to file, but delay getting them until age 70 (in return for an 8% per annum credit). Once the benefits are filed for, however, that person's spouse can file for spousal benefits and begin to receive those right away, thus increasing income to the couple.

 

One final element of this strategy is that if the higher income earner dies, the spouse can now receive the full benefit including that 8% per year credit amount earned by delaying, which significantly increases the income of the surviving partner.

The point of cutting out this "loophole" as the government so proudly calls it, is to save money.

 

Certainly there are no other reasonable cost cutting measures outside of closing "loopholes" for hard working American's who earned their social security benefits (on loan the government by the way).

 

US military spending is 3x more than second ranked China

 

"New Obama Vacation Costs Uncovered; They Now Exceed $70 Million"

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Two days ago we introduced you to “the rich kids of Vancouver” for whom the most important decision in any given day is whether to spend half a million dollars on a new Lamborghini or on an investment such as “two expensive watches or some diamonds.”

From left, Loretta Lai, Chelsea Jiang and Diana Wang attended a reception
at a Lamborghini dealership last month in Vancouver, British Columbia

We now introduce you to someone who may be one of these rich kids’ dad. Or rather was, because Gang Yuan, a 42-year-old mining tycoon is no longer alive. His corpse was found chopped into 100 pieces in his Vancouver home.

According to a civil lawsuit, Yuan came to Canada in 2007 with permanent resident status and made his money by investing in real estate and Saskatchewan farmland, in the process becoming the owner of a now abandoned multimillion-dollar Vancouver home.

As The Province reports, Yuan has been linked to a government corruption scandal in southwestern China. He is also a shining example of how most of the billions in hot money flooding Vancouver real estate funds are sourced: illegally. This story helps to shed some light on the origina of at least a modest amount of that money.

The scandal led to a 19-year jail term for Yunnan province official Lin Yunye.  Yunye was jailed last November for selling $234 million in state mining assets to a number of businessmen from whom he accepted tens of millions in bribes – including gold bars, luxury watches and rhinoceros horns.

The full details follows:

Yunnan, where Yunye was deputy director of land and resources, is a province of lush, bamboo-covered mountains. It is also known as China’s gem-trading hub because of its border with Myanmar, a failed state with bounties of ruby and jade stones that are illicitly smuggled into Yunnan.

Gem exchanges, $50,000 gold bars, a $500,000 bribe, and deals benefiting two Vancouver-area tycoons feature in the lengthy record of charges proven against Yunye in Yunnan Provincial Court. The verdict states Yunye abused his power from 2007 until his arrest in 2014.

For 42-year-old Chinese mining millionaire Gang Yuan, the story ends May 2, 2015. His corpse was found chopped allegedly into 100 pieces in his British Properties home. According to a civil lawsuit, Yuan came to Canada in 2007 with permanent resident status and made his money — estimated at up to $50 million — by investing in real estate and Saskatchewan farmland.

But Yunye’s 38-page verdict tells a different story.

In early 2010 Yunye met Yuan, then director of Beijing Datang Investment, in a restaurant in Yunnan’s capital city, Kunming. At stake was a contract for Yuan’s firm. Over dinner he asked Yunye to permit Beijing Datang expanded coal mining rights on a Yunnan mountainside.

As the men dined, Yuan handed Yunye a bag that contained a 1,000-gram gold bar, worth about $50,000. In exchange, Yunye gave Beijing Datang rights to mine in Yunnan until April 2014. And Yuan’s company later provided Yunye with additional gold bullion gifts, the verdict states, for more mining permits. Yuan was named as a witness in the verdict, but not charged.

Meanwhile, back in Vancouver in 2010, Yuan bought a $5-million British Properties home, adding to his numerous B.C. assets including a private island and a vacant $14-million Shaughnessy mansion. The West Vancouver home was purchased in the names of relatives Li Zhao and his wife, Gang Yuan’s cousin, court filings say. Zhao now is charged with Yuan’s slaying, and Yuan’s estate is the subject of a court battle between relatives in China and Vancouver, and his numerous mistresses and illegitimate children.

Zhao’s criminal case continues, and no allegations in the criminal or civil case concerning Yuan’s assets have been proven in court.

In another twist, Yuan’s West Vancouver home, private island and Bentley have been used as set pieces in the Vancouver reality TV show Ultra Rich Asian Girls. The daughter of alleged murderer Li Zhao is a star of the show, in which she claimed to own Yuan’s assets.

Huaican Ren, the other known Vancouver-area tycoon who testified against Yunye, is worth about $400 million, according to Forbes China. Ren reportedly made his fortune in gem trading before founding a number of Yunnan-based real estate and tourism companies, including North Star Enterprise Company Limited.

The Province first reported in early February that Ren and his wife Xuepei Sun possess two Vancouver homes worth about $10 million, including a home in the 4100-block West 8th Avenue bought for $4.6 million in July 2011. Neighbours said the Chinese owners have never been seen in the rotting Point Grey home, which was cited in a City of Vancouver “untidy premises” order in June 2015.

* * *

At this point we take a small detour to remind readers of what was our original theory about the origin of all these “mysteriously” empty Vancouver houses owned by Chinese expats. Indeed, it was specifically the house of Huaican Ren that we commented one two months ago.

Our attempt to explain these curious developments back in early February was the following:

What is happening is quite simple:

• Chinese investors smuggled out millions in embezzled cash, hot money or perfectly legal funds, bypassing the $50,000/year limit in legal capital outflows.
• They make “all cash” purchases, usually sight unseen, using third parties intermediaries to preserve their anonymity, or directly in perso, in cities like Vancouver, New York, London or San Francisco.
• The house becomes a new “Swiss bank account”, providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow.
• Then the owners disappear, never to be heard from or seen again.

Or they are found dismembered, chopped up in hundreds of small pieces. Aside from that, everything is as laid out.

* * *

Anyway, back to the “curious story” of Yuan and Yunye.

 

The Yunnan verdict says that in 2013 Ren invited Yunye’s family to a dinner meeting. Yunye asked Ren if he could help Yunye’s wife with her personal business, and Ren immediately agreed, Yunye testified.

Yunye’s wife testified that after the dinner meeting, Ren invited her to North Star’s offices to discuss business. It was proposed that she sell several gems to him. Ren testified that he felt the gems were not worth much, but after negotiations he paid a large sum. He claimed he was afraid that Yunye would be offended if he paid too little, and the official would not permit North Star’s massive state-land tourism development, Ancient Dian Kingdom amusement park.

The final verdict states that Ren’s version of the gem deal could not be confirmed, but that documentary evidence showed that in September 2013 he made a 2.48 million RMB ($500,000 Cdn) cash payment to Yunye’s wife, in exchange for a construction permit. Subsequently, “the state-owned construction land use right transfer contract,” for North Star’s “Ancient Dian Kingdom Investment and Development Co.,” was confirmed for the June 2013 to January 2014 period. Ren was not charged for bribery.

Underlying the disturbing evidence in Yunye’s verdict is a big-picture story about how business is conducted in China as its economic system changes from communism to crony capitalism.

Reporting on Yunye’s November 2015 sentencing verdict, Chinese financial journal Caijing wrote: “The time period during which Lin (Yunye) was in charge of land resources coincides with the period featuring nationwide integration and acquisition of mineral resources. Aside from (Yunye), most corrupt officials in Yunnan have more or less intervened in the restructuring of mining companies, leading to the fire sale of many large state-owned mines and the loss of state-owned assets.”

And an April 2014 report from Yunnan business website GoKunming says that “while China’s economy slows after two decades of explosive growth” Yunnan strongly promoted tourism and real estate development to reignite growth.

“Fuelling investment numbers are several enormous projects aimed at expanding Yunnan’s already thriving travel industry to places that the government has deemed underdeveloped,” GoKunming reported. “Perhaps the largest of these is (North Star’s) sprawling Ancient Dian Kingdom, a $3.5 billion USD amusement park which covers more than 6,000 acres.”

Ren is from Wenshan, a state of Yunnan, and reports from China highlight his connections to Yunnan and Wenshan officials. For example, a Wenshan State website shows a picture of Ren and his wife “Mrs. Xuepei Sun” donating 10 million yuan ($2 million Cdn) for disaster relief to state Governor Huang Wenwu in 2010. In the ceremony a state party committee director declared Huaican Ren a friend of Wenshan’s government.

Chinese investment statements filed for Kunming North Star Enterprise Company Limited say that Ren is chairman, and a Chinese citizen with permanent resident status in Canada. According to the Global Real Estate Institute, Ren is among “the world’s leading real estate players.”

As for Ren’s Point Grey property, it was listed for sale about 10 days after The Province exposed its decrepit conditions.

It appears to have been sold for $6.5 million on March 3 according to MLS documents. But over a month later, a new owner has yet to be registered on title.

B.C. land title documents say that Ren and his wife bought the Point Grey home for $4.6 million in 2011 through a property transfer executed in a Beijing law office. The previous owner, Chinese investor Wei Min Zhang, flipped the home after buying it for $3.35 million in 2010.

According to MLS documents, Wayne Du was the listing agent for seller Wei Min Zhang in 2011, and George Xia was buyer agent for Huaican Ren. MLS records show the same two realtors involved in the March 3 sale. This time, however, George Xia is the listing agent for Huaican Ren, and Wayne Du is listed as the agent for an unidentified buyer. Legally, Huaican Ren is still owner until a notary or lawyer files transfer documents, B.C. land title office staff said.

B.C. Notary Society counsel Ron Usher — who is a member of the B.C. Real Estate Council panel investigating so-called “shadow flipping” — said he can’t determine the status of the Point Grey home sale.

“We can’t really tell anything from the MLS data,” Usher said. “Has any money changed hands? We don’t know.”

* * *

And while stories like these depicting how the shady Chinese criminal underworld moves to Canada and become the norm when it comes to Vancouver’s Chinese nouveau super riche, the underlying reality remains one where billions in laundered money end up in local real estate, leading to our favorite chart. This:

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Make America Un-transformed again…

 

 

Source: Townhall.com

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Authored by Danielle DiMartino Booth, former adviser to Dallas Fed's Dick Fisher

Volcker, Greenspan, Bernanke and Yellen.

Which one does not belong? Logic dictates that Volcker should have been odd man out. After all, there is no legendary “Volcker Put.”

The towering monetarist made no bones about never being bound by the financial markets. The same can certainly not be said of his three successors. And yet, history contrarily suggests it is to Volcker above all others that the financial markets will forever be beholden.

Many of you will be familiar with Michael Lewis’ memoir, Liar’s Poker. Yours truly first read the book in a Wall Street training program much like the one Lewis survived to describe in his autobiographical work. The take-away then, in late 1996, was that Gordon Gekko was right — greed was good.

Recently, a second reading of Liar’s Poker, following nearly a decade inside the Federal Reserve, delivered a much different message than did that first youthful reading and was nothing short of an epiphany: Paul Volcker, albeit certainly inadvertently, created the bond market.

On Saturday, October 6, 1979. Volcker held a press conference and announced that interest rates would no longer be fixed and that further the Fed would begin to target the money supply in order to curb inflation and “speculative excesses in financial, foreign exchange and commodity markets.”

Alas, this new regime was not meant to be. In trying to introduce an alternative to interest rate targeting, the Fed replaced one guessing game with another. Predicting the demand for reserves and then buying or selling securities based on that demand proved to be just as dicey as a similar exercise to target a given level of interest rates had been.

Volcker’s experiment ended in 1982. But by then, the genie had escaped the proverbial bottle.

Michael Lewis explains: “Had Volcker never pushed through his radical change in policy, the world would be many bond traders and one memoir the poorer. For in practice, the shift in the focus of monetary policy meant that interest rates would swing wildly. Bond prices move inversely, lockstep, to rates of interest. Allowing interest rates to swing wildly meant allowing bond prices to swing wildly.

Before Volcker’s speech, bonds had been conservative investments, into which investors put their savings when they didn’t fancy a gamble in the stock market. After Volcker’s speech, bonds became objects of speculation, a means of creating wealth rather than merely storing it. Overnight the bond market was transformed from a backwater into a casino.”

What a casino. As Lewis points out in his book: In 1977, the total indebtedness of U.S. government, corporate and household borrowers was $323 billion. By 1985, that figure had grown to $7 trillion.

Volcker left the Fed in August of 1987 after handing the reins over to Alan Greenspan. Two short months later, there would be a celebrated birth, that of the Greenspan Put, a watershed that truly got the party started. At last check, that party’s still going strong though stress fractures have begun to show on the festive facade. Of course, you wouldn’t have noticed them with the celebration of credit continuing to party on.

By year’s end 2015, U.S. indebtedness had swelled to $45.2 trillion. Tack on financials, which few do, and it’s $64.5 trillion and unabashedly growing. We are a nation transformed.

There are many temptations that tantalize when it comes to delving into debt. Uncle Sam now owes a cool trillion more than the nation produces. In our history, only once before has the divide between debt and production been so wide. That time was right after World War II. The difference between now and then — the cost was great but the purchase of our freedom was priceless.

What has today’s vast store of debt purchased? Certainly not freedom.

American nonfinancial businesses are today in hock as never before, to the tune of $14 trillion. Sadly, most of their debt accrued since the crisis has been funneled into nonproductive endeavors that involve balance sheet tiddlywinks to pad earnings. Don’t believe a single economist who dares quantify the consequences of a foregone generation of capital expenditures.

(At the risk of digressing, there was a bittersweet irony to Greenspan’s lamenting a lack of productivity growth when record share buybacks occurred on his watch. Consider his tenure to have provided the training ground for today’s C-suite occupants.)

At the most fundamental level, it’s the household sector that has undergone the most tragic transformation. We of that sector are, after all, what this country is and what it will be tomorrow. And it was individual citizens who had the good sense and vision to found a democracy built on the tenet of government’s role being protector of our inalienable rights to life, liberty and property. We earned these rights through relentless hard work and proudly claimed them as our own. It was the American way.

But what happens when the incentive system that encourages the honest attainment of that very American Dream breaks down? What happens when people in positions of power add the forbidden fruit of debt to our nation’s recommended daily allowance of consumables cloaked as a bonafide food group?

Whether it’s margin debt, mortgages or car loans, Americans have been brainwashed into believing that living beyond their means will somehow get them ahead. Consider the data, which simply do not lie.

In 1984, disposable income, what we take home in the aggregate after we pay our taxes, was $2.9 trillion. That same year, total household debt was $1.9 trillion. Back then, we covered our debts and had a fair bit left over with which to fund savings and possibly pay for a trip to Disney or for our kids’ college educations.

Then along came ‘measured.’ The first era of ‘lower for longer’ interest rates arrived in the aftermath of the dotcom implosion. Baby boomers, while still years away from retirement, had nevertheless been shocked to see their retirement savings take such a huge hit. But rather than batten down the hatches, they whipped out their credit cards marking a turning point in our nation’s history.

The Gregorian calendar dictates that the first year of this young century was 2001. That also happens to be the first year Americans spent more than they cleared in disposable income by way of accumulating debt: they took in $7.74 trillion and racked up debts that totaled $7.82 trillion by year’s end.

Feeding the shift from those who once had rainy day funds to those who had been had were six words constituting a commitment from Alan Greenspan stating that interest rates would rise at a, “pace that is likely to be measured.” Stand and deliver the famous obfuscator among orators did. The good times lasted for so long that households began to get unsolicited offers for new credit cards and mortgages in the mail…for their children.

Was the Maestro warned of the disaster building? The answer to that is well documented in the terrible tale of Edward Gramlich, who pled with his boss to put a stop to the subprime madness before it claimed countless victims, the largest of which would be the entire U.S. economy.

And yet the borrowing binge continued, even in the darkest days of the foreclosure crisis as mortgage balances collapsed. Of course, by then, Greenspan had exited stage left, off to sign book covers and leave the cleaning up of the disastrous detritus to his successor.

What was the harsh medicine Ben Bernanke prescribed to wean the country off over-indebtedness? Why gasoline. Bernanke poured fuel on the fire in the form of seven years of zero interest rates making debt more accessible than it had been in 5,000 years of recordkeeping (as per Merrill Lynch’s math).

The result was that households never saw even one year in which they made more than they owed. Not one, even though the period of ‘beautiful deleveraging’ was supposedly underway.

From this and that dotcom IPO, bought on margin, no less…to liar mortgages…to super subprime car loans, the elixir of aspiration has simply been too strong to resist. Lost along the way is a culture that once valued waiting for the better things in life. In the wake of this wholesale surrender of a culture, households have slowly succumbed to a subpar existence. That’s the trouble with living beyond your means. It never lasts indefinitely and always leaves you worse off than had you refrained from the get go.

The latest household data for 2015: Disposable income, $13.4 trillion. Debt, $14.2 trillion.

The prognosis? Mortgage debt is rising, credit card usage is back in vogue and student debt continues to spiral upwards. Car lending meanwhile, may be taking its last gasp for this cycle as fresh reports show used car prices have fallen for four straight months, a classic precursor to a downturn in the auto sector.

As for the fair chair, Janet Yellen, by all accounts she is running scared, pulling out all stops to forestall a recession in the hopes that there is such a thing as The Great Moderation, Part II.

To say Yellen is just now waking to the dangers of over indebtedness would be disingenuous. She was President of the San Francisco Fed when the housing bubble literally inflated and burst in her backyard.

No, perhaps what she is now realizing is the deep trap she is in. Her cabal of economists have long since assured her that government, corporate and household debt service is so low that history itself has been rewritten. But therein lies the mother of all Catch 22s, wrought by nearly 30 years of central bankers encouraging, enticing and imploring debt-financed spending while punishing, penalizing and all but outlawing saving.

Yes, the debt service is at record lows, but the mountain of debt that’s been accumulated dictates that the only thing the economy can withstand is low rates in perpetuity. The alternative is simply unimaginable. There would be widespread ruin and perhaps even the bankrupting of a great nation.

If only we didn’t know how we got to this point. But we do. We were duped by Liar’s Brokers and now have to live with the consequences. To quote Michael Lewis one last time, “In the land of the blind, the one-eyed man is king.”

via http://ift.tt/1RXgG7c Tyler Durden