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Faust100F
Advisor

Re: Gloom and Doom # 7

This article addresses job security and how that objective is obtained.  Believe it or not, it describes the dumbing down of Amerika in my mind, and removes a basic requirement in life, "risk", and from time to time being able to experience what I call "self preservation time".  
 
In the society we have today it it all about assuming zero risk, like those who contribute nothing to the GNP of this country . . . government employees.  You be the judge.  I think we should have a society the provides the opportunity to take risk and either enjoy the success that goes with it, or the education that goes with failure.  Our ancestors would not recognize todays Ameri-can!  John
 
 
 

Not a mystery

perhaps_a_better_way

 

If you were a real conniving manipulator, and you wanted job security, how would you go about it?

 

The long answer remains inscrutable, but the short answer is this: drape everything in a heavy layer of ambiguity, doubt, uncertainty, emptiness, depression, confusion, denial, despair and disorder.

 

With this technique, you can turn a simple job into a total odyssey. The most mundane of tasks becomes daunting and difficult. It used to require one person some of the time; now it may require a full-time army.

 

Once a society is established, this is how you “create” jobs. It is how you enforce economic “growth.” You keep mystifying common things and then turning them into work-welfare programs.

 

Even better, it’s how you control a population. Whenever an issue comes up on the radar, wave your hands and chant a little spell, fire off some smoke and pull a rabbit out of a hat. “It’s just too hard! It’s complicated!”

 

This will scare off everyone else, who’s afraid of looking like an idiot if they get caught holding the bag. You don’t care however becauseyou know the secret: the solution is actually trivial. Any idiot can do it. You’re holding out because you want to get paid like never before.

 

Our society in the industrialized West is caught on snags of our own cogitation. We have rationalized ourselves into impossible positions, and refuse to do what is necessary. It doesn’t take much to fix our problems. We have to stop thinking in the exact same ruts we have been thinking in, however.

 

The solutions are in fact obvious. Especially if we read through history, and see what worked, and what didn’t. Our elites will pooh-pooh that because in school, they were taught that humans are different now. They forget that the same rules will apply to any group of intelligent creatures at any time in history. Like gravity, they don’t change.

 

This is because once they have completed their arc of ascent, societies turn into self-parasitizing agencies. Suddenly you have all of these people who are assumed to be part of the society. You can’t kick them out, they say. These people need to be employed, entertained, represented, etc.

 

But since there’s no longer a sense of membership as a privilege, these people abuse. You get lots of people who are good at mystifying everyday things, whether by incompetence or guile, such that they have “necessary” roles that are the exact opposite of necessary.

 

Under that weight, society snaps like a yearling branch covered in snow.

Their favorite trick is to make up false targets. For example, “maturity.” In their view, maturity means accepting that everything in life is a compromise, duty is all, and that solutions are if not impossible the next best thing to it.

 

By chattering away incessantly on every channel, they convince you. Yes, you think, this is adulthood. There is one way, no deviation, and no solutions to the thousands of problems I see every day, from bad street design to wobbly grocery carts to insane school policies and tolerance of the dysfunctional and violent. It’s all broken.

 

The dysfunction just feeds into the power of the do-nothing elites. To their ears, this is good news, since a dysfunctional society needs neurotic leaders and a constant stream of political drama to distract from its everyday tedium.

 

And yet fixing it all would be so easy; that’s the greatest secret. They don’t enslave you, you enslave yourselves, because you believed the convenient lie that it is just too difficult to change it all, so we might as well “mature” and rage full-speed-ahead into our doom.

 
Faust100F
Advisor

Re: Gloom and Doom #8

Well it kinda looks like the FED is painting itself into a corner.  As it prints money and takes on more and more junk paper from entities it has chosen to support like J.P. Morgan, Citi, Bank of America, et.al., those unproductive non performing assets have now been relocated to the FED Balance Sheet.

 

The FED pays interest on the reserves held by it for the big banks.  As the ability to pay interest from income earned by the Junk purchased, the FED will have to print money just to pay interest and keep those dead horses floating.  Most of us have been lead to believe all the FED has to do is print money and it can never go broke.  

 

Well . . . it can go broke . . . we may well be revisiting the time of the WEIMAR Republic.   This article makes the argument that we could experience what Germany experienced.  When the FED's income from the junk they have purchased from the U.S. and Foreign banks go "negative" the decline in the stock market will commence.  

 

It will make the 1929 collapse look like a small blip on the economic radar screen of the United States.   Enjoy, John   

When The Fed Has To Print Money Just To Print Money


While the topic of net Fed capital flows, and implicit balance sheet risk has recently gotten substantial prominence some three years after

 

Zero Hedge first started discussing it, one open question is what happens when we cross the "D-Rate" boundary, or as we defined it, the point at which the Fed's Net Interest Margin becomes negative i.e., when the outflows due to interest payable to reserve banks (from IOER) surpasses the cash inflows from the Fed's low-yielding asset portfolio, and when the remittances to the Treasury cease (or technically become negative).

 

To get the full answer of what happens then, we once again refer readers to the paper released yesterday by Morgan Stanley's Greenlaw and Deutsche Bank's Hooper, which discusses not only the parabolic chart that US debt yield will certainly follow over the next several decades, but the trickier concept known as the Fed's technical insolvency, or that moment when the Fed's tiny capital buffer goes negative.

 

In short what would happen is that the Fed will be then forced to print money just so it can continue to print money.

 

From Crunch Time: Fiscal Crises and the Role of Monetary Policy, first the big picture:

 
 

Departures from the baseline, such as large-scale purchases continuing past 2013, or a more rapid rise of interest rates (a distinct possibility given the analysis presented in Section 3) would saddle the Fed with losses beginning as early as 2016, and losses that in some cases could substantially exceed the Fed’s capital. Such a scenario would at very least present public relations challenges for the Fed and could very well impact the conduct of monetary policy.

And more to the point, what happens when the Fed's Net Interest Margin goes negative. For the sake of simplicity, in the section below "creating new reserves" means quite simply "printing money" (purists will argue it is low-powered, base money, but realists will respond that since all money is fungible and a dollar is a dollar when buying a share of AMZN, as we have shown previously, it doesn't matter one bit how money printing is defined).

 
 

What would a negative remittance from the Treasury to the Fed look like? That is, if the Fed’s net income fell below zero, how would it fund its interest payments on

reserves, and its operating expenses?

 

Would it have to draw down its capital or take out a loan from the Treasury, asking the Treasury to issue new debt to do so? 

 

No, under the Fed’s new accounting practices adopted in January 2011,when net income available for remittance to Treasury falls below zero, this does not eat into the Fed’s contributions to capital or threaten the Fed’s operating expenses. Rather, the Fed would create new reserves against an item called the Fed’s “deferred asset” account on the asset side of its balance sheet.

 

For example, to pay interest on reserves, it would simply credit the payee bank’s account at the Fed with the interest being paid, thus creating new reserves. The deferred asset account being run up in the process would serve as a claim on future earnings or remittances to the Treasury.

 

The idea is that when the Fed subsequently returns to earning a profit, rather than return that profit to the Treasury, it would use the funds to run down the deferred asset, and the extra reserves having been created in the process would be run down as well.

Ok: so the Fed can't technically go broke - after all it can print money all it wants right, or as the paper says "create new reserves" (just so it can go back to its baseline operation since 2008 which is... creating new reserves)?

 

Well, not really.

 

The Fed's (low-powered) money is good and accepted by banks only as long as these banks deem it appropriate and profitable to onboard the Fed's liability on their balance sheet. And to do that, the Fed will have to offer ever higher and higher rates on excess reserves. To wit:

 
 

In the present environment, when the demand for excess reserves is infinitely elastic, the creation of new reserves would not be a problem. But in the baseline exit scenario we are discussing, short-term assets have a positive yield and the demand for reserves would not be infinitely elastic.

 

To persuade banks to hold a higher volume of excess reserves in such an environment, the Fed would need to increase the interest rate paid on excess reserves, otherwise the new reserve creation could, on the margin, become inflationary.

 

It should be noted that this reserve creation is a second-order effect of the selling of assets by the Fed with the aim of running down excess reserves (and raising longer-term rates) in our baseline scenario. The capital losses incurred in this case would push up the deferred asset account enough to offset only a relatively small part of the intended reduction in reserves.

 

However, even if the Fed were able to create additional reserves with no effects on the interest rate on those reserves, a cessation of  positive interest payments from the Fed to the Treasury for a significant period could bring Fed policy decisions under greater public scrutiny, potentially leading to controversy that could even threaten central bank independence.

In other words, as the MS and DB strategists put it so tongue-in-cheekly, once it becomes public knowledge that the Fed itself is broke in all but one technicality, and the resolution to said technicality is to go fully Weimar retard, the only hope the Fed will have to keep demand for dollars is if it gets caught in a closed loop of hiking rates ever higher just so banks keep onboarding reserves allowing the Fed to preserve the myth it is solvent, in the process pushing its NIM even lower, and needing to create even more "new reserves", rinsing and repeating.

 

Or, said otherwise, print more money just to be allowed to print more money.

In simple terms: a positive feedback loop which starts once rates begin ratcheting ever higher, and which ends, well, once the dollar loses it reserve status, and the initial goal of the Fed - to inflate away some $40 trillion in global excess debt is attained.

 

Ok, but this who knows when this happens right?

 

Well, yes and no.

 

As we showed last week, the rate at which NIM goes negative and the above feedback loops begins would be at approximately 4.5% on December 31, 2013. The "breakeven" rate unleashing the inflationary cycle would then decline by about 1% each year assuming the Fed's balance sheet continues rising at a pace of $1 trillion per year.

 

So the good news for all those who have been wondering just how much longer the Fed can continue doing more of the same while providing a free lunch for all is that we now know there is a temporal bound: the longer the Fed does nothing to change the status quo, the lower its "rate buffer."

 

Of course, there is a resolution: the Fed simply begins to sell its assets, and in doing so, destroys the reserves created when said assets were onboarded on the Fed's balance sheet.

 

But there lies the rub: because the second the Fed enters open deleveraging mode, everyone will sell everything they can to lock in the profits generated from the past 4+ years of Fed balance sheet expansion.

 

Furthermore, at that moment, the market will begin pricing in the unwind of some or all of the $15 trillion in central bank liquidity which is the only reason the S&P is where it is today.

 

The result would be a market crash so epic it would make the market response to Lehman and AIG's failure seem like a walk in the park by comparison.

 

Which is where you come in dear retail investor, and the whole myth of the "Great Rotation."

 

Because unless there is someone who will start providing a bid into which the banks can offload their securities in exchange for cold hard cash, as was explained earlier, the entire stock market ramp of the past 4 years will have been for nothing.

 

It is also why day in and day out the media bombards everyone, as it has in the beginning of every year for the past three, that the time to enter the market is now, and there has never been a better time (ignoring that the market is now more expensive on a forward multiple basis than it was at the last market peak in 2007).

 

Of course, one of the amusing tangents here that the media and the Fed hope and pray everyone forgets is that the Fed is monetizing debt not equities: and that to do what the Fed does one should be buying the 30 year, not some Div/0 P/E stock.

 

Either way, unless the greater fool comes in and is once again willing to become the bag holder of last and only resort for the smart money, then all those firms, such as the abovementioned Morgan Stanley and Deutsche Bank, whose chief strategists penned the paper referenced above, will start getting nervous, and asking themselves: how much time is there before everyone else appreciates the risk of the D-Rate and sells first.

 

Because while as a ponzi scheme works on the way up as long as there is at least one more marginal buyer, the inverse is far more troubling, and it is here that the old bastardized Prisoner's Dilemma comes into place: "he who sells first, sells best."

 

And the biggest irony is that soon it will be the very act of the Fed continuing to expand its balance sheet at the current breakneck pace of $85 billion per month (or more), that is what will make banks ever more and more nervous.

 

Could it be that we are finally approaching the end of the lunch, and suddenly the realization that it was never free hits everyone at the same time?

 
 
Faust100F
Advisor

Re: Gloom and Doom #9

Well . . . there has been some discussion on this site regarding the contribution to GDP or GNP by the quant easing by the FED.  Of course there is no way the FED can add to GDP in its present situation.  Currently it is merely puffing up the stock market and serving as a backstop to purchase treasury securities which they cannot sell to anyone else, and of course continue purchasing "junk paper" from the Investment banks so they do not have to take the loss for the bad bets they made in driving this country into oblivion.   Well . . . for some of you this post might prove interesting, and provide insight into how emasculated the FED has become.   Enjoy, John

 

 

"Central Banks Cannot Create Wealth, Only Liquidity"

 
Tyler Durden's picture


In many Western industrialized nations,debt has overwhelmed or is about to overwhelm the economy's debt-servicing capacity.

 

In the run-up to a debt crisis, bad debt tends to move to the next higher level and may ultimately accumulate in the central bank's balance sheet, provided the economy has its own currency.

 

The process whereby government or quasi-government debt is taken over by the central bank is called quantitative easing. Many observers assume that, once bad debt is purchased by the central bank, the debt crisis is solved for good; that central banks have unlimited wealth at their disposal, or can print unlimited wealth into existence.

 

However, central banks can only create liquidity, not wealth. If printing money were equivalent to creating wealth, then mankind would not have to get up early on Monday morning. 

 

QE just transfers losses from the previous holders of the asset to the
central bank itself. Up to a certain amount, the central bank absorbs these losses by sacrificing its equity and accumulated profits. Losses exceeding the central bank's loss-absorption capacity necessarily lead to inflation. If the central bank's net worth turns significantly negative (as Bernanke discussed and dismissed today), hyperinflation may ensue and a vicious circle may be set in motion.

 

Only a solvent central bank can halt hyperinflation.

 

The longer governments run large deficits, the longer central banks continue to monetize them, and the longer their balance sheets grow, the higher the potential for

enormous losses and thus hyperinflation.

 

Necessary preconditions for hyperinflation are a quasi-bankrupt government whose debt is monetized by a central bank with insufficient assets. 

 

One way or another, owning physical gold is the safest and most effective way of insuring against hyperinflation.

 

Authored by Caesar Lack of UBS,

Gold - The Ultimate Balance Sheet Equalizer

 

In many Western industrialized nations, debt has overwhelmed or is about to overwhelm the economy's debt-servicing capacity. In principle, debt is not a negative if incurred to finance sustainable investment, the profits of which can then be used to extinguish the debt.

 

However, borrowed money has increasingly been mal-invested or spent on consumption in recent decades. Mal-investment impairs the productive capital stock, and the growing debt burden strangles economic growth even more. When financial markets realize that the emperor has no clothes and interest rates rise, the economy is exposed as insolvent, and a debt crisis follows.

 

 

Bad debt ends up at the central bank

 

In the run-up to a debt crisis, bad debt tends to move to the next higher level and may ultimately accumulate in the central bank's balance sheet, provided the economy has its own currency.

 

Excessive debt incurred by consumers, homeowners and businesses first moves to the banking system and corrupts its balance sheet. If (rightly or wrongly) the banking system isn't allowed to fail, bad debt is then transferred to the government via bailouts or implicit / explicit guarantees.

 

When exacerbated by the burden of unfavorable demographics and several decades of proliferating welfare spending, it may overwhelm the government's debt-carrying capacity. Should financial markets become unwilling to refinance the government debt at rates acceptable to the government, central banks step in.

 

They monetize government debt in the name of propping up the economy, creating jobs, or weakening the currency to keep government borrowing rates low. The process whereby government or quasi-government debt is taken over by the central bank is called quantitative and qualitative easing: "quantitative" easing denotes the lengthening of the central bank balance sheet while "qualitative" easing denotes the deterioration of it.

 

Central banks cannot create wealth, only liquidity

 

Many observers assume that, once bad debt is purchased by the central bank, the debt crisis is solved for good. The implicit assumption is that central banks have unlimited wealth at their disposal, or can print unlimited wealth into existence.

 

However, central banks can only create liquidity, not wealth. If printing money were equivalent to creating wealth, then mankind would not have to get up early on Monday morning. Quantitative easing just transfers losses from the previous holders of the assets purchased by the central bank to the central bank itself.

 

Up to a certain amount, the central bank absorbs these losses by sacrificing its equity and accumulated profits. Losses exceeding the central bank's loss-absorption capacity necessarily lead to inflation.

 

What is the loss-absorption capacity of central banks?

 

 

The non-inflationary loss-absorption capacity of a central bank is limited. European central banks, with the exception of the Bank of England (BoE), regularly retained a share of their profits in the past.

 

The Eurosystem currently discloses capital and provisions of EUR 493bn, equivalent to 17% of its balance sheet total and 5% of Eurozone GDP. The Swiss National Bank (SNB) discloses capital and provisions of CHF 62bn, equivalent to 12% of its balance sheet and 10% of Swiss GDP.

 

The Bank of Japan (BoJ), the BoE and the US Fed, on the other hand, used to distribute most of their profits to their Treasuries. The BoJ discloses equity of just JPY 3.2trn, which is equivalent to only 2% of its balance sheet and less than 1% of GDP. And, finally, the US Fed and the BoE have no noteworthy equity or provisions at all.

 

It has been argued that the central bank loss-absorption capacity consists not only of present equity and provisions but the discounted value of all future expected profits, and therefore central banks have a non-inflationary loss-absorption capacity much larger than their current equity and provisions.

 

However, we think that incurring losses significantly beyond the banks' current equity and provisions may be dangerous and even pave the way to hyperinflation, as we will argue below.

 

To be more precise, we think that the loss-absorption capacity of a central bank is the sum of the central bank's equity and provisions plus the monetary base – not the inflated monetary base of today, but the "normal" monetary base before the crisis. Why do we include the monetary base in the loss-absorption capacity? The returns on assets purchased or held in exchange for the monetary base constitute "seigniorage," i.e. central bank profits.

 

Up to a negative equity equivalent to the monetary base, central banks turn structural profits. Only when negative equity exceeds the monetary base do central banks turn structural losses. In Western industrialized countries before the financial crisis, the monetary base usually amounted to 5%-10% of GDP.

 

What if bad debt exceeds the loss-absorption capacity?

 

What happens when losses transferred to the central bank exceed its loss-absorption capacity? They make it impossible for the central bank to withdraw all excess liquidity, and they ultimately cause inflation. Why? When engaging in quantitative easing, i.e. when purchasing assets, central banks create money.

 

Over the long term, a loss in the purchasing power of the currency will occur if the new money is not disposed of in due time. Should a central bank suffer outsized losses, it may be unable to withdraw all of the excess liquidity it created during its asset-purchase programs. The amount it cannot withdraw due to a lack of assets determines

the amount of inflation that will follow.

 

There are basically three ways to withdraw excess liquidity. First, the central bank can sell assets and thus reduce the money supply for good. But if the central bank suffered large losses, it may not have enough assets to do so. Note also that the wholesale selling of assets will depress their price. Second, the central bank can immobilize excess liquidity by issuing bills, engaging in reverse repo operations or offering fixed-term deposits.

 

However, such immobilizing requires the central bank to pay a sufficiently high interest rate to induce banks to park funds at it and not chase asset prices higher. If the central bank has considerable negative equity, interest payments on the funds deposited with it

may exceed the returns its assets generate. The central bank may be faced then with structural losses that grow ever larger.

 

Third, the central bank can raise minimum reserve requirements, i.e. require the banking system to hold more reserves. However, holding reserves is costly, and if the banking system is close to insolvency it cannot afford to do so, particularly if large amounts are involved.

 

Only a solvent central bank can halt hyperinflation

 

If the central bank's net worth turns significantly negative, hyperinflation may ensue. A vicious circle may be set in motion. Rising inflation and inflation expectations lead to an economic downturn, which creates growing government deficits and greater pressure to monetize them, which in turn results in higher costs to immobilize excess liquidity due to soaring interest rates, plus a fall in the value of the assets of the central bank, an increase in its losses and even larger negative net worth.

 

If this death spiral is not halted in time, confidence in the currency may fail and accelerate a flight out of money into real assets, at which point the purchasing power of the currency may plunge toward zero.

 

This vicious circle can in principle be halted by tightening monetary policy, i.e. by halting government debt monetization and reining in the money supply. However, once the downward spiral has started, halting debt monetization can precipitate a government default, which would inflict large additional losses on the central bank.

 

A government default may also crash the financial system, forcing the central bank to recapitalize it to avoid a general financial collapse. Recapitalizing the financial system means printing even more money, which the central bank will have to withdraw later on so as not to fan hyperinflation.

 

Thus, a central bank can avert the onset of hyperinflation only if it has the assets to withdraw excess liquidity after accounting for losses from a government default and after recapitalizing the financial system.

 

Without sufficient assets, it may not be able to stop printing money once the death spiral of rising interest rates and rising debt monetization has begun. Its hands may be tied by the government or, even if it is free to choose its course, it may keep the presses rolling to prevent an immediate collapse of the financial system and a general liquidation, which might be even less desirable than continuing to print.

 

How large is the hyperinflation risk?

 

Debt levels (household, corporate, financial and government debt combined) in many Western industrialized nations are a multiple of GDP, while the non-inflationary loss-absorption capacity of their central banks is probably in the single digits if expressed as a percentage of GDP.

 

The potential for losses significantly exceeding the central bank loss-absorption capacity thus certainly exists. The longer governments run large deficits, the longer central banks continue to monetize them, and the longer their balance sheets grow, the higher the potential for enormous losses and thus hyperinflation.

 

Hyperinflation may be triggered by a rise in government borrowing costs, either because financial markets start to question the sustainability of the current arrangement or simply because of rising inflation and inflation expectations.

 

Hitherto, no major central bank has experienced significant losses on the assets it purchased in the framework of its quantitative easing programs, and all major central banks exhibit positive net worth. However, these facts should not alleviate concerns about hyperinflation.

 

Central bank assets, mostly government bonds, are priced to perfection. Their value may fall drastically once inflation expectations and interest rates rise and general economic conditions deteriorate.

 

Gold – the ultimate balance sheet equalizer

 

Necessary preconditions for hyperinflation are a quasi-bankrupt government whose debt is monetized by a central bank with insufficient assets. A central bank with large net wealth could in principle halt hyperinflation, as we have argued above. A central bank with insufficient assets cannot.

 

Only by recapitalizing an insolvent central bank can the choice between hyperinflation on the one hand and a general liquidation on the other be avoided. However, if the government is broke as well, it cannot recapitalize the central bank. Is there another way to create new wealth to balance the central bank's assets and liabilities and avoid that dreadful choice?

 

It turns out that there is – by revaluing gold. Both the US and Europe own significant gold reserves (US: 8,134t, Germany: 3,391t, Italy: 2,452t, France: 2,435t). Contrary to that of all other commodities, the price of gold is primarily determined not by industrial demand or mining costs but by investors.

 

Gold is worth as much as investors believe it is. If central banks can succeed in convincing investors that the value of gold is greater than today's prices, then it is, and new net wealth has been created.

 

Can central banks indeed do that? It turns out they can. One can always weaken one's own currency against another currency, and gold can be considered a currency. The SNB proved that last year when it weakened the Swiss franc by declaring its intention to sell unlimited amounts of Swiss francs.

 

To revalue gold, a central bank needs to set a minimum price for it and declare that it will buy unlimited amounts of it at that minimum price. Since central banks can print money at will, they will never run out of their own currency.

 

Therefore, the threat to buy unlimited amounts of gold at a minimum price is credible. If the public does not believe in the sustainability of the new price and sells its gold, the central bank purchases all gold offered at the minimum price by printing money, until it has weakened its currency to such a degree that the gold price rises above the minimum threshold.

 

Initially, buying gold by printing new money will be inflationary and weaken the currency further. However, once the new equilibrium gold price is exceeded, the currency can be stabilized. The central bank is solvent again and can stabilize its currency by reducing excess liquidity and raising rates.

 

Note that only central banks of large currency areas, such as the ECB or the US Fed, can revalue gold. If a small central bank tried to do so, it would devalue its own currency rather than revalue gold, and thus inflame inflation in its currency area.

How much could gold be revalued by?

 

The new minimum gold price must be set such that the revaluation gains balance the combined assets and liabilities of the government, the financial system, and the central bank.

 

The US owns 8,134t of gold currently worth around USD 440bn, or 3% of GDP (although US gold is currently valued at only USD 42/oz). The Eurosystem discloses 10,783t of gold reserves worth USD 440bn, or 5% of GDP.

 

Assume that a currency area owns gold reserves equivalent to 4% of GDP, and that the combined balance sheet of the government, financial system and central bank has a negative net worth of 100% of GDP, a not unreasonable assumption given that total debt amounts to 200%-400% of GDP in many industrialized countries. To bring the balance sheet into balance, the gold price would then have to rise by a factor of 25.

 

What would prevent governments from over-borrowing and revaluing gold again and again? If gold were indeed revalued enormously, it would represent a significant fraction of all assets and would thus regain an important role as a store of value.

 

The gold price would then discipline monetary policy and become the main anchor for fiat currencies. This would significantly hamper the build-up of large imbalances in the future.

 

Even if central banks do not revalue their gold reserves, gold prices would still rise in a period of hyperinflation. Therefore, the balance sheet gap in those currency areas that own gold may close at some point in time and stabilize their currency. However, by

then the currency may have lost most of its purchasing power.

 

By revaluing gold, hyperinflation may be stopped in its tracks or avoided altogether. One way or another, owning physical gold is the safest and most effective way of insuring against hyperinflation.

Nebrfarmr
Veteran Advisor

Re: Gloom and Doom #9

I agree.   The central bank, is just like your local Co-op.   They can buy corn from you, and sell it to someone else, and write contracts, which is more or less what the central bank did, while on the gold standard.

 

However, what the central bank has morphed into, is akin to if your Co-Op were to buy, sell, trade, and speculate on contracts, where it will never see the actual corn.    It might work just fine, as long as everyone thinks there is enough corn to go around, but one day, if their contracts get called, there isn't enough corn there to cover it.

I think that is where we sit now.

 

The bank produces ever more amounts of 'money' but if it was ever called, where is it?

Faust100F
Advisor

Re: Gloom and Doom#10

Well . . . happy days are here again, the Dow topped 14,000 this week, the pension plans are saved, the equity in 201K's has been restored, unemployment is down, house prices are up, and the federal budget just got cut by $85,000,000,000 so a few office drones in the government will get one day a week off without pay. 

 

I mean . . . $85MM cut has almost brought this nation to its knees if the talking heads on TV are to be believed.  But do not worry, the FED is pumping that amount of money each month into the too big to fail banks. What a friggin joke!

 

A year has passed, and I think everyone feels the uneasyness in our economy, Gasoline is approaching $4 a gallon, Detroit will be going into bankruptcy, but all is well in this "recession".  I guess if you are a grain farmer, with a direct payment, subsidized crop insurance and own land which is appreciating, you are an exception to the rule in this country.

 

Well . . . here is my gloom and doom post, my glass is again half empty.  John

 

 

Consumer Spending Drought: 16 Signs That The Middle Class Is Running Out Of Money

 

Even though the Dow is surging toward a record high right now, everyone knows that things are not good for the middle class.  A recent quote from CPA Howard Dvorkin kind of summarizes our current state of affairs very nicely...

"The fact of the matter is that America is broke — whether it's mortgages, student loans or credit cards, we are broke. The old rule of thumb is that people should have six months' of savings," Dvorkin says."If you talk to people, most don't have two pennies."

These days most Americans are living from paycheck to paycheck, and thanks to rising prices and rising taxes, those paychecks are getting squeezed tighter and tighter.  Many families have had to cut back on unnecessary expenses, and some families no longer have any discretionary income at all.

 

The following are 16 signs that the middle class is rapidly running out of money...

#1 According to one brand new survey, 24 percent of all Americans have more credit card debt than money in the bank.

 

#2 J.C. Penney was once an unstoppable retail powerhouse, but now J.C. Penney has just posted its lowest annual retail sales in more than 20 years...

J.C. Penney Co. (JCP) slid the most in more than three decades after the department-store chain lost $4.3 billion in sales in the first year of Chief Executive Officer Ron Johnson’s turnaround plan.

 

The shares fell 18 percent to $17.40 at 11:28 a.m. in New York after earlier declining 22 percent, the biggest intraday drop since at least 1980, according to data compiled by Bloomberg. J.C. Penney yesterday said its net loss in the quarter ended Feb. 2 widened to $552 million from $87 million a year earlier. The Plano, Texas-based retailer’s annual revenue slid 25 percent to $13 billion, the lowest since at least 1987.

How much worse can things get?  At this point the decline has become so steep for J.C. Penney that Jim Cramer of CNBC is declaring that they are in "a true tailspin".

#3 In the United States today, a new car has become out of reach for most middle class Americans according to the 2013 Car Affordability Study...

Looking to buy a new car, truck or crossover? You may find it more difficult to stretch the household budget than you expected, according to a new study that finds median-income families in only one major U.S. city actually can afford the typical new vehicle.

 

The typical new vehicle is now more expensive than ever, averaging $30,500 in 2012, according to TrueCar.com data, and heading up again as makers curb the incentives that helped make their products more affordable during the recession when they were desperate for sales.

 

According to the 2013 Car Affordability Study by Interest.com, only in Washington could the typical household swing the payments, the median income there running $86,680 a year.

#4 The founder of Subway Restaurants, Fred Deluca, says that the recent tax increases are having a noticeable impact on his business...

"The payroll tax is affecting sales. It's causing sales declines," he said, estimating a decline of about 2 percentage points off sales at his restaurants. "There are a lot of pressures on consumers," Deluca said, adding "I think this is on the permanent side, but I think business will adjust to it."

#5 Many other large restaurant chains are also struggling in this tough economic environment...

Darden Restaurants, which owns the casual dining chains Oliver Garden, LongHorn Steakhouse and Red Lobster, said blended same-store sales at its three eateries would be 4.5 percent lower during its fiscal third quarter.

 

Clarence Otis, Darden's chairman and chief executive, said that "while results midway through the third quarter were encouraging, there were difficult macro-economic headwinds during the last month of the quarter."

 

"Two of the most prominent were increased payroll taxes and rising gasoline prices, which together put meaningful pressure on the discretionary purchasing power of our guests," he added.

#6 The CFO of Family Dollar recently admitted to CNBC that this is a "challenging time" because of reduced consumer spending...

At Family Dollar where the average customer makes less than $40,000 a year, the combination of a two-percent hike in the payroll tax, rising gas prices and delayed tax refunds has created a "challenging time and an uncertain time for the consumer right now," said Mary Winston, the company's chief financial officer.

 

"In our case, anything that takes money out of our customer's wallet gives them less money to spend in our stores," she told CNBC. "So I think all of those things create nervousness for the consumer, and I think there are sometimes political dynamics going on that they might not even fully understand the details, but they know it's not good."

#7 Even Wal-Mart is really struggling right now.  According to a recent Bloomberg article, Wal-Mart is struggling "to restock store shelves as U.S. sales slump"...

Evelin Cruz, a department manager at the Wal-Mart Supercenter in Pico Rivera, California, said Simon’s comments from the officers’ meeting were “dead on.”

“There are gaps where merchandise is missing,” Cruz said in a telephone interview. “We are not talking about a couple of empty shelves. This is throughout the store in every store. Some places look like they’re going out of business.”

This all comes on the heels of an internal Wal-Mart memo that was leaked to the press earlier this month that described February sales as a "total disaster".

 

#8 Electronics retailer Best Buy continues to struggle mightily.  Best Buy just announced that it will be eliminating 400 jobs at its headquarters in Richfield, Minnesota.

 

#9 It is being projected that many of the largest retail chains in America, including Best Buy, will close down hundreds of stores during 2013.  The following is a list of projected store closings for 2013 that I included in a previous article...

 

Best Buy

Forecast store closings: 200 to 250

 

Sears Holding Corp.

Forecast store closings: Kmart 175 to 225, Sears 100 to 125

 

J.C. Penney

Forecast store closings: 300 to 350

 

Office Depot

Forecast store closings: 125 to 150

 

Barnes & Noble

Forecast store closings: 190 to 240, per company comments

 

Gamestop

Forecast store closings: 500 to 600

 

OfficeMax

Forecast store closings: 150 to 175

 

RadioShack

 

Forecast store closings: 450 to 550

 

#10 Another sign that consumer spending is slowing down is the fact that less stuff is being moved around in our economy.   As I have mentioned previously, freight shipment volumes have hit their lowest level in two years, and freight expenditures have gone negative for the first time since the last recession.

 

#11 Many young adults have no discretionary income to spend because they are absolutely drowning in student loan debt.  According to the New York Federal Reserve, student loan debt nearly tripled between 2004 and 2012.

 

#12 The student loan delinquency rate in the United States is now at an all-time high.  It is only a matter of time before the student loan debt bubble bursts.

 

#13 Due to a lack of jobs and high levels of debt, poverty among young adults in America is absolutely exploding.  Today, U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

 

#14 According to one recent survey, 62 percent of all middle class Americans say that they have had to reduce household spending over the past year.

 

#15 Median household income in the United States has fallen for four consecutive years.  Overall, it has declined by more than $4000 during that time span.

 

#16 According to the U.S. Census Bureau, the middle class is currently taking home a smaller share of the overall income pie than has ever been recorded before.

Are you starting to get the picture?

 

Retailers are desperate for sales, but you can't squeeze blood out of a rock.

For much more on how the middle class is absolutely drowning in debt, please see this article: "Money Is A Form Of Social Control And Most Americans Are Debt Slaves".

But if you listen to the mainstream media, they would have you believe that happy days are here again.

 

Right now, everyone seems to be quite giddy about the fact that the Dow is marching toward an all-time high.  And I actually do believe that the Dow will blow right past it.  In fact, it is even possible that we could see the Dow hit 15,000 before everything starts falling apart.

 

But at some point, the financial markets will catch up with economic reality.  It is just a matter of time.

 

In the meanwhile, those that are wise are taking advantage of these times of plenty to prepare for the great economic drought that is coming.

 

Don't be caught living paycheck to paycheck and totally unprepared when the next wave of the economic collapse strikes.  Anyone that believes that this debt-fueled bubble of false hope can last indefinitely is just being delusional.

 

- See more at: http://theeconomiccollapseblog.com/archives/consumer-spending-drought-16-signs-that-the-middle-class...

Samnospam
Advisor

small request

Start a new thread with each of your updates. Thanks.

Faust100F
Advisor

Re: Gloom and Doom#11

The Dow is again in record territory, lets see what things were like back when it was last at this level! I think the numbers speak for themselves, we are on a slippery slope and things are getting worse not better.

 

I had a request that I start a new thread each time I post a Gloom and Doom article, but since this is purely an informational thread and no response is being solicited,and as long as I continue to have viewers who "click on" and have an interest it the crap going on in this country.

 

I will continue to post the gloom and doom stuff here, where it is easy to ignore by those who continue to reside in fantasyland, and not in touch with the real world.   Enjoy. Pass the popcorn and get me another Corona. John

 

The Last Time The Dow Was Here...

 
Tyler Durden's picture


"Mission Accomplished" - With CNBC now lost for countdown-able targets (though 20,000 is so close), we leave it to none other than Jim Cramer to sum up where we stand (oh and the following list of remarkable then-and-now macro, micro, and market variables):  "we all know it's going to end badly, but in the meantime we can make some money" - ZH translation: "just make sure to sell ahead of everyone else."

  •  
  • Dow Jones Industrial Average:Then 14164.5; Now 14164.5
  •  
  • Regular Gas Price: Then $2.75; Now $3.73
  •  
  • GDP Growth: Then +2.5%; Now +1.6%
  •  
  • Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
  •  
  • Americans On Food Stamps: Then 26.9 million; Now 47.69 million
  •  
  • Size of Fed's Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
  •  
  • US Debt as a Percentage of GDP:Then ~38%; Now 74.2%
  •  
  • US Deficit (LTM): Then $97 billion; Now $975.6 billion
  •  
  • Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
  •  
  • US Household Debt: Then $13.5 trillion; Now 12.87 trillion
  •  
  • Labor Force Particpation Rate:Then 65.8%; Now 63.6%
  •  
  • Consumer Confidence: Then 99.5; Now 69.6
  •  
  • S&P Rating of the US: Then AAA; Now AA+
  •  
  • VIX: Then 17.5%; Now 14%
  •  
  • 10 Year Treasury Yield: Then 4.64%; Now 1.89%
  •  
  • EURUSD: Then 1.4145; Now 1.3050
  •  
  • Gold: Then $748; Now $1583
  •  
  • NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares
 

 

Hobbyfarmer
Honored Advisor

Re: Gloom and Doom#11

Seems there are issues elsewhere too.

 

http://www.youtube.com/embed/Pwghabw4N80?rel=0

BA Deere
Honored Advisor

Re: Gloom and Doom#11

Those buying stocks must think helicopter Ben will keep it going.  Zimbabwe Stock Exchange 2007...Billionaires panhandling.  Got change for a 1 million dollar bill? Aw, keep the change.

Samnospam
Advisor

its rude

I'm not suggesting you not post your information, but every time you post to an old thread it brings the entire thing to the top and forces readers to skip through pages to find the new. a new thread would not resurrect tons of old posts. the only reason not to start a new thread is if you're intentionally trying to bury other posts and saying 'hey everyone look at me'.