Tag: finance

Helicopter money may be on the horizon, but if Deutsche Bank has its way, there is at least one intermediate step.

According to DB’s Dominic Konstam, now that the benefits QE “have run their course”, it is time for the next, and far more drastic step: “the ECB and BoJ should move more strongly toward penalizing savings via negative retail deposit rates or perhaps wealth taxes. With this stick would also come a carrot – for example, negative mortgage rates.”

Here is the big picture unveiling of what is coming next from Deutsche Bank’s Dominic Konstam, who is also buying the Treasury long end hand over fist:

• The G3 central banks all stood pat, continuing the move away from the beggar-thy-neighbor paradigm. However, the adverse market reaction to the BoJ’s inaction suggests that the benefits of QE (or QQE) in its present form might have run their course.
• It is becoming increasingly clear to us that the level of yields at which credit expansion in Europe and Japan will pick up in earnest is probably negative, and substantially so. Therefore, the ECB and BoJ should move more strongly toward penalizing savings via negative retail deposit rates or perhaps wealth taxes. With this stick would also come a carrot – for example, negative mortgage rates.
• Until then, bank NIM compression will continue to drive elevated demand for dollar-denominated assets, which manifests itself in suppressed UST term premia and wide cross-currency bases.
• What this means for the US is that policy rates and longer bond yields are unlikely to go up until global growth accelerates materially. Until such time, it is critical for the Fed to continue to relent, allowing real yields to keep falling while breakevens rise and nominal yields remain roughly static.
• If the Fed were to turn hawkish, there is perhaps even less scope for long-end yields to rise as breakevens would likely collapse on policy error fears.

Some of the troubling detail:

QE as implemented in major economies since the crisis has operated through two shocks: a demand shock whereby real yields are forced lower through lower nominal yields and static – or even falling – breakevens, and a shock to inflation expectations, whereby real yields ultimately continue to fall but due to rising BEI and static to lower nominal yields. In the case of the Anglo-Saxon economies, the demand shock quickly gave way to the shock (higher) to inflation expectations and actually allowed nominal yields to rise, if fleetingly.

 

The second shock, to inflation expectations, has thus far remained stubbornly elusive in Europe and more so in Japan, and ephemeral in the Anglo-Saxon economies. That said, this dynamic appears to have re-emerged in the US post Fed relent and has been an important driver of the recovery in risk assets and, more generally, the easing of financial conditions.

 

This week’s BoJ announcement disappointed, and as a result the yen appreciated sharply. This outcome does not bode well for the future efficacy of QE, at least while that is the primary policy tool in use. Breakevens have been drifting lower and real yields have been drifting higher since last summer. In other words, financial conditions in Japan are tightening, suggesting the need for more stimulus. However, the BoJ already holds a significant proportion of the assets that would be available for purchase, and the gains from additional QE activity – higher breakevens, lower real yields, and a weaker yen – are likely on the margin to be fleeting. It appears that the markets doubt the BoJ’s willingness or ability to carry on with larger and broader asset purchases, or worse yet they do not believe that such asset purchases will have their desired stimulative effect

 

Further QE should be viewed as an experiment in real time, where the point of inquiry is the level of real or nominal yields at which credit will begin to expand more strongly with loan-to-deposit ratios increasing. What seems increasingly clear to us is that this level is likely at negative yields, and probably substantially so. If this is true, it would suggest to us that the equilibrium level of rates in the economy is probably negative. This in turn would strongly suggest a significant re-think to short-rate policy. In this case, central banks should move more strongly toward penalizing savings, rather than just the institutions that “house” those savings – the banks. This would mean allowing significantly negative retail deposit rates or perhaps even wealth taxes. With this stick would also come a carrot – one example being that while deposit rates penalize savings (the whole point), banks might also pay borrowers to buy houses via negative mortgage rates.

In short, the real central bank panic is about to be unleashed; who will suffer? Why everyone else. And should wealth taxes really be imminent, we foresee a lot of “boating incidents” in the immediate future.

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Submitted by George Friedman via MauldinEconomics.com,

Chinese President Xi Jinping recently announced that he would take command of all of China’s armed forces, including the People’s Liberation Army (PLA).

Xi is already chairman of the Central Military Commission that oversees the army. He is now taking a more direct role as head of the new Joint Operations Command Center, which puts him in operational command of the PLA in times of war.

The new title in all likelihood means little in terms of actual command, but it has tremendous political significance. Officially, the Chinese are reforming their military, which is logical (read why here). The roots of this change, however, lie in China’s economic crisis and the need to preserve the regime.

The regime no longer delivers on its promises

Mao Zedong founded China as a moral project: to create a country ruled by communism. After Mao’s death, the project was replaced by another: to modernize the Chinese economy and create prosperity. 

The leadership in the new regime rotated in an orderly fashion, and government after government oversaw the generation of increasing wealth.
Mao justified the regime as a dream (or nightmare, depending on how you view Maoism), while his successors promised prosperity, and they delivered. 

Until now…

There is occasional talk that China will somehow return to a period of rapid growth and increasing wealth. But the vast outflow of money (some in the hands of private individuals, some taken from government coffers and informally privatized) is the short explanation for why China has reached a new normal. 

If the rule is “follow the insiders,” the insiders are saying that getting money out of China is a priority. The story is more complex, of course. If a regime justifies itself by delivering prosperity, and it stops delivering, the regime is in trouble.

China’s problem can no longer be considered primarily economic. That train has left. The economic reality is locked in and will remain in place for a long time. 

China is now in the throes of a political challenge

The coastal region will grow at a much slower rate than before, if at all. People who came from the interior for jobs will have to return to the interior. 

The interior—a vast and impoverished region—is the population heartland of China. Over 60 percent of China’s population lives there. But the coast is the country’s economic heartland, and that dichotomy defines China’s political problem.

Xi must satisfy both regions, which won’t be easy. The interior wants money for jobs, economic development, and ultimately increased consumption. The only place to get this money from is the coastal region, which obviously does not want to make the transfer.

The coast is economically tied to the United States and Europe, not to the interior. It wants to maintain those links. But the interior is where the majority of Chinese live, and it was the foundation of the Chinese revolution and the regime. 

Xi is frightened that the interior will destabilize the regime under economic pressure and that he will lose control over the coastal region, as happened in the 19th century.

These are distant yet rational fears. Xi’s mission is to ensure that the Communist Party keeps China under control. His primary challenge is the inequality among classes and regions that the post-Mao economic surge created.

Xi must have control over the wealthy

The Communist Party came to rule China by exploiting that inequality. If the party can’t solve the problem it has created, it must at least try to control it.

The first step toward control was to impose a dictatorship on the to prevent the emergence of any organized resistance. Today, further liberalization is out of the question, and suppressing any elements that demand it is essential.

The regime also wants to assert control over private assets. Such control is essential if money will be used to quell unhappiness in the interior, and the vast anti-corruption purge is designed to achieve this.

The campaign is not so much aimed at suppressing corruption, although doing so has its uses. Rather, it is designed to intimidate all those who have accumulated wealth. This class must be brought under the control of the party to prevent it from using its wealth to control the party. 

The mission set out by Deng Xioping was to “enrich yourself.” Now the fear is that the wealthy have gone too far. The somewhat random and unpredictable purges are intended to frighten the rich. 

One result is capital flight, and that is a problem. But the goal is to make wealth subordinate to political power, not the other way around. Otherwise, the party becomes fundamentally weak.

The People’s Liberation Army is the guarantor

Wealth is part of the equation, but in the end, the People’s Liberation Army is the key. It is the ultimate guarantor of the regime in two ways. 

First, it has the power to crush opposition, as it did in Tiananmen Square. Second, the children of peasants fill its ranks, and they see enlistment as a path to upward mobility. Taken together, its makeup and power can guarantee the communist regime’s survival.

On the other hand, the PLA is also capable of undermining the regime. Its enormous size might enable it to subvert the party’s power throughout the country. 

The party and the PLA had a clear alignment in the past. Now that bond is less certain. The PLA’s officer corps has gotten deeply involved in enriching themselves. The PLA was directly involved in PLA-owned enterprises.

The enterprises have been reduced, but the PLA leadership is still intertwined with Chinese business—either directly or through relatives. The PLA’s size and influence mean that its officers’ interests are torn between the party and the wealthy, which is now under attack.

The regime, however, is reducing PLA’s massive size, which makes good military sense. It also makes political sense. This allows Xi to eliminate those involved in what is now termed corruption, to confiscate their wealth, and to intimidate others. 

This purge is similar to those going on in many institutional bureaucracies in China, except that the size and importance of the PLA outstrips all other institutions. A smaller and reconfigured PLA will pose less of a threat to the regime, even if its military efficiency increases.

This transition is dangerous for the party and for Xi. The writing is on the wall for many in the army who have accumulated wealth, but restructuring will take several years.

The PLA will have to be tightly controlled. That is why Xi set up a Discipline Inspection Commission in January specifically for the PLA, answerable directly to the Central Military Commission. 

This is also why Xi has taken direct control of military operations. He or his trusted advisors will have direct access to plans and operations. The PLA will come under Xi’s direct supervision. 

Any broad conspiracy that includes the PLA will be readily detected. You can’t hide the kinds of troop movements that would pose an existential threat to the regime.

The PLA is the center of gravity of the regime, and if Xi loses control of it, he could lose control of everything. Xi would never have appointed himself head of the Joint Operations Command Center if he hadn’t felt the move absolutely necessary. 

He moved to take control of the PLA’s operations to ensure that he could preserve the regime. He put a very different gloss on the action, positioning it as an expansion of his power… and it was. 

But it was an expansion compelled by the regime’s insecurity. At first glance, his move should succeed. But there are so many complex and competing interests involved that when Xi pushes on some, others could come loose.

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One of the biggest ironies in recent months has been the Bank of Japan’s recurring insistence that it would promptly intervene in the FX market if the ongoing “disorderly” moves in the Yen do not stop. This was ironic because it was the BOJ’s own insistence in characterizing virtually every move as disorderly that ultimately led to the most disordely move of all this week when following the BOJ’s “disappointment” in failing to do anything, the Yen soared the most in years, to a level not seen since October of 2014. Now that was a truly “disorderly” move, which was only made possible by the BOJ’s constant and misguided rhetoric.

 

Then just yesterday, the Treasury unveiled a brand now “monitoring list”, on which it put five economies but most notably China and Japan. And once again, that word “disorderly” appeared.  This is what the Treasury said:

Economies with flexible exchange rates hold reserves in order to intervene in foreign exchange markets to prevent a disorderly depreciation of their currencies.

Not only that, but the Treasury made it clear that it would very explicitly frown on any “disorderly” currency depreciation by US trade partners going forward.

The United States has secured commitments from the G-20 member countries to move more rapidly to more market-determined exchange rates, avoid persistent exchange rate misalignments, refrain from competitive exchange rate devaluations, and not target exchange rates for competitive purposes. Through Treasury’s leadership, the G-7 member countries, including Japan, have publicly affirmed that their fiscal and monetary policies will be oriented toward domestic objectives using domestic instruments.

But if the BOJ was so perilously wrong in its characterization of what disorderly exchange rates are, then what are they? For the answer we go to Richard Koo and the following explanation.

What is meant by “orderly” exchange rate movements

 

At the press conference following the meeting of G20 finance ministers and central bank governors in Washington on 15 April, Treasury Secretary Jack Lew responded to Finance Minister Aso’s expression of “strong concern” about “one-sided” increases in the yen the previous day by saying that “despite recent yen appreciation, foreign exchange markets remain orderly.” This comment made it far more difficult for Japan to engage in currency intervention.

 

The operative term in this exchange was “orderly.” Currency authorities in the developed economies have a basic agreement to leave the determination of exchange rates up to the market. The one exception to this rule is that national authorities are allowed to intervene, even unilaterally, when markets become “disorderly.”

 

There is a proper definition for what constitutes a disorderly market. When I worked as an economist at the New York Fed’s forex desk, the definition was divided into three stages.

 

First sign of disorderly market: widening bid-offer spreads

 

The first sign that a market has grown disorderly is that forex dealers’ bid-offer spreads (the difference between the prices they are willing to buy and sell at) start to widen.

 

For instance, a normal bid-offer spread of 0.03 yen might rise to 0.05 or 0.10 yen as market conditions become turbulent. Spreads increase because exchange rate volatility forces dealers to provide themselves with a wider margin of safety.

 

Second sign: gapping

 

If the market turmoil continues, the next phenomenon witnessed is something called gapping. This happens when there is a discontinuity between the bid-offer quotes submitted by dealers.

 

For example, if one dealer says it will buy at 110.25 yen/dollar (bid) and sell at 110.30 yen/dollar (offer), the next quote will usually overlap that range. In this case, it might be 110.27–110.32 or 110.23–110.28.

 

But when even dealers are no longer sure what is going on in the market, the original quote of 110.25–110.30 might be followed by a non-overlapping quote of 110.35–110.40. Such moves are also likely to be accompanied by a widening of bid-offer spreads.

 

In extreme cases, dealers stop answering their phones

 

In the final stages of a disorderly market, when extreme turmoil leaves all participants unsure what to do next, dealers will simply stop answering their phones. By having traders connect to other internal extensions, the firm can keep all its phone lines busy and avoid taking any outside orders.

 

This is a disorderly market, and in such cases central banks are allowed to intervene in the currency market to restore order.

Now, as even Jack Lew admits, central bank intervention in a disorderly market is fine. A far bigger risk in game theoretical terms, as well as angering the global reserve currency hegemon, is when a central bank intervenes when the moves are perfectly orderly; this is precisely what the market was convinced the BOJ would do on Wednesday night… and was massively wrong.  According to Nomura’s Koo, the answer is that “Japanese intervention in orderly forex market could be seen as collapse of cooperative relationship“

This sort of phenomenon has yet to be observed in the yen’s current upswing, which is why Mr. Lew went out of his way to describe forex markets as “orderly.”

 

If Japan were to unilaterally intervene to weaken the yen under such conditions, it would be doing so without US approval, which would signal a rift between the two countries.

 

Japan is, of course, a sovereign nation and is free to intervene if it so desires. The problem is how the market might react to a perceived collapse of its cooperative relationship with the US.

It happened once before under Eisuke “Mr Yen” Sakakibara., when the Japanese finance minister intervened in 1999 against US wishes. This is what happened then.

Problems [in Japan’s relationshbip with the US] surfaced late in June 1999, when then-Vice Minister of Finance Eisuke Sakakibara, perhaps seeking to celebrate his impending retirement, declared his intention to push the yen down to 122 versus the dollar from the existing level of 117 and implemented an intervention totaling several trillion yen.

 

This action, which was not only unilateral but was against the wishes of the US, seriously upset US Treasury Secretary Lawrence Summers, who was already jittery over the trade frictions between the two nations. Mr. Summers quickly distanced himself from Japan’s intervention in no uncertain terms.

 

The markets took this official exchange as evidence of a breakdown in the cooperative relationship between Japan and the US that had been in place ever since the Louvre Accord in 1987. Helped by the fact that Japan was running a large trade surplus at the time, the yen strengthened and USD/JPY, instead of heading towards 122, plummeted to 102.

 

Not only did Japan experience heavy foreign exchange losses, but the economy now had to deal with a sharply higher yen. The Assistant Treasury Secretary for International Affairs at the time, Timothy Geithner, is reported to have shouted at a Japanese counterpart, “Didn’t anyone try to stop him [Sakakibara]?”

Perhaps the BOJ’s January NIRP announcement was also a unilateral decision without prior approval from the US, which explains why the USDJPY instead of soaring, has tumbled to nearly 2 year lows.

One thing is increasingly certain: the US has finally put its foot down, not surprisingly at a time when the USD is rapidly sliding. Maybe the period of strong dollar generosity for the rest of the world, has come and gone, and from this point on it is time for the US to reap the benefits of a rapidly depreciation currency especially since the threat of any rate hikes is virtually gone. That said, we won’t know for sure until Goldman finally capitulates on its dollar call which has been “long and wrong” for the past six months. Only when Robin Brooks finally throws in the towel, will it be safe to once again go long the USD.

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Submitted by Alasdair Macleod via GoldMoney.com,

Saudi Arabia has been in the news recently for several interconnected reasons. Underlying it all is a spendthrift country that is rapidly becoming insolvent.

While the House of Saud remains strongly resistant to change, a mixture of reality and power-play is likely to dominate domestic politics in the coming years, following the ascendency of King Salman to the Saudi throne. This has important implications for the dollar, given its historic role in the region.

Last year’s collapse in the oil price has forced financial reality upon the House of Saud. The young deputy crown prince, Mohammed bin Salman, possibly inspired by a McKinsey report, aims to diversify the state rapidly from oil dependency into a mixture of industries, healthcare and tourism. The McKinsey report looks like a wish-list, rather than reality, particularly when it comes to tourism. The religious police are unlikely to take kindly to bikinis on the Red Sea’s beeches, or to foreign women in mini-shorts wandering around Jeddah.

It is hard to imagine Saudi Arabia, culturally stuck in the middle ages, embracing the changes recommended by McKinsey, without fundamentally reforming the House of Saud, or even without a full-scale revolution. Nearly all properties and businesses are personally owned or controlled by members of the extended royal family, not the state, nor by lesser mortals. The principal exception is Aramco, estimated to be worth $2 trillion.

The state is subservient to the House of Saud. It is therefore hard to see how, as McKinsey recommends, the country can “shift from its current government-led economic model to a more market-based approach”. The country is barely government led: a puppet of the Saudis is more like it. But the state’s lack of funds is making it increasingly desperate.

It was for this reason the Kingdom recently placed a $10bn five-year syndicated loan, the first time it has entered capital markets since Saddam Hussein invaded Kuwait. It proposes to raise a further $100bn by selling a 5% stake in Aramco. The financial plan appears to be a combination of this short-term money-raising, contributions from oil revenue, and sales of US Treasuries (thought to total as much as $750bn). The government has, according to informed sources, been secretly selling gold, mainly to Asian central banks and sovereign wealth funds. Will it see the Kingdom through this sticky patch?

Maybe. Much more likely, buying time is a substitute for ducking fundamental reform. But one can see how stories coming out of Washington, implicating Saudi interests in the 9/11 twin-towers tragedy, could easily have pulled the trigger on all those Treasuries.

Whatever else was discussed, it seems likely that this topic will have been addressed at the two special FOMC meetings “under expedited measures” at the Fed earlier this month, and then at Janet Yellen’s meeting with the President at the White House. This week’s holding pattern on interest rates would lend support to this theory.

The White House’s involvement certainly points towards a matter involving foreign affairs, rather than just interest rates. If the Saudis had decided to dump their Treasuries on the market, it would risk collapsing US bond markets and the dollar. Through financial transmission, euro-denominated sovereign bonds and Japanese government bonds, all of which are wildly overpriced, would also enter into free-fall, setting off the global financial crisis that central banks have been trying to avoid.

Perhaps this is reading too much into Saudi Arabia’s financial difficulties, but the possibility of the sale of Treasuries certainly got wide media coverage. These reports generally omitted to mention the Saudi’s underlying financial difficulties, which could equally have contributed to their desire to sell.

While the Arab countries floated themselves on oceans of petro-dollars forty years ago, they have little need for them now. So we must now turn our attention to China, which is well positioned to act as white knight to Saudi Arabia. China’s SAFE sovereign wealth fund could easily swallow the Aramco stake, and there are good strategic reasons why it should. A quick deal would help stabilise a desperate financial and political situation on the edges of China’s rapidly growing Asian interests, and keep Saudi Arabia onside as an energy supplier. China has dollars to dispose, and a mutual arrangement would herald a new era of tangible cooperation. The US can only stand and stare as China teases Saudi Arabia away from America’s sphere of influence.

In truth, trade matters much more than just talk, which is why a highly-indebted America finds herself on the back foot all the time in every financial skirmish with China. Saudi Arabia has little option but to kow-tow to China, and her commercial interests are moving her into China’s camp anyway. It seems logical that the Saudi riyal will eventually be de-pegged from the US dollar and managed in line with a basket of her oil customers’ currencies, dominated by the yuan.

Future currency policies pursued by both China and Saudi Arabia and their interaction will affect the dollar. China wants to use her own currency for trade deals, but must not flood the markets with yuan, lest she loses control over her currency. The internationalisation of the yuan must therefore be a gradual process, supply only being expanded when permanent demand for yuan requires it. Meanwhile, western analysts expect the riyal to be devalued against the dollar, unless there is a significant and lasting increase in the price of oil, which is not generally expected. But a devaluation requires a deliberate act by the state, which is not in the personal interests of the individual members of the House of Saud, so is a last resort.

It is clear that both Saudi Arabia and China have enormous quantities of surplus dollars to dispose in the next few years. As already stated, China could easily use $100bn of her stockpile to buy the 5% Aramco stake, dollars which the Saudis would simply sell in the foreign exchange markets as they are spent domestically. China could make further dollar loans to Saudi Arabia, secured against future oil sales and repayable in yuan, perhaps at a predetermined exchange rate. The Saudis would get dollars to spend, and China could balance future supply and demand for yuan.

It would therefore appear that a large part of the petro-dollar mountain is going to be unwound over time. There is now no point in the Saudis also hanging onto their US Treasury bonds, so we can expect them to be liquidated, but not as a fire-sale. On this point, it has been suggested that the US Government could simply block sales by China and Saudi Arabia, but there would be no quicker way of undermining the dollar’s international credibility. More likely, the Americans would have to accept an orderly unwinding of foreign holdings.

The US has exploited the dollar’s reserve currency status to the full since WW2, leading to massive quantities of dollars in foreign ownership. The pressure for dollars to return to America, when the Vietnam war was wound down, was behind the first dollar crisis, leading to the failure of the London gold pool in the late sixties. After the Nixon Shock in 1971, the cycle of printing money and credit for export resumed.

In the seventies, higher oil prices were paid for by printing dollars and by expanding dollar bank credit, in turn kept offshore by lending these exported dollars to Latin American dictators. That culminated in the Latin American debt crisis. From the eighties onwards, the internationalisation of business was all done on the back of yet more exported dollars, and wars in Iraq and Afghanistan echoed the earlier wars of Korea and Vietnam.

Many of these factors have now either disappeared or diminished. For the last eighteen months, the dollar had a last-gasp rally, as commodity and oil prices collapsed. The contraction in global trade since mid-2014 had signalled a swing in preferences from commodities and energy towards the money they are priced in, which is dollars. The concomitant liquidation of malinvestments in the commodity-exporting countries has been contained for now by aggressive monetary policies from China, Japan and the Eurozone. The tide is now swinging the other way: preferences are swinging out of the dollar towards oversold commodities again, exposing the dollar to a second version of the gold pool crisis. This time, China, Saudi Arabia and the BRICS will be returning their dollars from whence they came.

In essence, this is the market argument in favour of gold. Over time, the price of commodities and their manufactured derivatives measured in grams of gold is relatively stable. It is the price measured in fiat currencies that is volatile, with an upward bias. The price of a barrel of oil in 1966, fifty years ago, was 2.75 grams of gold. Today it is 1.0 gram of gold, so the purchasing power of gold measured in barrels of oil has risen nearly three-fold. In dollars, the prices were $3.10 and $40 respectively, so the purchasing power of the dollar measured in barrels of oil has fallen by 92%. Expect these trends to resume.

This is also the difference between sound money and dollars, which has worked to the detriment of nearly all energy and commodity-producing countries. With a track-record like that, who needs dollars?

It is hard to see how the purchasing power of dollars will not fall over the rest of the year. The liquidation of malinvestments denominated in external dollars has passed. Instead, the liquidation of financial investments carry-traded out of euros and yen is strengthening those currencies. That too will pass, but it won’t rescue the dollar.

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We (the people) love the smell of ‘free stuff’ in the morning…

 

 

Source: TheBurningPlatform.com

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Submitted by Mac Slavo via SHTFPlan.com,

The stock market may be hovering near all-time highs, but according to Greg Mannarino of Traders Choice that doesn’t mean the valuations are actually real:

We exist, beyond any shadow of any doubt, in an environment of absolute fakery where nothing is real… from the prices of assets to what’s occurring here with regard to the big Wall Street banks, the Federal Reserve, interest rates and everything in between.

 

…All of this is being played in a way to keep people believing, once again, that the system is working and will continue to work.

Full Interview with USA Watchdog:

 

 

President Obama has suggested that people like Greg Mannarino who are exposing the fraud for what it is are just peddling fiction. And just this week the President argued that he saved the world from a great depression and that the closing credits of the 2008 crash movie “The Big Short” were inaccurate when they claimed that nothing has been done to fundamentally curb the fraud and fix the system under his administration. But as Mannarino notes, the President and his central bank cohorts are making these statements because the system is so fragile that if the public senses even the smallest problem it could derail the entire thing:

Let’s just look at the stock market… there’s no possible way at this time that these multiples can be justified with regard to what’s occurring here with the price action of the overall market… meanwhile, the market continues to rise.

 

…

 

Nothing is real. I can’t stress this enough… and we’re going to continue to see more fakery… and manipulation and twisting of this entire system…  We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function… and that’s very scary.

 

…

 

We’ve never seen anything like this in the history of the world… The Federal Reserve has never been in a situation like this… we are completely in uncharted territory where the world’s central banks have gone negative interest rates… it’s all an illusion to keep the stock market booming.

 

…

 

Every single asset now… I don’t care what asset… you want to look at currency, debt, housing, metals, the stock market… pick an asset… there’s no price discovery mechanism behind it whatsoever… it’s all fake… it’s all being distorted.

 

…

 

The system is built upon on one premise and that is confidence that it will work… if that confidence is rattled the whole thing will implode… our policy makers are well aware of this… there is collusion between central banks and their respective governments… and it will not stop until it implodes… and what I mean by implode is, correct to fair value.

And when that confidence is finally lost and the fraud exposed – and it will be as has always been the case throughout history – the destruction to follow will be one for the history books.

In a previous interview Mannarino warned that things could get so serious after the bursting of such a massive bubble that millions of people will die on a world-wide scale:

It’s created a population boom… a population boom has risen in tandem with the debt. It’s incredible.

 

So, when the debt bubble bursts we’re going to get a correction in population. It’s a mathematical certainty.

 

Millions upon millions of people are going to die on a world-wide scale when the debt bubble bursts. And I’m saying when not if…

 

…

 

When resources become more and more scarce we’re going to see countries at war with each other. People will be scrambling… in a worst case scenario… doing everything that they can to survive… to provide for their family and for themselves.

 

There’s no way out of it.

And that may be why governments around the world are preparing for nothing short of Armageddon that will see rioting in the streets, violence, civil war and regime change. In the United States, the Federal government and Pentagon have been war-gaming large scale economic collapse scenarios and those preparations began in earnest shortly after the collapse of 2008.

Nationally syndicated talk radio host Mark Levin explains:

I’m going to tell you what I think is going on.

 

I don’t think domestic insurrection. Law enforcement and national security agencies, they play out multiple scenarios. They simulate multiple scenarios.

 

I’ll tell you what I think they’re simulating.

 

The collapse of our financial system, the collapse of our society and the potential for widespread violence, looting, killing in the streets, because that’s what happens when an economy collapses.

I’m not talking about a recession. I’m talking about a collapse, when people are desperate, when they can’t get food or clothing, when they have no way of going from place to place, when they can’t protect themselves.

 

There aren’t enough police officers on the face of the earth to adequately handle a situation like that.

 

I suspect, that just in case our fiscal situation collapses, our monetary situation collapses, and following it the civil society collapses – that is the rule of law – that they want to be prepared.

 

There is no other explanation for this.

The entire system is built upon a fraud. The losses have been hidden and papered over with trillion dollar cash infusions by governments and central banks around the world.

It is only a matter of time. That we can be sure of.

If you’re reading this and haven’t yet done so, it’s time to prepare for a collapse of a magnitude never before witnessed.

The elite are feverishly building bunkers for a reason, just as the government is spending billions of dollars on food stockpiles, assault weapons, and hundreds of millions of rounds of ammunition.

Why? Because they know.

via http://ift.tt/1NKf5Sk Tyler Durden

As we covered previously, in an effort to remain solvent the Central States Pension Fund has submitted an application to the Treasury for approval to cut member benefits.  While some plan participants could see pension incomes cut in half, the fund projects that it will become insolvent by 2025 if nothing is done.

Treasury is set to decide on the matter by May 7th, and as it turns out, the decision impacts more than just current plan participants…

During its Q1 earnings call, UPS told investors that if Treasury approves the CSPF plan to cut benefits, the company would have to take a charge of approximately $3.2 to $3.8 billion.

 

As part of a collective bargaining agreement with the International Brotherhood of Teamsters when UPS withdrew from the fund in 2007,  the company agreed to provide supplemental benefits to any remaining members in the event that certain benefits were lawfully reduced.

While any income statement impact will be adjusted out by analysts, it will be a significant drain on UPS' cash flow (UPS generated $5 billion in free cash flow in fiscal 2015) as it funds the benefit gap over time.

UPS is just the latest example of what lies ahead and forces the government's hand to provide yet another bailout (and encourage yet more moral hazard over-promising).

As we concluded previously, "This is going to be a national crisis for hundreds of thousands, and eventually millions, of retirees and their families. It's going to open the floodgates for other cuts." said Karen Friedman, executive president of the Pension Rights Center.

 

We can't help but wonder that as more pension funds become insolvent, and more and more participants are forced to take reductions in benefits, whether helicopter money won't soon become a reality for the United States, even before it becomes one in Japan. Especially if it is spun by some opportunistic politicans as the "only hope" for America's workers to preserve some of their retirement savings.

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

The probability of The Donald becoming the Republican Presidential nominee has surged up to a record high 85% this week (as the odds of a brokered convention collapse) as a more mild-mannered and "can't we all get along" Trump begins to creep out of the shadows.

Source: PreditIt.org

 

Source: PreditIt.org

As the inevitable event looms – no matter what the establishment tries – increasing numbers of #NeverTrump-ers are slowly but surely moving over to what they pictured before as the dark side. The latest, as The Hill reports, is none other than Marco Rubio who said "[Trump's] performance has improved significantly," urging GOP "let's not divide the party."

In a separate interview, Rubio said the GOP should avoid a divisive battle for the nomination.

 

“Look, let’s not divide the party,” he told Miami radio host Jimmy Cefalo, according to The Tampa Bay Times.

 

“I do think it's valid to argue to delegates: 'Look, let’s not divide the party. You have someone here who has all these votes, very close to get 1,237, let’s not ignore the will of the people or they’re going to be angry.' And delegates may decide that on that reason they decide to vote for Donald Trump. But if they don’t, it’s not illegitimate in any way,” Rubio said.

 

“I’ve always said that I will support the Republican nominee, and that’s especially true now that it’s apparent that Hillary Clinton will be the Democratic nominee.”

Additionally, Rep. Jimmy Duncan (R-Tenn.) on Saturday endorsed Donald Trump for president, giving the GOP front-runner his 12th lawmaker endorsement.

And with all eyes now on Indiana, Trump either holds a near double-digit lead…

Republican presidential candidate Donald Trump is ahead by 9 points in Indiana ahead of the state's Tuesday primary, according to a poll released Friday.

Trump has 41 percent support among likely GOP primary voters, the American Research Group poll found, followed by Ted Cruz, at 32 percent, and John Kasich, at 21 percent.

 

or (3 hours later) is behind by double-digits…

Ted Cruz leads Donald Trump by double digits in a new poll of Indiana, which hosts the next contest in the GOP presidential primary on Tuesday.

The Texas senator leads the real estate mogul 45 percent to 29 percent among registered voters, according to a poll by the Mike Downs Center for Indiana Politics.

*  *  *

So depending on who or when you asked, Trump is a yuuge leader or yuuger laggard .. “This is good news for Cruz, but the volatility of the electorate means all campaigns should view these results cautiously,” pollster Andrew Downs said in a statement.

via http://ift.tt/1TlZkh0 Tyler Durden

Submitted by Wall Street Examiner's Lee Adler via Contra Corner blog,

Comparing the growth in the number of full time jobs versus the growth in new home sales starkly illustrates both the horrible quality of the new jobs, and how badly ZIRP has served the US economy.

Growth in new home sales has always been dependent on growth in full time jobs. For 38 years until the housing bubble peaked in 2006, home sales and full time jobs always trended together, subject to normal cyclical swings. With the exception of 1981-83 when Paul Volcker pushed rates into the stratosphere, new home sales always fluctuated between 550 and 1,100 sales per million full time workers in the month of March.

That correlation broke in the housing crash of 2008-09 when sales fell to a low

But in the housing crash in 2007-09 sales fell to a low of 276 per million full time workers. Since then the number of full time jobs has recovered to greater than the peak reached in 2007. In spite of that, new home sales per million workers remain at depression levels.

With 30 year mortgage rates now at 3.6% sales are lower today than they were when mortgage rates were above 17% in 1982. Sales have never reached 400 sales per million workers in spite of the recovery in the number of jobs, in spite of ZIRP, in spite of mortgage rates often under 4%.

ZIRP has actually made the problem worse. It has caused raging housing inflation which has caused median monthly mortgage payments for new homes to rise by 20% since 2009. ZIRP has enabled corporate CEOs to game the stock market to massively increase their own pay while encouraging them to cut worker salaries and shift higher paying jobs overseas. That leaves the US economy to create only low skill, low pay jobs that do not pay enough for workers to be able to purchase new homes.

The perverse incentives of ZIRP are why the housing industry languishes at depression levels.

via http://ift.tt/1VFzGd8 Tyler Durden

Three months after Japan unveiled NIRP, the effect has finally arrived. As IB warns its FX traders, starting Monday, Interactive Brokers “will move to a credit interest policy which allows for negative rates on long cash balances held in JPY where accounts with balances over approximately 100 thousand USD will be subject to the current Benchmark Rate minus 0.25%.” Why? Because while initially the negative interest rate policies unveiled by “many central banks were viewed as short-term measures, they now appear to be policies with open-ended duration.“

These NIRP costs are now being passed on to FX traders, and very soon, to depositors.

via http://ift.tt/24dcOqs Tyler Durden