Category Archives: Economy

The Federal Reserve Is A Barbarous Relic

The Sky is Falling

“We believe monetary policy is in a good place.”

– Federal Reserve Chairman Jerome Powell, October 30, 2019.

The man from good place. “As I was going up the stair, I met a man who wasn’t there. He wasn’t there again today, Oh how I wish he’d go away!” [PT]

Ptolemy I Soter, in his history of the wars of Alexander the Great, related an episode from Alexander’s 334 BC compact with the Celts ‘who dwelt by the Ionian Gulf.’  According to Ptolemy’s account, which survives via quote by Arrian of Nicomedia some 450 years later, when Alexander asked the Celtic envoys what they feared most, they answered:

“We fear no man: there is but one thing that we fear, namely, that the sky should fall on us.”

 Today, at the risk of being called Chicken Little, we tug on a thread that weaves back to the ancient Celts.  Our message is grave: The sky is falling.  Though the implications are still unclear.

Various Celts – left: fearsome warriors; middle: fearsome warriors afraid of the sky falling on their heads; right: Cernunnos, fearsome Celtic horned god amid his collection of skulls. [PT]

The sky, for our purposes, is the debt based dollar reserve standard that has been in place for the past 48 years. If you recall, on August 15, 1971, President Nixon “temporarily” suspended convertibility of the dollar into gold.  The dollar  became wholly the fiat money of the Treasury.

At the G-10 Rome meeting held in late-1971, Treasury Secretary John Connally reduced the new dollar reserve standard to a bite-sized nugget for his European finance minister counterparts, stating:

“The dollar is our currency, but it’s your problem.”

The Nixon-Connally tag team in the White House. [PT]

Predictably, without the restraint of gold, the quantity of debt based money has increased seemingly without limits – and it is everyone’s massive problem.  What’s more, over the past 30 years the Federal Reserve has obliged Washington with cheaper and cheaper credit.

Hence, public, private, and corporate debt levels in the U.S. have multiplied beyond comprehension.  Total US debt is now on the order of $74 trillion.  \The consequences, no doubt, are an economy that is equally distorted and disfigured beyond comprehension.

Behold the debt-berg in all its terrible glory. [PT]

Selective Blind Spots

America is no longer a dynamic, free-market economy.  Rather, the economy is stagnant and operates under the central planning authority of Washington and the Fed. The illusion of prosperity is simulated by spending trillions of dollars funded by history’s greatest debt bubble.

Simple arithmetic shows the country is headed for economic catastrophe. Clearly, Social Security and Medicare face long-term financial challenges. Current workers must shoulder a greater and greater burden to pay for the benefits of retired workers.

At the same time, the world that brought the debt based dollar reserve standard into being no longer exists. Yet the dollar reserve standard and the Federal Reserve still remain as legacy institutions.

The divergence between the world as it exists – with its massive trade imbalances, massive debt loads, wealth inequality, and inflated asset prices – and the legacy dollar reserve standard is irreversible. Unless the unstable condition that has developed is allowed to transform naturally, there will be outright collapse.

Rather than adopting policies that allow for economic transformation and minimizing the ultimate disruption of a collapse, today’s planners and policy makers are doing everything they can to hold the failing financial order together.  They are deeply invested academically and professionally; their livelihoods depend on it.

You see, selective blind spots of the best and brightest are normal when the sky is falling.  For example, in 1989, just two years before the Soviet Union collapsed, Paul Samuelson – the “Father of Modern Day Economics” –  and co-author William Nordhaus, wrote:

“The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” – Paul Samuelson and William Nordhaus, Economics, 13th ed. [New York: McGraw Hill, 1989], p. 837.

Could Samuelson and Nordhaus possibly have been more clueless?

The bizarre chart illustrating the alleged “growth miracle” of the “superior” Soviet command economy, as seen by Samuelson – published about one and a half years before the Soviet Bloc imploded in what was undoubtedly the biggest bankruptcy in history. [PT]

The Federal Reserve is a Barbarous Relic

On Wednesday, following the October federal open market committee (FOMC) meeting, the Federal Reserve stated that it will cut the federal funds rate 25 basis points to a range of 1.5 to 1.75. No surprise there.

But the real insights were garnered several days earlier.  Leading up to the FOMC meeting Fed Chair Jerome Powell received some public encouragement from one of his former cohorts –  former President of the Federal Reserve Bank of New York, Bill Dudley.  What follows is an excerpt of Dudley’s mental diarrhea, which he released in a Bloomberg Opinion article on Monday:

“People shouldn’t be as worried as they are about the risk of a U.S. recession. That said, it wouldn’t take much to trigger one, which is why the Federal Reserve should take out some insurance by providing added stimulus this week.

“Sometimes, an adverse event and human psychology can reinforce each other in such a way that they bring about a recession. Given how slowly the economy is growing, even a modest shock could do the trick.

“This danger bolsters the argument for the Fed to ease monetary policy at this week’s meeting of the Federal Open Market Committee. Such a preemptive move will reduce the chances that the economy will slow sufficiently to hit stall speed. Even if the insurance turns out to be unnecessary, the potential consequences aren’t bad. It just means that the economy will be stronger and the inflation rate will likely move more quickly back toward the Fed’s 2 percent target.”

Retired former central planner Bill Dudley. These days an armchair planner, and as deluded as ever. [PT]

Dudley, like Samuelson, believes he can aggregate economic data and plot it on a graph; and, then, by fixing the price of credit, he can make the graphs appear more to his liking. He also believes he can preempt a recession by making ‘insurance’ rate cuts to stimulate the economy.

Like Samuelson, Dudley doesn’t have a clue. The Fed cannot preemptively stop a recession.  And after the dot com bubble and bust, the housing bubble and bust, the great financial crisis, zero interest rate policy, negative interest rate policy, quantitative easing, operation twist, quantitative tightening, reserve management, and many other failures, the Fed’s standing is clear to everyone but Dudley…

The Federal Reserve is a barbarous relic. The next downturn will be its death knell.  Alas, what comes after the Fed will probably be even worse. Populism demands it.

Source: by NM Gordon | ZeroHedge

 

Hong Kong Plunges Into Recession After Months Of Violent Resistance To Chicom Invasion

Hong Kong has finally entered a recession after more than half a year of violent anti-government protests, the city’s Financial Secretary wrote in a blog post over the weekend, reported Reuters.

“The blow to our economy is comprehensive,” Paul Chan wrote, adding that upcoming economic data later this week will trigger a technical recession.

“The government will be announcing its advance estimates for the third quarter on Thursday. After seeing negative growth in the second quarter, the situation continued in the third quarter, meaning our economy has entered technical recession,” Chan wrote.

“It seems it will be extremely difficult for us to reach full-year economic growth of 0 to 1%. I would not rule out the possibility that the full-year economic growth will be negative.”

Protesters have frequently shut down popular shopping districts, something that we outlined last week, warning that the retail industry in Hong Kong is on the brink of collapse.

 

Tourism plunged 37% Y/Y in 3Q19, and the trend for 4Q19 is likely not to improve. The number of tourists for the first two weeks of October was down 50% on a Y/Y basis. 

Rooms at the most high-end hotels, like Marco Polo Hongkong in Tsim Sha Tsui, are going for $72 per night, a 75% discount versus last year. 

Anyone who wants to travel to Hong Kong this week, departing from New York City airports, can easily get round trip plane tickets for 50% off because air travel to Hong Kong remains depressed. 

Local businesses are cutting back on their workforce as approximately 77% of all hotel workers have just been asked to go on leave without pay. 

Chan said government officials had announced stimulative measures to support local small and medium-sized businesses as the recession is expected to deepen into 1H20.

Hong Kong billionaire Li Ka-shing pledged to give local businesses $128 million in support following the protests that have presented the city with “unprecedented challenges.”

In a series of charts below, the city’s economic decline suggests a crisis has arrived: 

In a 12-month and 3-month change, Hong Kong retail sales have absolutely crashed over the last half-year. 


Who wants to shop for discretionary goods during a Chicom invasion?

  Who wants to risk capital during a Chicom invasion?

  No one wants to pay more than the last guy for housing during a Chicom invasion.

Hong Kong is the first domino to drop. More emerging growth countries will fall under economic stress as the global recession is imminent, if not already arrived. 

Source: ZeroHedge

Global Debt & Liquidity Crisis Update: Fed Injects $134BN In Liquidity, Term Repo Oversubscribed Amid Month-End Liquidity Panic

‘The volume of billions being lent into existence from nothing by the Fed to bail banks out will go parabolic. It must, otherwise credit will freeze, asset prices will fall, forced bank depositor bail-ins will ensue’

With stocks threatening to close in the red, late on Wednesday the Fed sparked a furious last hour rally…

… when in a statement published at 1515ET, precisely when the S&P ramp started, the New York Fed confirmed it would dramatically increase both its overnight and term liquidity provisions beginning tomorrow through November 14th.

The Desk has released an update to the schedule of repurchase agreement (repo) operations for the current monthly period.  Consistent with the most recent FOMC directive, to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation…

As we noted yesterday, that was a massive 60% increase in the overnight repo liquidity availability (from $75 billion to $120 billion) and a 28% jump in the term repo provision (from $35 billion to $45 billion).

“It’s just more evidence the Fed will not back off as year-end gets closer,” said Wells Fargo’s rates strategist, Mike Schumacher. “The Fed wants to take out more insurance. You had repo pick up last week. That might not have gone over too well.”

And now we know that there was good reason for that, because according to the latest, just concluded Term Repo operation, a whopping $62.15BN in securities were submitted to the Fed’s 14-day operation, ($47.55BN in TSYs, $14.6BN in MBS), resulting in a 1.38x oversubscribed term operation, the second consecutive oversubscription following Tuesday’s Term Repo, when $52.2BN in securities were submitted into the Fed’s then-$35BN operation.

This was the highest uptake of the Fed’s term repo operation since Sept 26.

But wait there’s more, because while the upsized term-repo saw the biggest (oversubscribed) uptake in one month, demand for the Fed’s overnight repo also soared, with dealers submitting 89.2BN in securities for the newly upsized, $120BN operation.

In total, between the $45BN term repo and the $89.2BN overnight repo, the Fed just injected a whopping $134.2BN in liquidity just to make sure the US banking system is stable. That, as the Fed’s balance sheet soared by $200BN in the past month rising to just shy of $4 trillion.

Meanwhile, funding tensions weren’t evident only in repo, but also in the Fed’s T-Bill POMO, where as we noted yesterday, demand for liquidity has also been increasing with every subsequent operation, peaking with yesterday’s operation.

Needless to say, if the funding shortage was getting better, none of this would be happening; instead it appears that with every passing day the liquidity shortage is getting worse, even as the Fed’s balance sheet is surging.

The only possible explanation, is someone really needed to lock in cash for month end (the maturity of the op is on Nov 7) which is when a “No Deal” Brexit may go live, and as a result one or more banks are bracing for the worst. The question, as before,  remains why: just what is the source of this unprecedented spike in liquidity needs in a system which already has $1.5 trillion in excess reserves? And while we await the answer, expect stocks to close pleasantly in the green as dealers transform their newly granted liquidity into bets on risk assets.

‘The powers that shouldn’t be would rather us experience a mad max world while they hide in luxury bunkers, than allow us a treasury issued gold backed currency, absent a central bank once again’

Source: ZeroHedge

Office Vacancies In China Hit Decade High Amid Economic Turmoil

A darkening outlook for China’s economy continues to materialize week by week.

New data from commercial property group CBRE warns the country’s office vacancy rate has just surged to the highest since the financial crisis of 2007–2008, first reported by Bloomberg.

CBRE said the vacancy rate for commercial office space in 17 major cities rose to 21.5% in 3Q19, a level not seen since the global economy was melting down in 2008.

Sam Xie, CBRE’s head of research in China, said the recent “spike” in vacancies is one of the worst since the last financial crisis.

Catherine Chen, Cushman & Wakefield’s head of research for Greater China, told Financial Times that soaring commercial office vacancies in China was mainly due to dwindling demand, but not oversupplied conditions.

“Contributing factors included slower expansion of co-working operators and financial services companies, and a general cost-saving strategy adopted by most tenants given ongoing trade tensions and economic growth slowdown,” she added.

Henry Chin, head of research for Asia Pacific at CBRE, told Financial Times that macroeconomic headwinds relating to the trade war between the US and China were also a significant factor in rising office vacancies.

As shown in the Bloomberg chart below, using CBRE data, Shanghai and Shenzhen had the highest office vacancies than any other city, and both had around 20% of office spaces dormant.

And with the global economy in a synchronized slowdown, global growth estimates are now printing at 3%, the slowest pace since the financial crisis. The Chinese economy will likely continue to slow, and could see domestic growth under 6% this year. This suggests that China’s office space vacancies will continue to rise through year-end.Office Vacancies In China Hit Decade High Amid Economic Turmoil

Source: ZeroHedge

Did Something Just Snap? US Policy Uncertainty Unexpectedly Soars Above Lehman, Sept 11 Levels

With US equity markets within one percent of all-time record highs, and US equity risk back near cycle lows, one could be forgiven for ‘believing’ that all is well in the world.

A China trade deal is imminent, right? A Brexit deal is imminent, right? Turkey ceasefire, right?

Well, according to The Baker, Bloom and Davis daily news-based Economic Policy Uncertainty Index (based on newspaper archives from Access World New’s NewsBank service), US economic policy uncertainty has never, ever been higher than it is currently…

All hands are on deck, like never before, to prevent a credit freeze…

Global Debt & Liquidity Crisis Update: Repo Locking Up Again As Overnight Fed Operation Oversubscribed, Repo Rate Jumps

‘The Fed is an outpost of a foreign power that controls our economy, most of our politics and our financial future. It’s an instrument of the Rothschild global cabal. It always has been since 1913’

First it was supposed to be just a mid-month tax payment issue coupled with an accelerated cash rebuild by the US Treasury. Then, it was supposed to be just quarter-end pressure. Then, once the Fed rolled out QE4 while keeping both its overnight and term repo operations, the mid-September repo rate fireworks which sent the overnight G/C repo rate as high as 10% was supposed to go away for good as Powell admitted the level of reserves was too low and the Fed launched a $60BN/month Bill POMO to boost the Fed’s balance sheet.

Bottom line: the ongoing repo market pressure – which indicated that one or more banks were severely liquidity constrained – was supposed to be a non-event.

Alas, as of this morning when the Fed’s latest repo operation was once again oversubscribed, it appears that the repo turmoil is not only not going away, but is in fact (to paraphrase Joe Biden) getting worse, because even with both term and overnight repos in play and with the market now expecting the Fed to start injecting copious liquidity tomorrow with the first Bill POMO, banks are still cash starved.

To wit: in its latest overnight operation, the Fed indicated that $80.35BN in collateral ($74.7BN in TSYs, $5.65BN in MBS) had been submitted into an operation that maxed out at $75BN, with a weighted average rate on both TSY and MBS rising to 1.823% and 1.828% respectively.

While it was clear that the repo market was tightening in the past week, with each incremental overnight repo operation rising, today was the first oversubscribed repo operation since September 25, and follows yesterday’s $67.6BN repo and $20.1BN term repo.

But the clearest sign that the repo market is freezing up again came from the overnight general collateral rate itself, which after posting in the 1.80%-1.90% range for much of the past two weeks, spiked as high as 2.275% overnight and was last seen at 2.15%, well above the fed funds upper range…

‘The powers that be would rather us experience a mad max world while they hide in luxury bunkers, than allow a treasury issued gold backed currency, absent a central bank once again’

Source: ZeroHedge

Walmart Nation Continues To Bleed Jobs

Via Global Macro Monitor blog,

An update on this post, Trouble Coming To Walmart Nation? 

Warehouse clubs and supercenter retailers continue to shed workers.   Along with being Amazon’d, the big box retailers are adopting automation at a light-speed pace and have cut over 42k jobs in the last 12 months.

Last Friday, the BLS reported the retail sector lost another 11.4k jobs, the 8th consecutive month of payroll losses. 

Retail is one of the country’s largest employment sectors, ranking 4th behind education & health, professional & business services, and leisure and hospitality.

Moreover, Walmart is not only the world’s largest private employer but the largest employer in many states throughout the United States.

Source: ZeroHedge

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