Wednesday, June 18, 2014

What Happens When You Can’t Afford to Go to Work?

‘The truth is worse than we imagine’: One-fourth of public company deals involve insider trading

An award-winning new study claims that more than a quarter of all public company deals involve transactions that could be consider examples of insider trading.
The recently published report from Menachem Brenner and Marti G. Subrahmanyam at New York University and Patrick Augustin of McGill examined years of data concerning mergers and acquisitions, or M&As, to spot unusual trends in the 30 days preceding those announcement. According to their research, around one-in-four deals contained evidence of insider trading.
We became intrigued by reports of a number of illegal insider trading cases in options ahead of takeover announcements, in particular the leveraged buyout of Heinz by Warren Buffet and 3G Capital,” co-author Augustin said in a statement. “Hence, we set out to investigate whether instances of informed trading in options occur systematically or whether they were just random bets.”
The statistical evidence we present is consistent with informed trading strategies, and is too strong to be dismissed as just random speculation. Our findings likely will be highly useful to regulators, firms and investors in understanding where and how informed investors trade,” Augustin added.
Journalist Andrew Ross Sorkin called the group’s study “perhaps the most detailed and exhaustive of its kind” and said its results show that “the truth is worse than we imagine” when it comes down to just how commonplace insider trading really is.
The results of their study, Sorkin wrote, “are persuasive and disturbing, suggesting that law enforcement is woefully behind — or perhaps is so overwhelmed that it simply looks for the most egregious examples of insider trading, or for prominent targets who can attract headlines.”
Indeed, the professors wrote that their research suggests that even though roughly a quarter of public deals involve insider trading, the United States Securities and Exchange Commission litigated only “about 4.7 percent of the 1,859 M&A deals included in our sample,” which was composed of hundreds of transactions made between 1996 and the end of 2012.
When the SEC does intervene, they added, it takes “on average, 756 days to publicly announce its first litigation action in a given case. Thus, assuming that the litigation releases coincide approximately with the actual initiations of investigations, it takes the SEC a bit more than two years, on average, to prosecute a rogue trade,” which on average was worth about $1.6 million apiece, according to their study.
What’s more, though, is that the authors of the report seem more than just a little certain with regards to their work. The odds of insider trading “arising out of chance” and not being explicitly planned before the public announcement of an M&A is “about three in a trillion,” they wrote.
The paper was awarded top honors at this year’s prestigious Investor Responsibility Research Center Institute(IRRCi) annual investor research competition.
Reprinted with permission

Miami Sues Banking Giant Over Predatory Mortgages

Wave of suits against big banks for discriminatory lending practices continues

Andrea Germanos
The city of Miami on Friday filed a lawsuit in a federal court against JPMorgan Chase & Co., accusing the banking giant of a pattern of discriminatory loan practices “since at least 2004″ which sparked foreclosures and violated the U.S. Fair Housing Act.
“JPMorgan has engaged in a continuous pattern and practice of mortgage discrimination in Miami since at least 2004 by imposing different terms or conditions on a discriminatory and legally prohibited basis,” Bloomberg reports lawyers for Miami as saying in the complaint.
The bank engaged in the discriminatory practices “in order to maximize profits at the expense of the City of Miami and minority borrowers,” the lawyers stated.
According to reporting by Reuters,
[a]fter issuing high-cost loans to minorities in the years before the housing crisis, JPMorgan later refused to refinance the loans on the same terms as it extended to whites, leading to defaults and foreclosures, the complaint said.
A spokesperson for the bank called the claims “baseless.”
The suit comes just weeks after JPMorgan was hit by a lawsuit from the city of Los Angelesthat also accuses the banking giant of discriminatory lending practices.
Both Miami and Los Angeles have filed similar lawsuits against Wells Fargo, Bank of America and Citigroup.

Goldman Sachs: Too big to rein in?

On June 11, Goldman Sachs agreed to pay $67m to settle a suit charging the firm and others with colluding to drive down the price of takeovers.
For another firm, paying out tens of millions of dollars to resolve allegations of collusion might provoke an existential crisis. Not for Goldman. The firm did not admit to any wrongdoing and said in a statement: “We’re pleased to put the matter behind us.”
That seems to sum up how Goldman would like to handle everything related to its role in politics and markets over the last two decades. The rest of us shouldn’t be too ready to do so.
To be sure, Goldman Sachs is not solely or even primarily responsible for the 2008 financial crash and the ensuing, worldwide Great Recession. There’s plenty of blame to go around.
But as the leading firm on Wall Street before the crash, as the company most entangled in high-level policymaking, as an innovator of overly complicated and socially destructive trading products and schemes, as an orchestrator of financial deregulation, as an enterprise with tentacles extending so far that it has been accused of manipulating aluminum markets, Goldman Sachs surely deserves plenty of blame.
Not for nothing did columnist Matt Taibbi famously call the firm “a great vampire squid wrapped around the face of humanity”.
Read more

The New Depression with Richard Duncan

Economist and author of several books, Richard Duncan joins John O’Donnell and Merlin Rothfeld for a look at what he feels is the New Depression. A cycle of debt expansion that is leading to a nearly inevitable collapse, that not even a gold standard can safe. The trio discuss this and several other topics while Mr. Duncan offers a radical solution to it all. A solution that would put America back on top, and get us out from all this debt. Mr. Duncan also offers listeners 50% off the subscription to his video newsletter at

U.S. food prices rising 367% faster than inflation; chemical agriculture headed for catastrophic failure

(NaturalNews) Food prices are now skyrocketing across the USA, says the Bureau of Labor Statistics (BLS). Their most recent report (1) reveals that prices of meat, poultry, fish and eggs leaped 7.7 percent over the last year. That's nearly 367% higher than the official 2.1% inflation rate claimed by the federal government. (2)

Prices on these food items have risen 664% in the last five decades, according to the BLS, but much of the price acceleration has happened in just the last few years... and there's no end in sight.

While the federal government tries to blame rising food prices on global warming -- because seemingly everything is now attributed to climate change, including depression and divorces -- the far more sobering truth is that conventional agriculture is reaching a point of systemic, catastrophic failure.

"Frankenweeds" taking over farm lands

The mass poisoning of agricultural lands with glyphosate, pesticides and chemical herbicides has resulted in the rise of aggressive "superweeds" that are taking over farms and causing productivity to plummet in many fields. As now reports: (3)

Palmer pigweed can reach more than 2.5 meters tall, grow more than 6 centimeters a day, produce 600,000 seeds and has a tough, woody stem that can wreck farm equipment that tries to uproot it. It is also becoming more and more resistant to the popular herbicide glyphosate.

The solution to this, according to chemical herbicide manufacturers, is to start spraying fields with three, four or even FIVE herbicides all at the same time, "layering" different chemicals onto the resistant superweeds.

This approach is, of course, headed for catastrophe. Just as doctors have learned in the age of antibiotic-resistant superbugs, the more chemicals you use, the worse the resistance becomes. Before long, you've turned America's farms into Frankenweed factories that churn out megatons of weeds, but less edible food.

Even points out this fundamental truth, saying:

[Using multiple herbicides] is a flawed argument. Stacking up tolerance traits may delay the appearance of resistant weeds, but probably not for long. Weeds are wily: farmers have already reported some plants that are resistant to more than five herbicides. And with glyphosate-resistant weeds already in many fields, the chances of preventing resistance to another are dropping.

Drought conditions caused by deforestation

Drought conditions are also causing food prices to spike, but it's astonishing how few people understand the connection between deforestation and drought. Every year, 18 million acres of forest are destroyed for agricultural, commercial and residential purposes (4), removing a critical "re-transpiration" mechanism that helps create continental rainfall.

If you remove the forests near the coast, in other words, you halt much of the rain that should occur inland. But conventional agriculture rarely considers such intricate connections between forests, rainfall and agricultural production. Instead, it's based on a "rape and pillage the land" model that maximizes short-term production while destroying long-term sustainability.

Chemical agriculture destroys soil microbes and exploits dwindling fossil water supplies

Chemical-based agriculture is also devastating to soil microbes; the very organisms that promote plant health, disease resistance and nutrient uptake. When soils are sprayed with glyphosate and other chemicals, many microbes are wiped out, leaving crops more susceptible to disease and environmental stress (such as low rainfall or high temperatures).

At the same time, conventional chemical agriculture is largely dependent on non-renewable fossil water aquifers that are rapidly dwindling in supply. Much of the underground water that currently feeds agricultural food production in Texas, Oklahoma, Kansas and Colorado, for example, is headed for an imminent collapse as large aquifers run dry. Combined with deforestation and the heavy plowing of top soils, this will inevitably lead to a massive, multi-state Dust Bowl scenario that nearly collapses food production in many areas.

Conventional agriculture is short-term agriculture

What I'm really trying to get across here is not merely that food prices are going to skyrocket in the years ahead, but that conventional (chemical-based) agriculture is hurtling us all toward systemic food shortages and, ultimately, mass starvation.

The short-term thinking that dominates food production today is largely unsustainable in the long term, and it destroys the soils and ecosystem in the process. Only "holistic agriculture" practices like Permaculture have any real hope of providing a sustainable food supply well into the future.

For this reason, Geoff Lawton's permaculture wisdom should be immediately embraced by agricultural universities like Texas A&M and taught to all students. The principles of permaculture are the kind of principles that can save human civilization from mass starvation and a collapse of the food supply.

Centralized, chemical-based food production will kill millions

Often, the things that I state here on Natural News are so far ahead of common knowledge that they take years to be embraced. For example, I was warning about the dangers of sunscreen long before it was widely known that sunscreen promotes cancer by causing vitamin D deficiencies.

Today, I am asserting these fundamental truths which humanity must learn or perish:

1) Food production needs to be decentralized to create food redundancy and local self-sufficiency.

2) Plant diversity in each production plot is the key to disease resistance, pest resistance and weed resistance. (Note that nearly all commercially-produced crops are mono-cropped with zero diversity.)

3) Soil microbes must be protected, not poisoned, to create healthy food crops that are resistant to disease and more resilient to stress.

4) Soil remineralization, not chemical poisoning, is the key to healthy plants and increased food production. Fortunately, the world's oceans are filled with all the minerals our plants really need (minus the salt, of course).

5) Seed saving and open-source seed practices are essential to the survival of human civilization. Attempts by corporations to monopolize seed properties through patents represents a serious threat to the sustainability of human civilization. Food-producing seeds must be declared community property and not restricted to one corporation via the patent process.

6) Food security IS national security. While the U.S. government believes in maintaining a strategic oil supply, for some reason it neglects the importance of strategic home gardening and local food production -- an idea which was openly encouraged in World War II in the form of "Victory Gardens."

7) Any civilization that destroys its ability to sustainably produce nourishing food will sooner or later perish. The United States of America -- and much of the world -- is already on this path of self destruction.

8) Modern agriculture's heavy dependence on fossil fuels (petroleum) is clearly unsustainable. As oil production plummets (and oil prices rise), food production using modern mechanized agriculture will become exorbitantly expensive and unsustainable.

If we do not change our ways, much of the U.S. population will find itself in an era of starvation in just 2-3 decades.

More than ever, it's worth growing your own food

The good news is that as food prices continue to rise, the economic argument for growing some of your own food makes increasing sense. After all, the time and effort required to grow food has always remained about the same over the years, regardless of what happens to food prices in the grocery store.

Many families are right now spending $1,000 - $2,000 per month on groceries. At roughly $20,000 per year in after-tax expenditures, this creates a compelling argument for growing a significant portion of your own food. Carrots, lettuce, cabbage, onions, potatoes, broccoli, peppers, tomatoes, squash, watermelons, beans and herbs are all very easily grown at home.

With a little more investment -- such as building an aquaponic system -- food production can be reliably doubled or tripled in the same amount of space (using virtually no soil and very little water in the process, by the way).

Small greenhouses also become more economically feasible thanks to their ability to extend growing seasons, allowing families to produce their own food during more months of the year.

When one gallon of milk has now reached nearly $10 in Hawaii, suddenly all these home-grown food production strategies become real money-saving strategies.

On a personal note, I raise dozens of chickens and harvest fresh chicken eggs each day, producing high-quality, better-than-organic eggs that would normally cost $5 per dozen at Whole Foods. As a bonus, the chickens eat all the grasshoppers and bugs that normally threaten a home garden. That's why smart home gardeners actually plan their gardens to be surrounded by free-range chickens that run free in a "buffer zone perimeter" that prevents bugs from reaching the garden.

It's strategies like these that are sustainable, require no toxic chemicals, and can affordably produce local food that's more nutritious and more sustainable than chemical-based mono-crop agriculture.

Argentina President Blasts US Bank ‘Extortion’

Supreme Court refusal to hear appeal spells ‘terrible news for all of the developing world’

Lauren McCauley
Argentina will not submit to Wall Street’s “extortion” of their debt, said President Cristina Fernández de Kirchner in a national address Tuesday night.
De Kirchner’s comments came after it was announced that the U.S. Supreme Court refused to hear an appeal by the South American country despite their argument that obliging predator banks would “encourage creditor free-for-alls” and “intensify and prolong the suffering of the poor in countries undergoing sovereign debt crisis.”
On Wednesday, following news that the Supreme Court would uphold two lower court rulings which demanded that Argentina pay $1.3 billion in debt holdouts to “vulture” funds before repaying their other restructured debts, Standard & Poor lowered the country’s rating to CCC-. According to the credit rating bureau and reported by Bloomberg News, this is the lowest rating for any nation that’s currently assessed by the company and is nine levels below “investment grade.”
“I am blown away by the [Supreme Court] decision,” said Eric LeCompte, executive director of the religious anti-poverty organization Jubilee USA. “For heavily indebted countries trying to support extremely poor people, this is a devastating blow. These hedge funds are equipped with an instrument that forces struggling economies into submission.”
Speaking with The Real News on Tuesday, economist Bill Black explained that the country’s economic troubles began after they “ceded control over their monetary policy to the U.S. Federal Reserve,” which sparked rampant inflation. Argentina was able to restructure their debt with roughly 92 percent of their bond holders. However, U.S. “vulture funds” that owned the remainder of the debt took the South American nation to court demanding full repayment before the other bond holders are recompensated.
During her address, the Argentine president paraphrased the ruling of the district courts, saying that they demanded their portion of the debt be paid “all together, without quotas, right away, now, in cash, ahead of all the rest.”
De Kirchener also reiterated the country’s commitment to repay its restructured debt, saying: “It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators.”
According to Black, the Supreme Court’s decision spells “terrible news for all of the developing world.”
Despite agreement by the White House and the International Monetary Fund that by tying developing nations to extreme debt is extremely damaging, Black says, the court ruling serves as “a device for keeping nations that are in crisis in very long-term crises instead of having them recover,” he adds.
Black continues:
So we have the organs of the United States of America being used to enforce an order that the executive branch of the United States of America says is a disastrous policy and grotesquely unfair and likely to cause immense harm to the peoples of the world. And the Supreme Court, as it has done through the great bulk of its history, has sided with big business and big banks and hedge funds against the peoples of the United States, and now the peoples of the world.

Wealthy Clintons Use Residence Trusts to Limit Estate Tax They Back

Bloomberg:  Wealthy Clintons Use Trusts to Limit Estate Tax They Back, by Richard Rubin:
Bill and Hillary Clinton have long supported an estate tax to prevent the U.S. from being dominated by inherited wealth. That doesn’t mean they want to pay it.
To reduce the tax pinch, the Clintons are using financial planning strategies befitting the top 1 percent of U.S. households in wealth. These moves, common among multimillionaires, will help shield some of their estate from the tax that now tops out at 40 percent of assets upon death.
The Clintons created residence trusts in 2010 and shifted ownership of their New York house into them in 2011, according to federal financial disclosures and local property records.
Among the tax advantages of such trusts is that any appreciation in the house’s value can happen outside their taxable estate. The move could save the Clintons hundreds of thousands of dollars in estate taxes, said David Scott Sloan, a partner at Holland & Knight LLP in Boston. “The goal is really be thoughtful and try to build up the nontaxable estate, and that’s really what this is,” Sloan said. “You’re creating things that are going to be on the nontaxable side of the balance sheet when they die.” ...
Residence trusts have a set term after which the property is transferred to a beneficiary. Following that, the Clintons could pay rent to the new owner to continue living in the house, which is another way to move assets outside of the estate.
For the asset to move completely outside the estate, the Clintons would have to outlive the term of the trust. Such trusts typically last for 10 to 15 years to maximize the discount applied to the property’s value. Creating two separate trusts allows the Clintons to spread risk. They can set different lengths for each trust and if one of them dies, the other’s trust wouldn’t be affected.
Also in 2010, the Clintons created a life insurance trust. That can help defray the cost of estate taxes, Sloan said. They have had a separate life insurance trust since 1996, according to the disclosure records.
These moves are “pretty standard” planning for people who know they will be subject to the estate tax, said Ken Brier, an estate tax lawyer in Needham, Massachusetts. “If you’re the Clintons and you live in a fishbowl,” he said, “you’re not going to push the envelope in doing cutting-edge planning.”

This Debt Is Explosive, And It Sits On The Shelf Everywhere, Waiting To Go Off

I was interviewed by Jorge Nascimento Rodrigues for Janela na web, a Portuguese management site. After what I said, he might never interview me again :-]
1-      Sovereign bond yields of some Eurozone peripherals are at historical lows, in certain cases even below yields for US Treasuries and UK Gilts. So the three-year austerity adjustments worked?
Central banks have performed a miracle: separating financial assets from reality. The crassest example is the Bank of Japan. Not far behind are the Fed and the ECB. Japan’s fiscal situation is far worse than Greece’s. Gross national debt is over 220% of GDP. About half of every yen the government spends is borrowed. There is no solution in sight to bring down the deficit. Hence, the debt will continue to balloon. Standard & Poor’s rates Japan’s debt AA-, four notches from the top. Inflation in April was 3.4% for all items from a year earlier, with goods prices up 5.2%. And yet, 10-year JGBs yield below 0.6%. Whoever holds this dodgy paper is getting creamed. But by purchasing every JGB that isn’t nailed down, the BOJ has effectively imposed a peg on yields. “Financial repression” is the result.
Draghi’s promise to do “whatever it takes” has had a similar effect, but less pronounced. To investors, it no longer matters what the classic risks of holding debt are. The only risk that matters is what the ECB will do. With its whatever-it-takes promise, the ECB has effectively given investors the idea that sovereign bonds are a one-way bet.
So the austerity adjustments have had little impact on yields. But they’ve had a huge impact on the real economy in the affected countries – and rarely for the better. Bailing out bank bondholders, stockholders, and counterparties and then making workers give up wages and benefits – the lucky ones who got to keep their jobs – and imposing numerous other cuts to fund these bailouts isn’t exactly a prescription for economic success. But it benefited investors!
2-      Are these historical lows sustainable? For Portugal the historical “average” for 10-year sovereigns is 6.8%, based on data from Global Financial Data. Since 1997, yields were below 4% for only 28 months. Now they’ve dropped to 3.3% and might go a little lower. Does this mean that Portuguese “fundamentals” have changed?
My example – and every central banker’s role model – is the Bank of Japan. Portugal’s fiscal situation is far better than Japan’s, and Japan’s 10-year yield is currently below 0.6%. So by that standard, Portugal’s is still high. Portugal’s economic and fiscal fundamentals are a different story. But if the ECB decided tomorrow to very vocally abandon its “whatever-it-takes” pledge, and to pronounce that it would never ever again engage in any form of bond purchases, guarantees, or special loans, not even through the back door, and that all countries in the Eurozone would have to deal with their debt and the financial markets on their own, Portuguese yields would soar to crisis levels. Portugal could borrow even under these conditions, but at much higher rates – rates that it could not afford. Hence a debt crisis.
3-      Jeremy Stein, Harvard professor and former US Fed Board member, proposed we focus the attention on risk premiums in the sovereign bond market. Risk premiums for certain Eurozone peripherals are declining with respect to German Bunds or Nordics’ bonds. Are investors in the Eurozone bond market taking on excessive risk?
The only risk investors are currently paying attention to is what the ECB will do in the future. As the ECB has backed all Eurozone sovereign bonds, it has taken credit risk essentially off the table, as far as investors are concerned. They cannot imagine that the ECB would let Portugal default. The risk of inflation remains, though inflation is low at this point. But look at Japan: inflation jumped and yields haven’t budged. Investors see that. Bondholders used to fear inflation. Now they take it lying down. When a central bank with its unlimited power to manipulate sovereign debt markets gets involved, the overbearing risk is the central bank itself – and what it will or will not do in the future.
With their policies, central banks have pushed all investors who want to earn any kind of yield way out to the thin end of the classic risk limb. At the next major storm, these investors will fall off and get hurt.
4-      You recently wrote that the Financial Stress Index dropped to the lowest level on record, going back to December 1998. But instead of three cheers, you are worried about it. Why?
The Financial Stress Index, issued by the St. Louis Fed, is based on 18 components, such as interest rates (Fed Funds, Treasuries, corporate bonds, and asset backed securities), yield spreads, and “Other Indicators” that include the VIX volatility index, expected inflation rate, and the S&P 500 Financials index.
The prior record low of “financial stress” was achieved in February 2007 when the financial system in the US was already cracking under mountains of toxic securities and iffy overleveraged mega-bets cobbled together and sold at peak valuations to funds held by unsuspecting investors in their retirement nest eggs. And banks stuffed this paper into their basements and into off-balance-sheet vehicles, while their financial statements showed values and profits that didn’t exist. No one cared. Greed and obfuscation ruled the day. That’s what “low financial stress” means.
In bubble times, when exuberance takes over, when nothing can go wrong, when risk has been banished from the system, and when interest rates are low, perceived financial stress simply disappears. At that point, decision makers – from homebuyers to bank CEOs – make reckless decisions that can only be funded when there is nearly free money for everything, and when this crap can be unloaded no questions asked. It happened in 2007, and it’s happening now again. These decisions always come to haunt the markets. It’s just a question of when.
5-      Another index under the spot is the Euro High Yield Index from BofA Merrill Lynch. It is also at historical lows, going back to 1997. What does that mean?
Junk bonds have benefitted particularly from the ECB’s interest rate repression. As desperate investors are searching for yield, any kind of yield at any risk anywhere, they come upon junk bonds, and they hold their noses and close their eyes and pick up this stuff, and it drives up demand and represses yields further. With plenty of liquidity sloshing through the system, the risk of default is perceived as minimal since everyone knows that even junk-rated companies that are losing money can usually refinance their debt and sell new debt to yield-desperate investors. Everyone knows that the day of reckoning is being delayed, and hopefully for long enough. But this debt is explosive, and it sits on the shelf everywhere, waiting to go off. It has to be refinanced – which may be difficult or impossible in an era of higher rates and tighter liquidity. Hence, once again, all eyes are on the ECB, instead of on the junk-rated, overleveraged, money-losing companies and the crappy paper they’re selling.
6-      Is ECB monetary strategy under Draghi fueling the Eurozone sovereign bond market? Are we living in bubble dynamics?
The ECB in conjunction with the Fed, the Bank of Japan, and others have created the greatest credit bubble in history. Financial markets are distorted beyond recognition. Real risks are covered up and cease to figure into the calculus. Related asset bubbles are blooming everywhere, particularly in equities, and in some places in housing, farmland, and other sectors. Bubbles are good: some people get immensely rich, governments collect more taxes, banks are saved as they can write up certain assets on their books…. There are just two problemitas with bubbles: they don’t do much for the real economy; and they invariably implode. Then sit back and watch the magnificent and very destructive fireworks!
7-      Fiscal policy in the Eurozone has been driven by austerity marked by disinflation and quasi-economic stagnation. Is ECB easing – and a collateral bubble in sovereigns and stock exchanges – the only way?
Disinflation – that is inflation at a lower rate – is good for most people as the prices of goods and services rise only slowly, rather than quickly. In many countries, wages have lagged behind inflation; hence, real wages have dropped. It is widely claimed that lower real wages make a country more “competitive.” But with what? The competitor down the street? Not that many industries have to compete with Bangladesh. But it does increase corporate profits. It’s a devastating experience for workers, and it reduces domestic consumption. Inflation is a tax on wages (except where wages are indexed to inflation). On the other hand, low or no inflation or even slight deflation is good for workers, savers, and many investors.
But low inflation or deflation is toxic for over-indebted governments, companies, and other debt sinners because they can no longer rely on inflation to mitigate their debt. In a land of low or no inflation, corporations have trouble showing paper growth in revenues and profits. And it’s terrible for politicians who rely on inflation to take care of their promises.
We now know that these days, central bank easing is creating asset bubbles, which, when they implode, are devastating for the real economy. Easing may or may not create consumer price inflation. It doesn’t seem to stimulate the real economy, as we have seen in the US where economic growth has been tepid despite enormous amounts of easing for over the past five years.
Solution? Let the markets sort this out on their own, let decrepit overleveraged companies and banks fail and restructure, let even big investors lose their shirts, and let the real economy take priority. People are smart. They can figure out how to make this work once central bank manipulators get out of the way. Wolf Richter interviewed by Jorge Nascimento Rodrigues for Janela na web.
Speaking of Japan, a terrible corporate hangover from the consumption-tax hike has set in. Read…. Japan Inc.’s Worst Quarterly Outlook Since The 2011 Earthquake

The Keynesian Jabberwocky Gets Downright Dumb

Opining gravely, medieval theologian Thomas Aquinas asked, “Can several angels be in the same place?”
In only slightly modified terms, the Fed is now pre-occupied with a similarly unanswerable and fanciful question, according to Jon Hilsenrath’s pre-meeting missive on the Fed’s current monetary policy “debate”. Figuratively estimating the number of angels which can dance on the head of a pin, Fed officials and economists suppose they can specify the the appropriate money market rate down to the decimal place for virtually all time to come:
When Federal Reserve officials gather for their policy meeting Tuesday and Wednesday, the most challenging question won’t be where to push interest rates in the next few days, weeks or even months. It will be where rates belong years into the future.
So if you want to know why there are exceedingly dark clouds gathering on the economic horizon just consider some of their answers and the reasoning behind them. Until recently, a majority of our monetary plumbers in the Eccles Building believed that the ideal long-term Federal funds rate was around 4% in a “well balanced” macro economy where inflation is about 2% and unemployment is about “low” around 5.5%.
Of course, every one of these three magic numbers are perfectly arbitrary, academic and silly. Due to the structural failures of the US economy owing to decades of destructive Washington policies, the “unemployment rate” today is not remotely comparable to what was being measured in the 1950s and 1960s when today’s Keynesian theology with respect to the Phillips Curve, Okun’s Law and full-employment policy was being formulated.
Today there are 102 million adults not holding jobs, for example, but only 43 million of these are retired on OASI (social security) and just 11 million are counted as officially unemployed. At the same time, there are upwards of 40 million part-time job holders, which self-evidently represent additional unutilized potential labor hours.  So there are upwards of 100 million adults in America who represent a massive but latent labor supply that makes a mockery of the silly “U-3? unemployment ratio that the Eccles Building theologians insist on counting down to the decimal points.
Stated differently, the BLS recently revealed that the private business sector of the US economy generated 194 billion labor hours in 2013—the exact same number as way back in 1998 and notwithstanding the massive growth of the adult population in the interim. Indeed, as recently as 2000, there were only 75 million adults (16-years and over) not holding jobs. Yet of the 27 million gain since then, only 7 million entered the OASI rolls. This means that during a 14 years period in which there was no growth of aggregate labor hours in the business economy, 20 million more adults ended up in the safety net, in mom and dad’s basement or on the streets.
These realities are not a mystery, and they do reflect a dangerous fiscal and social policy breakdown. But they are also thumbing proof that monetary policy has exactly nothing to do with employment conditions and job creation. During the last 15 years, the Fed engaged in massive and nearly continuous Keynesian stimulus maneuvers, expanding it balance sheet 8X from $500 billion to $4.3 trillion.  Yet million of employable adults and billions of available labor hours have been flushed out of the private economy, while measured hours worked have been absolutely frozen.
The excuse that counting decimal points on the head of the U-3 unemployment rate may sound medieval but that Humphrey-Hawkins makes them do it is just palaver.  The so-called dual mandate and minimum unemployment target is just a vague statutory aspiration; there is no quantitative target in the law and the current U-3 version of the endless alternative ways to measure the “unemployment rate” did not even exist when the statute was passed in the late 1970s.
Accordingly, when Bernanke previously, and Yellen now, appear before the Congress or press and piously intone about their full employment “mandate” being a license for perpetual money printing they are simply indulging in a self-serving lie.
The same foibles pertain to the 2% inflation target. Its not in the law; and until the last two decades, price stability was thought to mean an average of zero inflation over time. Certainly William McChesney Martin and most of the first generation of modern Fed policy-makers believed that. Even today, Paul Volcker properly asks why is 2% inflation forever so virtuous when it means that the purchasing power of the dollar will be cut in half every 30 years.
And that doesn’t even consider the total manipulation of the BLS inflation measures that happened beginning a decade after Humphrey-Hawkins was enacted. These manipulations include arbitrary hedonic adjustments for “quality”; continuous reweighting of the price basket based on substituting cheaper chicken for more expensive beef; the use of geometric means to eliminate items with extreme increases; and of course, the foolishness of excluding food and energy from the price index used to make Fed policy—-the so-called PCE deflator. Rational policy in a $17 trillion economy caught in vast global cross-currents cannot be made based on trends shorter than one year.  So on a running one-year basis there is no distortion due to food and energy price spasm, and these items are the foundation of every household budget.
Thus, the 2% inflation target is just more monetary Thomas Aquinas. And this is especially the case with respect to the lame proposition that the inflation target is being missed from below. As shown in the graph, there has never been a sustained period since the 1990s in which there was a shortfall of inflation from below. The entire notion of inflation targeting, in fact, is just self-serving Keynesian nonsense that provides yet another excuse to keep the printing presses going at full tilt.
What deflation? 16 years of creeping CPI.
But the most egregious of the three magic numbers is the target for Federal funds. The entire discussion as reflected in the Hilsenrath notes is that it is the “control variable” which has no other purpose than to be manipulated by the  twelve allegedly wise men and women who comprise the FOMC. Yet that is the heart of the anti-capitalist folly that constitutes current monetary policy.
In fact, the money market rate is the most important single price that exists—its the price of leveraged financial speculation and the carry trades. It needs to be set by honest price discovery in independent markets for genuine private savings and business driven short-term borrowings. Rather than being a pure creature of Fed manipulation—–its determination should never happen within a country mile of the Eccles Building.
Once upon a time the founders of the Fed understood this, and provided that the nation’s new central bank would operate as a “bankers bank”, passively providing liquidity against real bank loans and discounts at a penalty rate above a floating or mobile discount rate set by the market. The virtue of that pre-Keynesian model is that is guaranteed honest two way markets and thereby built-in checks and balances on speculators on Wall Street. And it did not pretend that this mobilized discount rate was a tool to manipulate the entire GDP, the unemployment rate, the CPI, housing starts or consumer spending. Instead, these were to be outcomes on the free market, not orchestrations from Washington.
In short, the pre-Keynesian Fed would not be counting decimal places on the head of the Federal funds rate, nor would it be listening to the likes of William Dudley gumming about immeasurable things like “headwinds” or Larry Summers arriving at a 3% Federal funds target on the preposterous grounds that the world is suffering from a flood of excess “savings”!
This simply illustrative the massive intellectual confusion of the Keynesian model. The world’s central banks have created a tsunami of credit, but there is no balance sheet in the Keynesian model, only quarter-by-quarter flows.  So Professor Summers makes the lunatic argument that since the Federal deficits has declined for several quarters, that means there is too much savings.
Thomas Aquinas would be proud.
Mr. Summers, in an email exchange, said a broader set of factors will hold down rates in the years ahead. Around the world, households (especially wealthy ones and older ones), businesses and governments are saving more, piling resources into bonds and driving down interest rates in the process.
“I suspect unless circumstances change fed funds rates may well average less than 3[%] over the next decade,” Mr. Summers said…..
They suggested that once these headwinds recede, rates can go back toward their long-run averages. But more recently, some Fed officials have acknowledged the possibility of a lingering weight on rates.
A 4% fed funds rate would be “much too high in the current economic environment in which headwinds persist, and somewhat too high even when these headwinds fully dissipate,” New York Fed President William Dudley said in a speech last month.
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Repatriated Dollars = Hyperinflation On An Immense Scale — David Morgan

In his latest installment, the Silver Investor follows the Austrian Economic Model, showing how an increase in money supply is the only cause of inflation. He answers the question: given the Feds profligacy, where is the runaway inflation? The reason why hyperinflation is not yet apparent to the masses is that most of the dollars are tied up in bank balance sheets and floating around the globe. Once they are liberated and repatriated the velocity of money could explode, resulting in sudden hyperinflation on an immense scale. In addition, amid the wake of the 2008 credit crisis, officials say that the economy has recovered. However, David Morgan thinks that our financial institutions failed to learn any lessons, continuing to apply excessive leverage via derivatives. Put paper silver securities in abeyance, which are merely promises that will evaporate and disappoint when the end game unfolds – instead consider bullion and shares, which have no liens and retain their value in difficult environments. It’s just a matter of time before the currency collapse comes to pass and demand for gold and silver reaches infinity. At that point, Bob’s your uncle for precious metals investors. David outlines his intrinsic value calculation for silver – approximately $100 per ounce.
Click Here to Listen

Gold money can be implemented at the state level

Price Index for Meats, Poultry, Fish & Eggs Rockets to All-Time High

( – The seasonally-adjusted price index for meats, poultry, fish, and eggs hit an all-time high in May, according to data from the Bureau of Labor Statistics (BLS).
In January 1967, when the BLS started tracking this measure, the index for meats, poultry, fish, and eggs was 38.1. As of last May, it was 234.572. By this January, it hit 240.006. By April, it hit 249.362. And, in May, it climbed to a record 252.832.
“The index for meats, poultry, fish and eggs has risen 7.7 percent over the span [last year],” says the BLS. “The index for food at home increased 0.7 percent, its largest increase since July 2011. Five of the six major grocery store food group indexes increased in May. The index for meats, poultry, fish, and eggs rose 1.4 percent in May after a 1.5 increase in April, with virtually all its major components increasing,” BLS states.
Meat, Poultry, Fish & Egg Price Index Rockets to  All-Time High
In addition to this food index, the price for fresh whole chickens hit its all-time high in the United States in May.
In January 1980, when the BLS started tracking the price of this commodity, fresh whole chickens cost $0.70 per pound. By this May 2014, fresh whole chickens cost $1.56 per pound.
A decade ago, in May 2004, a pound of fresh chicken cost $1.04. Since then, the price has gone up 50%.
Each month, the BLS employs data collectors to visit thousands of retail stores all over the United States to obtain information on the prices of thousands of items to measure changes for the Consumer Price Index (CPI).
The CPI is simply the average change over time in prices paid by consumers for a market basket of goods and services.
The BLS found that there was a 0.7% change in the prices for the food at home index in May, which tracks foods like meats, poultry, fish, eggs and dairy, as well as many others. is not funded by the government like NPR. is not funded by the government like PBS. relies on individuals like you to help us report the news the liberal media distort and ignore. Please make a tax-deductible gift to today. Your continued support will ensure that is here reporting THE TRUTH, for a long time to come. It's fast, easy and secure.

Federal Reserve Wants to Charge You for Pulling Your Money Out of Bond Funds

By Robert Wenzel
I have been pounding away in the EPJ Daily Alert that price inflation will be much greater than most expect as we move ahead. Thus, today's strong CPI number is not a surprise. I also expect interest rates to skyrocket and have been warning ALERT subscribers to get out of the bond market.
A new reason has just emerged to get out of bond funds fast
The Financial Times is reporting that:
Federal Reserve officials have discussed whether regulators should impose exit fees on bond funds to avert a potential run by investors, underlining concern about the vulnerability of the $10tn corporate bond market.
Officials are concerned that bond funds are becoming “shadow banks”, because investors can withdraw their money on demand, even though the assets held by the funds can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter...Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.
Got that? The Fed destroys the economy with their money printing policies (SEE: The Fed Flunks) and now that want to charge you a fee to get out of harms way.

Get out of bond funds, now! Consider yourself warned.

Robert Wenzel is Editor & Publisher of and author of The Fed Flunks: My Speech at the New York Federal Reserve Bank.

12 Numbers About The Global Financial Ponzi Scheme That Should Be Burned Into Your Brain

The numbers that you are about to see are likely to shock you.  They prove that the global financial Ponzi scheme is far more extensive than most people would ever dare to imagine.  As you will see below, the total amount of debt in the world is now more than three times greater than global GDP.  In other words, you could take every single good and service produced on the entire planet this year, next year and the year after that and it still would not be enough to pay off all the debt.  But even that number pales in comparison to the exposure that big global banks have to derivatives contracts.  It is hard to put into words how reckless they have been.  At the low end of the estimates, the total exposure that global banks have to derivatives contracts is 710 trillion dollars.  That is an amount of money that is almost unimaginable.  And the reality of the matter is that there is really not all that much actual “money” in circulation today.  In fact, as you will read about below, there is only a little bit more than a trillion dollars of U.S. currency that you can actually hold in your hands in existence.  If we all went out and tried to close our bank accounts and investment portfolios all at once, that would create a major league crisis.  The truth is that our financial system is little more than a giant pyramid scheme that is based on debt and paper promises.  It is literally a miracle that it has survived for so long without collapsing already.
When Americans think about the financial crisis that we are facing, the largest number that they usually can think of is the size of the U.S. national debt.  And at over 17 trillion dollars, it truly is massive.  But it is actually the 2nd-smallest number on the list below.  The following are 12 numbers about the global financial Ponzi scheme that should be burned into your brain…
-$1,280,000,000,000 – Most people are really surprised when they hear this number.  Right now, there is only 1.28 trillion dollars worth of U.S. currency floating around out there.
-$17,555,165,805,212.27 – This is the size of the U.S. national debt.  It has grown by more than 10 trillion dollars over the past ten years.
-$32,000,000,000,000 – This is the total amount of money that the global elite have stashed in offshore banks (that we know about).
-$48,611,684,000,000 – This is the total exposure that Goldman Sachs has to derivatives contracts.
-$59,398,590,000,000 – This is the total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system.  40 years ago, this number was just a little bit above 2 trillion dollars.
-$70,088,625,000,000 – This is the total exposure that JPMorgan Chase has to derivatives contracts.
-$71,830,000,000,000 – This is the approximate size of the GDP of the entire world.
-$75,000,000,000,000 – This is approximately the total exposure that German banking giant Deutsche Bank has to derivatives contracts.
-$100,000,000,000,000 – This is the total amount of government debt in the entire world.  This amount has grown by $30 trillion just since mid-2007.
-$223,300,000,000,000 – This is the approximate size of the total amount of debt in the entire world.
-$236,637,271,000,000 – According to the U.S. government, this is the total exposure that the top 25 banks in the United States have to derivatives contracts.  But those banks only have total assets of about 9.4 trillion dollars combined.  In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 25 to 1.
-$710,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives contracts generally fall within this range.  At the high end of the range, the ratio of derivatives exposure to global GDP is about 21 to 1.
Most people tend to assume that the “authorities” have fixed whatever caused the financial world to almost end back in 2008, but that is not the case at all.
In fact, the total amount of government debt around the globe has grown by about 40 percent since then, and the “too big to fail banks” have collectively gotten 37 percent larger since then.
Our “authorities” didn’t fix anything.  All they did was reinflate the bubble and kick the can down the road for a little while.
I don’t know how anyone can take an honest look at the numbers and not come to the conclusion that this is completely and totally unsustainable.
How much debt can the global financial system take before it utterly collapses?
How recklessly can the big banks behave before the house of cards that they have constructed implodes underneath them?
For the moment, everything seems fine.  Stock markets around the world have been setting record highs and credit is flowing like wine.
But at some point a day of reckoning is coming, and when it arrives it is going to be the most painful financial crisis the world has ever seen.
If you plan on getting ready before it strikes, now is the time to do so.

Michael T. Snyder is a graduate of the McIntire School of Commerce at the University of Virginia and has a law degree and an LLM from the University of Florida Law School. He is an attorney that has worked for some of the largest and most prominent law firms in Washington D.C. and who now spends his time researching and writing and trying to wake the American people up. You can follow his work on The Economic Collapse blogEnd of the American Dream and The Truth Wins. His new novel entitled “The Beginning Of The End” is now available on

U.S. Supreme Court Rules Against Argentina in Debt Repayment Case

The U.S. Supreme Court surprised the financial world Monday by turning down Argentina’s request to hear the bankrupt South American nation’s case against its hedge fund creditors. Whereas many observers expected the Supreme Court to give Argentina more time by referring the case to the U.S. solicitor general for review, today’s ruling effectively put an end to years of Argentine posturing and bluster. Her judicial options now exhausted, Argentina — a country notorious for decades for unwillingness to properly service the massive debts she has incurred as a result of several generations of financial profligacy — faces two options: pay her creditors or default once again on her obligations.
Argentina’s latest financial crisis is the long-delayed consequence of her infamous default in 2001-2002. Then, her options for repayment exhausted, Argentina simply defaulted on her debt, which led to economic collapse and several years of crime, poverty, and civil unrest severe even by Argentine standards. Eventually, Argentina worked out an agreement with many of her creditors, who agreed to accept service of debts at a steep discount. But not all holders of Argentine debt were willing to take a haircut. After the default, a significant portion of the debt was sold to international hedge funds, who have been hounding and harassing Argentina ever since to force the deadbeat nation to pay up, in full.
Argentina’s vitriolic populist president Cristina Kirchner (shown) has been fulminating for years against allegedly wicked plutocrats (“vultures,” she calls them, in the best tradition of over-the-top Latin American political rhetoric) who have the temerity to require Argentina to pay her debts. Since Argentina, unlike Greece and other failed EU economies, cannot rely on stronger regional economies, such as Brazil or Chile, to bail her out of her misery, the unlucky citizens of the republic on the River Plate are staring into the abyss for the second time in little more than a decade. Since Argentina’s addiction to a fiat-currency-and-debt-driven economy has enriched the few at the expense off the many, there is little political support for paying the American-based hedge funds their due. So desperate have been Argentina’s legal and financial contortions to avoid repayment that, at one juncture, an Argentine military vessel was actually impounded in Ghana at the behest of her creditors.
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Total US debt soars to nearly $60 trn, foreshadows new recession

America - its government, businesses, and people - are nearly $60 trillion in debt, according to the latest economic data from thethe St. Louis Federal Reserve. And private debt - not government borrowing - is the biggest reason for the huge deficit.
Total US debt at the end of the first quarter of 2014, on March 31 totaled almost $59.4 trillion - up nearly $500 billion from the end of the fourth quarter of 2013, according to the data. Total debt (the combination of government, business, mortgage, and consumer debt) was $2.2 trillion 40 years ago.
“In 50 short years, debt has gone from being a luxury for a few to a convenience for many to an addiction for most to a disease for all,” James Butler wrote in an Independent Voters Network (IVN) op-ed. “It is a virus that has spread to every aspect of our economy, from a consumer using a credit card to buy a $0.75 candy bar in a vending machine to a government borrowing $17 trillion to keep the lights on.”

According to a 2012 study published in the Economist, rapid growth in private debt is a better predictor of recessions than increases in public debt, growth in money supply, or trade imbalances. Consumer credit in the US rose by 22 percent over the last three years, reaching a record-high $3.18 trillion in April, the Fed reported on Friday.
Credit card use (or revolving credit) rose by $8.8 billion, while non-revolving credit like auto loans and student loans made by the government surged up by $18 billion in April. Non-revolving credit jumped by 8.2 percent over the last year, while revolving credit only rose 2.2 percent over the same time period.
“For a while after the recession it was trendy to cut up your credit cards and get out of debt,” Michael Snyder wrote in an InfoWars op-ed. “But that fad wore off rather quickly, didn’t it?”

Snyder noted that 56 percent of all Americans have a subprime credit rating, and that the average monthly car payment in the US is $474. He added that 52 percent of homeowners are overextended on their mortgages and “cannot even afford the house that they are living in right now.”
Debt is hurting young adults the most. Millennials say they are spending at least half their monthly paychecks on paying off debt, a recent Wells Fargo survey found. And two years out of college, half of all graduates are still relying on their parents or other family members for some sort of financial help, according to a University of Arizona study, which also found that only 49 percent of graduates are working full-time.
"Whether or not a weak labor market is increasing the need for intergenerational support -- a likely driver in today's economy -- our data clearly showed that many young adults today may not be earning enough to make it on their own, even when working full time," the report stated.
Most of the debt that young adults face is student loan debt, which totals more than $1.2 trillion, according to the Federal Reserve. Of that debt, approximately $124 billion is more than 90 days delinquent.
“What we have done to our young people is shameful. We have encouraged them to sign up for a lifetime of debt slavery before they even understand what life is all about,” Snyder wrote.
The Congressional Budget Office predicts that the economy will stall by 2017 because Americans will continue spending, but wages and wealth won’t be going up - leading to increased income inequality in the country, the Guardian reported.
“That ever-increasing gap between income and consumption has been filled by borrowing,” the Guardian said. “These were the debt dynamics in the lead-up to the recession. But they are also the dynamics leading out of the crisis, and continuing today with no end in sight.”
Economists have not agreed on how to stave off the impending crisis. But Americans’ addiction to spending on credit will not help.
“The problem is, the more debt we have, the more future income must be used to pay the debt and its interest, which reduces the money we have to spend on things. This works to slow the economy,” Butler wrote.
“Eventually, the negative effect of the debt load becomes stronger than the positive effect of the added spending and a recession is triggered — or worse.”

Fed Prepares For Bond-Fund Runs, Looking At Imposing "Exit Fee" Gates

It was two short years ago that the Fed, in its relentless attempt to push everyone into the biggest equity bubble of all time, did something many thought was merely a backdoor ploy to forcibly reallocate capital out of the $2.7 trillion money market industry and into stocks when, as we wrote in July 2012, it contemplated imposing suspensions of fund redemptions to "allow for the orderly liquidation of funds assets." Or in other words "gate" money markets.
Since then various iterations of this proposal have been attempted, either by the Fed or the SEC, however due to stern industry push back (and the relatively modest amount of money at stake) the attempt to force investors to rotate their funds out of money markets (because it is quite clear that if the Fed is hinting at gating issues with a given asset class, it is only a matter of time before the hint becomes a reality) has failed, and as a result the total amount of notional capital held at money market funds has been largely unchanged in recent years.
Here comes attempt number two.
Only this time it is no longer aimed at money market funds, but that other most hated, by the Fed, asset class: bond funds, whose relentless inflows, we shouldn't have to remind readers are the main reason why the propaganda myth of a recovery, and the resulting con game, keep crashing and burning, as it is impossible to spin a 2.5% 10 Year yield as indicative of anything remotely resembling a recovery, and shows at best, a semi-deflationary world. Said inflows also are recurring evidence that whatever retail money remains unallocated, continues to go into the one asset class which is actively disparaged by the Fed at every opportunity.
In brief, if anything, the Fed would prefer that all retail investors pull their money out of bonds funds (and money markets of course), and invest them into 100x+ P/E biotech stocks. Because after all, today's stock market is nothing but the biggest Fed-propped Ponzi scheme in existence.
And in order to achieve that, according to the FT, "Federal Reserve officials have discussed imposing exit fees on bond funds to avert a potential run by investors, underlining regulators’ concern about the vulnerability of the $10tn corporate bond market."
FT justifies this latest unprecedented pseudo-capital control by sayng that "officials are concerned that bond-fund investors, as with bank depositors, can withdraw their money on demand even though the assets held by their funds are long-term debt and can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter."
“So much activity in open-end corporate bond and loan funds is a little bit bank like,” Jeremy Stein, a Fed governor from 2012-2014 told the Financial Times last month, just before he stepped down. “It may be the essence of shadow banking is ... giving people a liquid claim on illiquid assets.”
The Fed's justification for this latest bazooka approach in forced capital reallocation:
Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.
"Oddly" there is nothing in the Fed's proposal about gating the most overvalued asset classes of all, equities, or say, biotechs and momo stocks, where the drawdowns, when they happen, are so fast and vicious, the bulk of hedge funds are still down for the year precisely because they were all led like obedient sheep into the Div/0 PE slaughter. Also, memory is a little fuzzy, but in the days after Lehman, it was equity hedge funds that promptly gated all their investors.... not bond hedge funds, which in fact were scrambling to deal with the influx of new funds.
Also, it goes without saying that "discouraging investors" from withdrawing funds is the last thing on the Fed's mind, which knows very well that when it comes to investor behavior all that matters is how the Fed's future intentions are discounted.
And with this unprecedented step, the Fed is sending a very clear message: it may be next year, or next month, or next week, but quite soon you, dear retail bond-fund investor, will be gated and will be unable to pull your money.
The only thing that was missing from the FT piece was a casual reference to Cyprus.
So what is the obvious desired outcome, at least by the Fed? Why a wholesale panic withdrawal from bond funds now, while the gates are still open, and since those trillions in bond funds have to be allocated somewhere, where will they go but... stock funds.
In other words, now that the Fed is pulling away from injecting tens of billions of liquidity into the market every month, it is hoping the investing population will pick up the torch. And since it has failed to incite the mass reallocation of funds from bonds to stocks, the Fed is willing to use every trick in the book to achieve its goal.
Sure enough, "introducing exit fees would require a rule change by the Securities and Exchange Commission, which some commissioners would be expected to resist, according to others familiar with the matter." However, those commissioners would be promptly silenced when a joint effort between the NSA and the Fed were to threaten the release of embarrassing photographs or conversations to the general public. And watch how all dissent promptly disappears, and the Fed once again demonstrates it is increasingly more helpless in not only preserving the biggest asset bubble in US history, but at modeling and nudging human behavior.
Sadly for the Fed, America is now on to its endless bullshit experiments. Because absent an executive order from Obama demanding that Americans invest every spare Dollar in a Ponzi scheme, this too attempt to forcibly reallocate capital from Point A to Point B will fail.
Which, however means one thing: since the Fed is so desperate it has to float trial balloons of this nature in the financial press, the untapering can't be far behind, and with it QEternity+1.
Finally, just like in Europe with its revolutionary NIRP experiment, it will also confirm that the real economy has never been worse than it is now.

Argentina: Won’t submit to U.S. ‘extortion’ on debt

AP Photo/Victor R. Caivano
Argentine President Cristina Fernandez gives a speech, aired on national TV, during an event at the Casa Rosada government palace in Buenos Aires, Argentina, Feb. 12, 2014. President Fernandez said Monday, June 16, 2014, that Argentina can’t comply with U.S. court orders to pay $1.5 billion to winners of a decade-long legal battle over defaulted debt.

BUENOS AIRES, Argentina — Argentina's president is refusing to go along with a U.S. judge's ruling requiring a $1.5 billion repayment of defaulted bonds, even though the U.S. Supreme Court rejected her government's appeals and left the order in place.
In a national address Monday night, Cristina Fernandez repeatedly vowed not to submit to "extortion," and said she had working on ways to keep Argentina's commitments to other creditors despite the threat of losing use of the U.S. financial system.
Her hard line came hours after the justices in Washington refused to hear Argentina's appeal, and it could be a last effort to gain leverage ahead of a negotiated solution that both sides say they want. But with only days before a huge debt payment ordered by the court is due, many economists, analysts and politicians said the country's already fragile economy could be deeply harmed if she didn't immediately resolve the dispute.
Refusing to comply with rulings that have been allowed to stand by the U.S. Supreme Court "would be very damaging to the Argentine economy in the near future," said Miguel Kiguel, a former deputy finance minister and World Bank economist in the 1990s who runs the Econviews consulting firm in Buenos Aires.
Argentine markets were already reflecting fear. The Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months, and the value of Argentina's currency plunged 33 percent on the black market.
Fernandez urged her countrymen to "remain tranquil" in the days ahead.
Bowing to the U.S. courts would force her to betray a core value that she and her late husband and predecessor, Nestor Kirchner, promoted since they took over the government in 2003: Argentina must maintain its sovereignty and economic independence at any cost.
But a chorus of analysts said that if she complied with the ruling, it would become much easier for Argentina to borrow again, rebuilding its reserves and preventing the recession from getting even deeper.
U.S. District Court Judge Thomas Griesa order requires that $1.5 billion be paid "all together, without quotas, right away, now, in cash, ahead of all the rest" of bondholders, Fernandez said.
"This represents a profit of 1,608 percent, in dollars!" she complained. "I believe that in all of organized crime there has never been a case of a profit of 1,608 percent in such a short time."
But Fernandez also said repeatedly that her government is ready to negotiate with the "speculators" who scooped up Argentine junk bonds after the country's 2001 default. Owners of more than 92 percent of the nearly worthless debt agreed to accept new bonds worth much less than their original face value, but investors led by New York billionaire Paul Singer held out and litigated instead, seeking to force Argentina to pay cash in full plus interest.
Singer's NML Capital Ltd. has now won in the U.S. courts — and if Argentina doesn't hand over $907 million to the plaintiffs in the next two weeks, the judge will order U.S. banks not to process Argentina's June 30 payment totaling an equal amount to all the other bondholders.
Fernandez said her government "will not default on those who believed in Argentina." But analysts have questioned whether holders of restructured debt would accept payments outside the U.S. financial system.
"Some people say, 'Why don't you pay them and end all this right now?'" the president said. "It's because there's another problem, even more serious. There's another 7 percent who would be able to demand payment from Argentina, right away and now, of $15 billion. That's more than half the reserves in the Central Bank. As you can see, it's not only absurd but impossible that the country pays more than 50 percent of its reserves in a single payment to its creditors."
"It's our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators," she said.
The plaintiffs said her government needs to settle now.
"The time has come for Argentina to enter into good-faith negotiations with holdout bondholders," said Richard Samp, an attorney for the Washington Legal Foundation who has acted as a spokesman for NML's position throughout the case. "Argentina has expressed a desire to be permitted to re-enter financial markets around the world. The only way that it can do so is by coming to terms with its existing creditors."
Refusing to comply was "the best option" among a series of grim alternatives that Cleary, Gottlieb, the U.S. law firm representing Argentina in Washington, presented to Fernandez ahead of the Supreme Court decision. That guidance suggested Argentina should default on all its debts before negotiating in order to gain more leverage.
Associated Press writers Mark Sherman in Washington, Luis Andres Henao in Santiago, Chile, and Almudena Calatrava in Buenos Aires contributed to this report.