Sunday, March 29, 2015

Central Banks Warn: Liquidity May Evaporate When Investors Finally Remove Blindfolds

Wolf Richter,
are selling bonds like madmen. This year through Tuesday, investment-grade and junk-rated companies have sold $438 billion in new bonds, up 14% from the prior record for this time of the year, set in 2013, according to Dealogic. This quarter is already in second place, nudging up against the all-time quarterly record of $455 billion of Q2 2014.
About $87 billion of these bonds funded takeovers, a record for this time of the year, the Wall Street Journal reported. The four biggest bond sales in that batch were for healthcare takeovers, including the Actavis deal whose $21 billion bond sale was the second largest in history, behind Verizon’s $49 billion bond sale in 2013.
Actavis had received orders for more than four times the bonds available, according to CFO Tessa Hilado. “You don’t really know what the demand is until people start placing their orders,” she said. “I would say we were pleasantly surprised.”
Brandon Swensen, co-head of U.S. fixed income at RBC Global Asset Management, couldn’t “see anything on the radar that’s going to slow things down materially,” he told the Wall Street Journal. His firm expects rates to “remain low.”
All of the investors chasing after these bonds expect rates to remain low. Or else they wouldn’t chase after these bonds. If rates rise, as the Fed is promising in its convoluted cacophonous manner, these bonds that asset managers
are devouring at super-high prices and minuscule yields are going to be bad deals. And their bond funds are going to take a bath. But companies are selling bonds as if there were no tomorrow. They’re thinking that rates will not remain low. They’re trying to get these things out the door cheaply while they still can. They’re on a feverish mission to take advantage of these ludicrously low rates while they’re still available. And they use this cheap money to buy each other and to repurchase their own shares to pump up share prices and max out executive compensation packages, rather than investing it in productive activities.
So is the Fed giving split signals?
Corporate issuers interpret these signals to mean that this won’t last, that they need to sell as much cheap debt as possible before rates rise, perhaps sharply. But bond fund managers interpret these signals in their own way, lulling themselves into thinking that rates will stay low forever.
One side is misreading the Fed’s signals. Perhaps bond fund managers don’t care; all they have to do is be as good as the market. And when rates go up, the entire market takes a beating, and bond fund managers individually can hide behind that.
But what happens when investors in these bond funds figure out that their bond fund managers had taken the wrong side of the bet, that corporate issuers had known all along what bond buyers had closed their eyes to – rising rates falling bond prices – and now they’re trying to unload their bond funds?
When bond funds face these kinds of redemptions, they first plow through their cash, then they try to sell the more liquid bonds in their fund, such as Treasuries, and if that isn’t enough, the less liquid bonds.
But liquidity is a funny thing: it evaporates without notice, just when you need it the most.
Liquidity gives you the ability to sell something without having to slash the price. When no one wants to sell and when you don’t need liquidity, there’s plenty of it. But when you really need liquidity to sell something because you see something worrisome, then everybody else sees the same thing, and they too need to sell. Buyers, who also see the same thing, disappear. And liquidity just evaporates.
It doesn’t mean you can’t sell. It means you have to slash your price to sell. Everyone has to slash their prices in order to lure buyers out of hiding. And worse, as prices get slashed in a highly leveraged market, margin calls go out, hedge funds get nervous, and leverage begets forced selling. And prices drop further. But this leverage once provided liquidity, and now it doesn’t go anywhere else and doesn’t shift to other assets, but gets paid off. It too just evaporates.
That’s the dynamic of market mayhem.
After six years of global QE and interest rate repression, absurdly inflated valuations – from government bonds with negative yields to junk bonds with ultra-low yields – have become the norm. But liquidity has become, to use the Bank of England’s expression, “more fragile.”
Last week, the Bank for International Settlements rang the alarm bells on liquidity, fretting that bond markets have become vulnerable to these sorts of shocks. And yesterday, the Bank of England Financial Policy Committee released the statement of its March 24 meeting that was jam-packed with warnings about “market liquidity risks” – and potential “sharp adjustments in financial markets.”
It cited the Treasury flash crash last October as an example of when liquidity even in the supposedly most liquid of bond markets – US Treasuries – just evaporated. As it said, “sudden changes in market conditions can occur in response to modest news.”
And it frets: “investment allocations and pricing of some securities may presume that asset sales can be performed in an environment of continuous market liquidity, although liquidity in some markets may have become more fragile.”
Not that central-bank warnings have any impact on investors. They’re too busy chasing yield. And thus government bond yields continue to bounce along near zero, or below zero. High-grade corporate bond yields are so small they’re barely discernible. Junk-bond yields show that there are few risks out there, even for the riskiest companies in the riskiest sectors. It has taken central banks six years to blindfold investors to risk, and now investors have become addicted to these blindfolds and simply don’t want to take them off. But when they do, possibly all at the same time, they’ll find out that the liquidity they thought would be there for them has just evaporated.
In the American heartland, real businesses are already getting nervous. “We don’t see the economy being as strong as portrayed in the national media,” the Kansas City Fed quoted one of them. Read…  You Should See the Reasons Cited for the Plunge of the Kansas City Fed Manufacturing Index

Santelli Stunned As Janet Yellen Admits “Cash Is Not A Store Of Value”

Yellen: “cash is not a convenient store of value”
* * *
So if cash is not a very convenient store of value… what is? Biotechs? As Rick Santelli explains… this is the scariest thing she has ever said…
Santelli: “deflation is the boogeyman… and the only thing that can save the middle class is lower prices”

Fitch cuts Greece’s rating to CCC, 3 notches above default, on uncertainty over aid release. Markets price default probability at 79%.

View image on Twitter
Fitch cuts 's rating to CCC, 3 notches above default, on uncertainty over aid release. 
(Reuters) – Ratings agency Fitch on Friday cut Greece’s credit rating to ‘CCC’ from ‘B’ saying lack of market access, tight liquidity and uncertainty over the timely release of aid from its official creditors are exerting pressure on government funding.
Fitch, Standard & Poor’s and Moody’s had all lifted Greece’s rating last year as the economy showed tentative signs of getting back on its feet after six-years of recession.
But the new leftist government’s standoff with its euro zone partners and the International Monetary Fund over reforms needed to resume remaining bailout funding have clouded the direction of future policy making, rendering the outlook uncertain.
“We expect that the government will survive the current liquidity squeeze without running arrears on debt obligations, but the heightened risks have led us to downgrade the ratings,” the agency said.

View image on Twitter
will pay debts…this month at least. Markets price default probability at 79%. 

New U.S. bank formation weakest in 50 years:

View image on Twitter
New U.S. bank formation weakest in 50 years: @RichmondFed 

The oil-price crash is rippling through Texas rental markets

Embedded image permalink

The crash in oil prices is seeping into high-octane real estate markets.
Since the end of last year, energy companies have announced hefty reductions in capital spending, and major layoffs. Outplacement firm Challenger, Gray & Christmas this month said falling oil prices have been responsible for 39,621 job cuts in the first two months of the year, more than one-third of all nationwide workforce reductions in that period.
That’s been rippling through the economy, with new evidence showing rental markets are taking a hit. An analysis by real estate database Zillow finds the median estimated monthly rental price for single-family homes, condominiums, cooperatives and apartments in oil-dependent metropolitan areas is rapidly slowing.
“Growth in rents per square foot in Texas’ previously booming oil-dependent markets began to rapidly cool off at the tail end of last summer, coinciding with a marked downward turn in oil prices,” said Svenja Gudell, Zillow’s director of economic research. “In August, rents per square foot were growing by about 8% per year in and around oil-dependent markets, compared to 6 percent currently.”


Dollar Run Likely Over… Look Out Below!

by moneymetals

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up in just a bit we’ll talk to Chris Marchese, co-author of The Silver Manifesto, a brand new book that has already become the preeminent source for all things silver. Chris discusses the global demand for the white metal, its role as a monetary asset, and why silver is poised to make big moves in the years ahead. Be sure to stick around for my interview with Chris Marchese coming up in just a moment.
Well, we’ve seen some significant moves in gold and silver prices over the past few days. On Thursday, gold closed back above $1,200 per ounce for the first time in four weeks. Gold’s strength comes as the U.S. dollar retreats and stock market volatility and geopolitical risk drive safe haven demand. The U.S. Dollar Index poked above the 100 level early last week ahead of the Federal Reserve’s policy statement but has since lost ground.
So far the dollar hasn’t broken down below the up-trending channel it’s been in since last July. But HSBC analysts say the U.S. currency is overvalued and due for a trend change. They believe that even if the Fed raises rates later this year, the widely anticipated move won’t boost the dollar more than the currency markets already have in advance.
A downward trending dollar would tend to stimulate upward trending precious metals prices. For the short-term, traders who are hoping to see gold put in a solid weekly close above the $1,200 level may have be sweating that one out all day. As of this Friday recording, gold has given back some of the gains seen earlier in the week and has dipped below that key psychological level for the moment and now trades at $1,199 an ounce, still good for a 1.3% weekly advance. Overall though silver is definitely confirming gold’s strength. After surging 7% last week, silver spot prices are up by just about 1% now for the week and currently come in at $16.99 an ounce. Platinum is off 1% so far today and is now flat on the week at $1,140 an ounce, while palladium looks lower for the third straight week. Palladium prices are off another 3.3% this week, much of that coming with a selloff today, and currently come in at $753.
In economic news, the Labor Department on Tuesday released the latest Consumer Price Index reading. The CPI rose by 0.2% for the month of February, after showing a 0.1% decline for January. Relatively strong housing numbers, a weaker dollar, and rebounding commodity prices could pressure the CPI upward in the months ahead. Prices for some CPI components are highly cyclical and prone to volatile swings from month to month.
But the trend for medical costs
and government spending is up, up, and up. Consumers and taxpayers just won’t a get a break from these costs like they have recently at the pump for gasoline. The budget deals crafted in Congress this week show just how fleeting spending restraint is.
On Wednesday, the House of Representatives passed a budget resolution that backers proclaimed would balance the federal budget over 10 years. But then just one day later House Speaker John Boehner and Democrat leader Nancy Pelosi agreed on a plan to spend an additional $141 billion on Medicare doctor
reimbursement. The Heritage Foundation says the bipartisan spending scheme will add $500 billion to the national debt over the next 20 years. So much for balanced budgets!! Most of the talk that comes out of Washington regarding deficits and debt is either misinformed or deliberately misleading. The official debt of the United States is based on fuzzy accounting that no private corporation
would be able to get away with. Economist Laurence Kotlikoff calculates a fiscal gap of not $13 or $18 trillion, but $210 trillion!!
Laurence Kotlikoff: Yeah, if you take all the expenditures that the federal government is projected to make, as projected by the Congressional Budgeting Office, back in July… take all the spending on defense, on repairing the roads, on paying for the Supreme Court justices salaries, Social Security, Medicare, Medicaid, welfare, everything, take all those expenditures, project them into the future, form their present value, the value in the present. Compare that with the present value for all the taxes projected to come in. The difference is $210 trillion. That’s the fiscal gap. That’s our true debt. There’s no risk weight associated with the US Treasury Bonds. They’re viewed as perfectly safe. Well, I think they’re one of the riskiest securities in the world, because I think interest rates are likely to go up, because I think the Fed’s going to have to keep printing money, because Congress isn’t paying our bills, and that’s going to lead to inflation, eventually.
I think long term treasuries are extremely risky, and they can certainly drop 5%, 10%, 20% overnight, and put my bank, that was viewed as perfectly safe today, out of business.
The risks of a future outbreak of inflation, or a banking crisis, or both are risks that everyone should be preparing for NOW. The risks will only grow over time as the nation’s fiscal gap grows. And while we can’t predict when or how the next financial crisis will manifest, the potential exists that it will be bigger than the 2008 financial crisis. Then, the Fed stepped in to bail out the banks. But what will happen when the Fed has to bail out the government?
We can only guess as to how low the value of the dollar might go. What is certain is that holders of precious metals in physical form will not see their wealth evaporate. Yes, there has been and will be price volatility in the metals. That means there are better times than others to be a buyer. But rather than try to pick an exact bottom, which nobody can do successfully unless they happen to get lucky, you can simply decide to be in accumulation mode when prices are deeply discounted from former highs. That’s not the case with a lot of financial assets these days, but it’s certainly the case with gold and silver.
Well now for more on those key drivers for a lower dollar and higher precious metals prices, let’s get right to this week’s exclusive interview.
Mike Gleason: It is my privilege now to be joined by Chris Marchese, mining analyst and contributor to The Morgan Report. We’re having Chris on with us today because he and our good friend David Morgan have just released a fantastic book called The Silver Manifesto. It’s basically the bible on silver and silver investing. Chris, thanks for joining us today. It’s nice to finally get a chance to talk with you. Chris Marchese: You too. It’s my pleasure.
Mike Gleason: First off, I want to say that I was blown away by the book when I first got my hands on it a few weeks ago. It’s beautiful and unbelievably thorough, starting with the origination of silver as a currency and as a means of exchange thousands of years ago, following it all the way through history, examining its use as both money and many applications that utilize it in industry. It dissects the mining aspects of silver, the overall supply-demand dynamics, the price history, and a pricing forecast going forward, and many other components as well. It’s incredibly comprehensive.
Now, I know the creation of this book was years in the making, so talk about how that all came about, all the research
that was involved, and ultimately, what you and David were looking to do together by writing The Silver Manifesto.

Chris Marchese: About 16 months ago, we started throwing around the idea just because we felt that the American people and humanity in fact need to know the truth about what’s really going on with the … How these government shenanigans, particularly in the Western world. The truth about the monetary system is essential to all human beings. Money transcends everything, and everyone is interested in money. The truth is never really discussed in the mainstream, and it’s kept mysterious. Only the rich and powerful have knowledge about it.
And we try to bring a comprehensive look into the silver market, and aren’t just that, but just the intricacies of money and banking, and what we call “The Debt Bomb”. It’s just astounding how much debt has been accumulated both public and private throughout all the major economies in the world. And every time in history, it’s been basically the crux of all currency prices, just having overwhelming debt burdens.
Mike Gleason: Silver is a metal like no other given its countless industrial applications coupled with its use as money throughout history. Now first, diving in to the financial and monetary component of silver, the 2008 financial collapse and the central planners’ response to it has really underscored the importance of having both gold and silver, owning the money metals as insurance against the collapse in the paper currency Ponzi scheme that’s just grown and grown in recent years. Talk about that aspect a little bit more and why you view silver as such as an incredibly important asset for the average American to own.
Chris Marchese: Well because most people in the US especially are just complacent about everything instead of trying to question everything. I think that stems from (the fact that) we’ve had it so good for so many years. We’ve been the world economic superpower, we’re starting to lose it, and we’ve beem the reserve currency. We’ve been able to abuse that to our benefit in the detriment of a lot of other countries. In 2008, everything came to a head.
If you had paid attention to what the economic policies of Alan Greenspan, you saw that he just avoided a real cleansing of the imbalances of the economic system in 2000, 2001 by slashing rates down to 1% and keeping them (there) for a long period of time. The amount of credit expansion and lending standards were just atrocious. It was only a matter of time before that was going to come to a head; but more importantly over that time, someone should ask themselves as why was there so much gross federal debt accumulated under what was supposedly a new era of economic prosperity.
There’s so many side things that I think would prove to be just more nails in the coffin of the US dollar whether it’s through a monetary reset or hyperinflation. Although, I think the former is a lot more likely. The derivatives bomb, the top 5 US banks, they hold something like $293 trillion of derivatives, so imagine just 1% of those go bad. Everything is fragile and real money, the market has always chosen silver and gold going back as we referenced, since, the earliest we could find, 3200 B.C., the advent of handwriting that was used in journal entries.
If nothing else, it should be owned by all Americans just as insurance policy against the government malfeasance. At this point in time, things have gotten so bad. I don’t think the typical 10% recommendation by most lending managers
and whatnot is really enough anymore. It will probably be enough to preserve your capital, but this is also presenting a great opportunity for capital accumulation.
Paper money always fails. It always has. It always will for the same reasons: the inherent nature of government is to use as much power as possible. Mike Gleason: Given the financial turmoil and massive efforts globally to inflate the monetary supply as you just alluded to, we’re starting to see a bit of a movement developing towards a return to a metal-backed currency. Now, in the second chapter of your book, you discussed the bimetallic standard that we’ve seen used in past history, but you discussed the importance of implementing such a system in the correct way, meaning, the advantages of not fixing the price of silver against gold. Speak to that if you would in both the idea of a bimetallic system and how when used correctly, it can really provide financial discipline for the politicians, something we’re desperately needing these days.
Chris Marchese: Yeah. A bimetallic standard has always been chosen by the market, but there’s always been a lot of government interference one way or another. Even in the US when we were founded on a silver standard, which most don’t realize, but the problem was as in all other times in the past was they would define silver, for example, as 371.25 grains of silver for each dollar, and then they would fix the gold rate, the gold price to the silver price. So they would maintain a ratio.
Markets aren’t static. They’re incredibly dynamic, so that ratio is ever changing. And when you get prolonged periods of time with big movement in one or the other, say the gold rush in California. Keeping a fixed ration brings Gresham’s law in to effect. That is bad money drives out good. Basically, that same undervalued money gets exported. People want to hoard it because they see it’s undervalued for what they can buy it at. Instead, the overvalued money continues in circulation.
It makes sense if you just think about it, under a bimetallic system gold is used for international dealings, international trade; and silver is used in everyday commerce. Then in addition to that, there are some tighter checks and balances relative to monometallic standard. For example, if governments colluded, and they inflated their respective money supplies equally.
Mike Gleason: When it comes to the industrial demand for silver, your 5-year forecast is maybe not as optimistic as some; but even with the decline in the global economy that you’re expecting, you still see a healthy
increase in silver consumption. Talk about that. Chris Marchese: Well because most things that contain silver, there’s such little silver in it because a little silver goes a long way just because of its superior thermal and electric conductivity characteristics. It’s very price inelastic, so the price of silver could go through the roof, and it would have very little effect on whether a substitute would be sought out for a particular product. Because it is the best conductor of heat and electricity, it makes it so vital, especially this day and age, we’re living in a technology
era. There are so many novel uses that could consume very material amounts of silver in the future. One is solar use. It used to be uneconomical, and now it’s closer to being economical. The oil price is going to go back up. This is going to be a short-lived, maybe one to two-year depression in oil prices. Once that happens, alternative energy sources will be sought after again. These low energy prices aren’t here to stay.
If you look at a lot of those that were able to increase their production significantly due to fracking, most of them have breakeven costs of about $75, $80 oil, and so at these prices, I think oil is around $45 to $50, it’s going to be really tough on them. Especially considering the fact that the industry as a whole has a lot of debt out there.
Say oil were to remain just around $60 through 2016, I would guess there would be an unthinkable amount of bankruptcies. Companies
are going to start closing, shutting down operations, and do what they need to do to remain solvent. Mike Gleason: You’re expecting some big things for silver over the next few years given all the previously mentioned issues out there, and I’m reading here that you think triple-digit silver isn’t out of the question as soon as later this decade even. What’s you’re thinking there, and how did you come up with that forecast?
Chris Marchese: David in his first book said that, and there’s really no reason to deviate from that. And I agree with it, and I think it could very well go to $500 or $600, but that has to be taken with a grain of salt because it’s not that silver will necessarily appreciate a whole lot, it’s that the dollar would depreciate. There’s are a lot of countries that are trading with other currencies that aren’t the US dollar, so they’re circumventing the US dollar.
With the Asian Infrastructure Bank and the rise of China to a more prominent role, I think the US dollar will be dropped officially at some point as the reserve currency. And when that happens, there’s so many potential outcomes. I don’t want to say one exactly, but they all lead to a much, much weaker dollar. We do see the Dollar Index at highs not seen for 7, 8 years, but you have to remember, all that is, is it’s measured primarily against three other currencies.
Over 50% is again for Euro, then you got the yen and the pound. I think those account for about 80% of the Index. It’s not saying much when you’re measuring one garbage currency to currencies that are worst. Yes, a $100 silver, I would really have to think about that one in terms of what a good metric is to come up with. It would have another scarce commodity. Say barrels of oil, or the gold to silver ratio, or something along those lines.
Mike Gleason: Yeah. Certainly, the dollar, I like to say, is seemingly the tallest midget at the circus right now when you measure it against its unbacked brethren around the world. There’s certainly going to be lots of issues coming with the dollar once the globe starts to shift its focus on our issues here instead of concentrating on what’s happening in Europe and elsewhere. Chris, it’s a fascinating read. You and David truly did a terrific job with this book, and I enjoyed having you on. Thanks very much for spending some time with us and sharing your insights from The Silver Manifesto, and good luck with the book.
Chris Marchese: Thank you very much, and it was my pleasure.
Mike Gleason: I strongly urge everyone to pick up a copy of The Silver Manifesto. If you’ve ever bought silver, thought about investing in bullion and mining stocks, ETFs, anything whatsoever, the information on this book is second to none when it comes to the silver market. You can now buy it at for $27.95. It’s easy to find it on our site. It’s actually linked from every page on the website. You definitely won’t be disappointed.
Well that would do it for this week. Thanks again to Chris Marchese, co-author of The Silver Manifesto. Check back next Friday for the next weekly Market Wrap Podcast, and to tease you a little bit here, I will say that you don’t want to miss our guest next week. It will be a must-hear interview, I can assure you. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend, everybody.

Ford, Mercedes, VW set up shop in Silicon Valley, creating a new nexus for the car industry

Embedded image permalink

Ford, Mercedes-Benz Set Up Shop in Silicon Valley
New nexus of car industry emerges as Apple, Uber and Google push automotive ambitions
SAN JOSE—Four decades ago, Japanese auto companies
anticipated U.S. demand for fuel efficient cars and hit the market with vehicles that caught the Detroit Three by surprise, permanently altering the ranks of the biggest auto makers. Today, the disrupters are bubbling up from California’s Silicon Valley. As software giants and startups rush to make smarter vehicles, established car makers are scrambling to avoid becoming victims of another sea change. The most common response: setting up research
offices in the technology industry’s backyard. The technical transition to a connected car is already under way. Industry researcher IHSAutomotive estimates between 10% and 25% of the cost of making cars and light trucks now is linked to software. For decades, much of a vehicle’s economic value was measured in the 1,000s of physical parts—engine blocks and camshafts—that came from a tightknit supply chain. No longer.
“What happened with the mobile industry with the smartphone is about to happen with the car,” said Jen-Hsun Huang, chief executive
of Santa Clara, Calif.-based chip maker NvidiaCorp. The one-time maker of graphics processors for personal computers is now a key auto-parts firms, supplying the tabletlike infotainment system in Tesla Motors Inc.’s Model S, and has millions of dollars in other contracts with Japanese and European auto makers. “Your car is going to be one delightful computer rolling down the street,” Mr. Huang said at a conference earlier this month.
While Tesla sells fewer than 100,000 cars a year, the Palo Alto, Calif., auto maker’s ability to make rapid, over-the-air changes to its vehicles through an Internet connection instead of a dealer service bay shows how some of his rivals have fallen behind—and how dominant of a factor car software has become.


We’re spending more on two big categories — health care and education — that don’t make us feel richer.

by John Rubino
Among the many things that mystify economists these days, the biggest might be the lingering perception, despite six years of ostensible recovery, that the average person is getting poorer rather than richer. Lots of culprits come in for blame, including the growing gap between the 1% and everyone else, negative interest rates (which starve savers and retirees of income) and the crappy nature of the new jobs being created in this recovery.
But one that doesn’t get much mention is the changing nature of the bills we’re paying. It seems that Americans are spending a lot more on health care, which leaves less for everything else. Here’s an excerpt from a MarketWatch report of a couple of weeks back, with two charts that tell the tale:

Share of consumer spending on health hits another record

The percentage of money U.S. consumers spend on health care rose in 2014 for the third straight year to another record high, according to one government measure.
Some 20.6% of total consumer spending in 2014 was devoted to health care, including prescription and over-the-counter drugs, annual figures from the Commerce Department report on personal expenditures show. That’s up from 20.4% in 2013.
Health-care expenses has been rising for decades regardless of government efforts to control costs. The percentage of consumer spending on health care rose from 15% in 1990, topping 20% for the first time in 2009.
Consumer spending healthcare With the health-care pie continuing to expand, consumers are paying the same or less as percentage of their spending on most other goods and services compared to 10 years ago.
Americans spend a smaller share of their money on cars and clothing, among other things. The percentage of money they spend on housing and going out to eat is basically unchanged over the longer run.
Not surprisingly, the only other major category to show a sustained increase in spending over the past 25 years is education. The share of money Americans spend on college has climbed to 1.59% from 0.9% in 1990.
Consumer spending habits
————– End of Excerpt ————-
What this means is that we’re spending more on two big categories — health care and education — that don’t make us feel richer. Health care, of course, is just maintenance. It’s like changing a car’s oil or fixing a broken transmission, which only restores the status quo rather than enhancing it. Education, meanwhile, is just school. When we’re in college, we don’t feel richer if tuition goes up. So to the extent that those things are getting more expensive, and fun things like eating in restaurants and buying new shoes become less frequent as a result, we feel poorer — or at least less free to indulge ourselves.
This is the opposite of what technology in particular and progress in general were supposed to bring about. As a society advances, it should get better at producing life’s necessities, freeing up capital for life’s joys and making most people feel both richer and more free. As John Maynard Keynes famously predicted in his 1930 essay “Economic Possibilities for our Grandchildren”, another century of capital accumulation and advancing science would make it possible for most people to satisfy their basic needs with minimal effort and then go off and have fun. Wrote the economist/poet:
For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.
We’re fifteen years short of the century that Keynes predicted it would take, but the goal seems to be receding rather than approaching. That’s frustrating for all the people who have to work harder than ever just to feed their families. And if it goes on much longer the result will be a very vigorous search for culprits — which will be entertaining, even if it doesn’t pay the doctor’s bills.

3 Things: No Money, Wall Street’s Big Scam, Bottom 80%

by Lance Roberts
Much of the commentary from the more liberal leaning media has continued to tout that the rise in asset markets over the last few years are clear evidence of economic prosperity in this country. However, is that really the case?
In order for rising asset prices to be reflective of overall economic prosperity, the“wealth” generated by those rising asset prices should impact a broad swath of the American populous. Let’s take a look to see if that is the case.

“Mo Money” Or No Money

In September of last year, I discussed the Federal Reserve’s 2013 Survey of household finances which showed a shocking decline in the median value of net worth of families across all age brackets.
While the mainstream media continues to tout that the economy is on the mend, real (inflation-adjusted) median net worth suggests that this is not the case overall.
However, Shane Ferro from Business Insider posted a stunning piece on what has happened to American families as asset prices have surged higher. To wit:
“Nearly half of American households don’t save any of their money.
If it isn’t obvious, this has a broad range of implications. People who don’t save won’t have any buffer should the economy turn, and they lose their jobs. Longer term, people who don’t save won’t have the capacity to retire. It’s not good.
What is clear is that rising asset prices, which have been induced by the Federal Reserve’s monetary policy and suppression of interest rates, has indeed benefitted those that have assets to invest.
The findings are strikingly similar to the U.S. Federal Reserve survey from last year.
“‘Savings are depleted for many households after the recession,’ it found. Among those who had savings prior to 2008, 57% said they’d used up some or all of their savings in the Great Recession and its aftermath. What’s more, only 39% of respondents reported having a ‘rainy day’ fund adequate to cover three months of expenses and only 48% of respondents said that they could not completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.
In other words, the rich have gotten richer as rising asset prices have been a major benefit to stock-option based executives who have raked in billions. However, for the majority of the working class, it has remained primarily a struggle to survive much less actually save.

401k Plans – Wall Street’s Biggest Scam

Beginning in the 80’s and 90’s, Wall Street lobbied heavily to change the rules to allow companies to scrap pension plans in exchange for employee contribution plans known as 401k plans. Supposedly, this was to be a grand bargain for individuals to take control of their own financial futures.
This was a HUGE win for Wall Street as companies such as Vanguard, Fidelity and others gathered trillions of dollars in assets from company employees who contributed to those plans. It was also a win for companies which benefitted from the reduction in costly contributions required by pension plans which boosted net incomes and compensation to business owners and executives.
It all worked out great….right? Turns out, not so much for individuals.
According to a recent study, the results of shifting the responsibility of retirement savings, not to mention the risks of investing, to the individual has been grossly unsuccessful. To wit:
“$18,433 is the median amount in a 401(k) savings account, according to a recent report by the Employee Benefit Research Institute.
That’s the median amount in a 401(k) savings account, according to a recent report by the Employee Benefit Research Institute. Almost 40 percent of employees have less than $10,000, even as the proportion of companies offering alternatives like defined benefit pensions continues to drop.
Older workers do tend to have more savings. At Vanguard, for example, the median for savers aged 55 to 64 in 2013 was $76,381. But even at that level, millions of workers nearing retirement are on track to leave the workforce with savings that do not even approach what they will need for health care, let alone daily living. Not surprisingly, retirement is now Americans’ top financial worry, according to a recent Gallup poll.
But shifting the responsibility for growing retirement income from employers to individuals has proved problematic for many American workers, particularly in the face of wage stagnation and a lack of investment expertise. For them, the grand 401(k) experiment has been a failure.
“‘In America, when we had disability and defined benefit plans, you actually had an equality of retirement period. Now the rich can retire and workers have to work until they die,” said Teresa Ghilarducci, a labor economist at the New School for Social Research.'”
Of course, for those in the top-10% of wage earners - “it’s all good.”

The Problem For The Bottom 80%

One of the recent diatribes by the media was that falling gasoline prices would spur consumption. As I have repeatedly discussed, this is far from the truth as shifting spending from one area of the economy to another does NOT increase consumption but is rather like “rearranging deck chairs on the Titanic.”
The only thing that ultimately increases consumption, or savings, is an increase in incomes. Unfortunately, for roughly 80% of American’s, wage growth, and actual employment, have been an elusive reality.
When it comes to actual employment, it is hard to rationalize the mainstream media’s obsession with the U-3 unemployment rate. Particularly, when it is clearly being obfuscated by the shrinkage of the labor force. As I wrote in August of 2013:
“While the Fed could certainly claim victory in achieving their ‘full employment’target; the economic war will be have been soundly lost.”
The Federal Reserve did ultimately achieve their target unemployment rate. However, as I have shown previously, when it comes to the primary 16-54 age group that should be working, it is hard to suggest that almost 95% of working age American’s are gainfully employed.
Even more critical is the fact that for roughly 80% of American’s that are working, wage growth has been non-existent. Tyler Durden at ZeroHedge wrote:
“The important math: production and non-supervisory employees, those not in leadership positions, represent 80% of the employed labor force. This is important when looking at the next chart which show the annual increases in hourly earnings just for production and nonsupervisory employees.
It is as this point that we ask that all economists avert their eyes, because it gets ugly:
As the BLS reports, not only is the annual wage growth of 80% of the work force not growing, but it is in fact collapsing to the lowest levels since the Lehman crisis!
But if the wages of the non-working supervisory 80% of the labor population are tumbling while all wages are flat that must mean that the wages of America’s supervisors, aka “bosses” are…
The chart below shows what the implied annual change in supervisor hourly earnings has been since the start of the second Great Depression. Note the recent differences with the chart immediately above.
And there, ladies and gentlemen, is your soaring wage growth: all of it going straight into the pockets of those lucky 20% of America’s workers who are there to give orders, to wear business suits, and to sound important.
Yes – wages are growing, for those who least need wage growth, the ‘people in charge.'”
Despite many claims that the “economy” has recovered from the financial crisis, as evidenced by a surging stock market, a closer look at the majority of Americans suggests otherwise. The implications are important as the burdens on social welfare continue to swell, and the ability to pay for those entitlements becomes more questionable.

Gary Fielder: The Gig Is Up Money, the Federal Reserve and You

Uploaded on Oct 26, 2011
Populist lawyer, Gary Fielder, presents “The Gig Is Up: Money, the Federal Reserve and You. Live from Wolfe Hall at The University of Colorado School of Law, on December 4, 2008, Mr. Fielder, a criminal and constitutional lawyer from Denver, Colorado, presents a power point and video presentation on the creation of money with an historical analysis of our current banking system. With quotes from Ben Franklin, Thomas Jefferson, Abe Lincoln, Ron Paul, Dennis Kucinich and many others, Fielder makes his case to abolish the Federal Reserve and return to a sound and honest money system. Fractional Reserve Banking. Currency. Amero. World Government. International Banking. Produced by Jack Creamer, Side 3 Studios, Denver, Colorado. Video edits by Jonathan Ellinoff. Technical Assistant, Rye Miller. This video is for educational purposes only. Admission was not charged, nor will any effort be made to profit from its production or sale. The DVD is free.

China moves one step closer to replacing the dollar

From Filip Karinja, for Birch Gold Group
The rise of China on the global economic stage got another boost this week.
While discussing the potential that the Chinese renminbi (also known as the yuan) will be added to the IMF’s Special Drawing Right (SDR) basket of currencies, Christine Lagarde, the chief of the International Monetary Fund (IMF), put it bluntly“It’s not a question of if, it’s a question of when.”
The SDR functions as an international fiat reserve asset, basically a shadow world reserve currency. Currently its value is based on four currencies: the U.S. dollar, the euro, the British pound and the yen.
This mix of currencies is reviewed every five years, and later this year, it’s up for review…
For the yuan to be added to the SDR’s basket of currencies, it first needs to meet certain criteria and then be voted in by the IMF council. Should the yuan be accepted, it could be part of the SDR system as soon as January 2016.
The last time the SDR currency basket was reviewed, in 2010, the yuan was rejected by the council. Specifically, the council noted, “The Chinese renminbi does not currently meet the criteria to be a freely usable currency.”
Christine Lagarde China IMF
IMF Chief Christine Lagarde delivery her speech in Shanghai, China.
However, in the five years since, the Chinese have amassed a number of bilateral trade agreements outside the dollar, and now command a much larger share of global trade.
In 2014, the yuan became the fifth largest payment currency, bypassing the Canadian and Australian dollar. So now, this time around, it is likely to meet the IMF’s requirement of being ‘freely usable’. And don’t forget, the China International Payment System (CIPS) will likely launch in September this year, which will further increasing the tradability of the currency.
Lagarde, who this week wrapped up a five-day visit to China, announced in a speech from Shanghai:
“Over the past three decades, China has amazed the world through its economic transformations. Over the next few decades, China will astound the world through its global economic leadership.
The IMF knows China will play a dominant role in the future and needs them on board. Otherwise, it faces the risk of losing relevance to the growing number of Chinese financial institutions taking foothold on the global scene.
One of those financial institutions growing in economic stature is the Shanghai Gold Exchange, which is set to launch a yuan-denominated gold fix later this year.
Obama China wine
The rise of this new gold exchange further highlights China’s move to link the yuan to gold, something that has been suspected for some time now.
This all begs the obvious question: As China grows in global stature and purchases more gold than the world producescould we actually see gold added to the SDR basket of currencies? It’s far from a preposterous question.
If China moves to back the yuan with gold and the IMF doesn’t, we could see the IMF – and all other fiat currencies, for that matter – wane in power.
The momentum is clearly with China. Will 2016 be the year we see the Chinese yuan take the shine off the U.S. dollar? It certainly looks that way.
Fortunate for you, you have time to prepare. If you haven’t already protected some of your savings from the falling dollar, now is the time to move some into Gold. To find out how, get a free info kit from Birch Gold Group – there is zero cost and zero obligation to you. All you need to do is Request your Free Info Kit on Gold Here.

Australian government set to tax bank deposits

The Australian Federal Government looks set to introduce a tax on bank deposits in the May budget.
The idea of a bank deposit tax was raised by Labor in 2013 and was criticised by Tony Abbott at the time.
Assistant Treasurer Josh Frydenberg has indicated an announcement on the new tax could be made before the budget.
The Government is heading for a fight with the banking industry, which has warned it will have to pass the cost back onto customers.
Mr Frydenberg is a member of the Government’s Expenditure Review Committee but has refused to provide any details.
“Any announcements or decisions around this proposed policy which we discussed at the last election will be made in the lead up or on budget night,” he said.
Speaking at the Victorian Liberal State Council meeting Mr Abbott has repeated his budget message, focusing on families and small businesses.
“There will be tough decisions in this year’s budget as there must be, but there will also be good news.”
Tony Abbott Australia
Australian Prime Minister Tony Abbott
The banking industry has raised concerns about a deposit tax, saying it will have to pass the cost back onto customers.
Steven Munchenberg from the Australian Bankers’ Association said it would be a damaging move for the Government.
“It’s going to make it harder for banks to raise deposits which are an important way of funding banks. And therefore for us to fund the economy,” he said.
“And we also oppose it because particularly at this point in time with low interest rates a lot of people who are relying on their savings for their incomes are already seeing very low returns and this will actually mean they get even less money.”

Bank deposit tax will break election promises: Labor

The Federal Opposition has accused the Government of breaking an election promise by planning to introduce a tax on bank deposits.
The former Labor Government put forward the policy in 2013 to raise revenue for a fund to protect customers in the event of a banking collapse.
Shadow Assistant Treasurer Andrew Leigh said Treasurer Joe Hockey criticised the proposal at the time.
“When we put it on the table Joe Hockey said that it was a smash and grab on Australian households just aimed at repairing the budget,” he said.
“I don’t think we’re going to take any lessons on bipartisanship from Joe Hockey. If he’s got any serious proposal to put on the table Labor will respond to that.”