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.
Read more
Wednesday, June 18, 2014
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.”
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."
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.
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."
The Fed's justification for this latest bazooka approach in forced capital reallocation:“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.”
"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.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.
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.
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.
Why Negative Interest Rates Are Only The First Step
Jeff Thomas, International Man
Casey Research
In 1946, an American singer, Merle Travis, recorded a song called "Sixteen Tons." The song told the story of a poor coal miner in Kentucky, who lived in a small coal mining town. The town's economy revolved entirely around the mine.
The mining company owned a "company store," which had a monopoly on the sale of provisions. It charged rates that were designed to use up the weekly paycheque of the miner, so that the miner, in effect, was a slave to the mining company. As the song states,
Negative Interest Rates
Let's put the song aside for the moment and have a look at a concept that has been bandied about by the European Central Bank (ECB) for a while now. Since the collapse of the central banks would doom the world (their claim, not mine), it is essential that the banks be saved no matter what else must be sacrificed. Efforts to "save" the situation have been implemented through quantitative easing (QE) and the setting and continuation of low interest rates. Unfortunately, in spite of record profits by banks and staggering bonuses handed out to senior bank executives, somehow the QE and low interest rates have not created the prosperity desired. The economy is still in the tank. What to do?
A solution being considered is to create "negative interest rates." Sounds logical, doesn't it? If low interest rates have kept the economy from crashing but haven't fixed it, surely, negative interest rates can only be more positive.
And what are negative interest rates? Well, it simply means that, if you keep your money in a bank, instead of the bank paying you interest, you pay the bank to hold your money.
No central bank has ever done such a thing, so, not surprisingly, it sounds like a bitter pill to swallow. However, the ECB will present it as an "unfortunate necessity."
Electronic Currency
Let's once again change subjects for the moment. If the fiat currencies, such as the euro and the dollar, collapse (as I believe is all but inevitable), the EU and US are likely to immediately come up with an alternate currency (or currencies), since if an alternative is not made readily available, people will turn to whatever currency is handy in order to be able to continue to purchase goods and to trade.
We are in the electronic age. We are also seeing the EU and US heading in a direction that is marked with increasing controls on the capital held by their citizens. Therefore, the ideal currency would be an electronic one. No more paper notes in the wallet, no more coins in the pocket; just a plastic debit card to take care of all purchases.
All purchases. Whether the purchaser buys something as major as a car or as insignificant as a Cadbury bar, the card would be used for every monetary transaction.
This, of course, is a handy solution to the fuss of dealing with what was formerly regarded as money. But there is an extra advantage—quite a major one, in fact—to the government. It now has a record of every single transaction that you make. There could be no "under the table" transactions, as only the debit card would represent currency.
Of course, a bank would be needed to handle the transactions. The bank would receive your electronic paycheck directly from your employer, and you would spend what you had in your account. The bank would be the central clearing house though which all your financial transactions took place. An
extra advantage to the government would be that they would no longer
need to chase their citizens for taxation. Since they had a full record
of every penny you earned and spent, they could advise you of the
amount of your tax obligation and simply deduct it periodically. If you
presently pay tax annually, the deductions could be broken up—say,
monthly, or even weekly.
And the tax need not be under one heading. Just as your bank now lists a host of confusing charges on your credit card, so the government may have a wide variety of confusing and even redundant taxes that it deducts on a regular basis. Just as with the bank, the rates for each tax might go up or down (but mostly up) without explanation. (The more numerous the tax categories and the greater the frequency of deductions, the more confusion and, therefore, the fewer the complaints.)
How Does All This Fit Together?
Let's go back to the ECB. If a negative interest rate exists, the bank no longer pays you interest to encourage you to keep your money with them. They now control all your monetary transactions, and you cannot function without them. The servant has become the master. Therefore, it would not be possible to cease to use the bank for your transactions, should their "negative interest rates" start to climb.
At this point, the government and the bank would, between them, control your money totally. You would find yourself, in effect, "owned by the company store." It's even possible that bank fees and tax rates could be increased as your income increased, so that you might never be able to truly save money, invest, or indeed, act independently of your "owners." The flow of your money would have become centralised, and you could not function without them.
Of course, this is all theory. Surely, this could not come to pass, because people inherently do not wish to be enslaved.
And yet it happened on a wholesale basis in Kentucky and other mining areas in the US. So the question really is, "How did it become possible that people in mining towns volunteered for their own slavery?"
First there was a depression. Many people lost their jobs and their incomes and were prepared to do anything in order to feed their families. So they signed up for the only game in town: the mines. It was dangerous work, there were no benefits, and the coal dust would kill a miner after a time. But as long as he lived, his family had enough to eat. He accepted the deal, because (again) it was the only game in town.
So, back to the present day, where the Greater Depression will soon be on us in full force. A large percentage of jobs will be destroyed, but in addition, this time around, the currency will also be destroyed. In order to pay for goods, particularly food, people will do whatever they have to, to obtain currency. Desperate times, indeed.
But there's a light at the end of the tunnel! The government has chosen to eliminate bank notes and coins, as they ultimately proved to be so destructive. Never again will this be allowed to happen. The new Electronic Currency System will ensure that all money is centrally managed.
The press will declare the new system brilliant, and the harder an individual has been hit by the Greater Depression, the more quickly he will jump on board. The greedy rich have all but destroyed his life, and his government, like a knight in shining armour, has come to save him. Like the miner, he will not be musing on how this will all play out over the decades; he will opt for the promise of relief for his family now.
If this all plays out as described above, it will not be just Kentucky, but entire nations.
Editor's note: The day after this article was written, the ECB announced the introduction of a negative interest rate: 0.1% on deposits. As predicted, the media have already begun to the praise the measure.
To see what the consequences of economic mismanagement can be, and how stealthily disaster can creep up on you, watch the 30-minute documentary, Meltdown America. Witness the harrowing tales of three ordinary people who lived through a crisis, and how their experiences warn of the turmoil that could soon reach the US. Click here to watch it now.
Casey Research
In 1946, an American singer, Merle Travis, recorded a song called "Sixteen Tons." The song told the story of a poor coal miner in Kentucky, who lived in a small coal mining town. The town's economy revolved entirely around the mine.
The mining company owned a "company store," which had a monopoly on the sale of provisions. It charged rates that were designed to use up the weekly paycheque of the miner, so that the miner, in effect, was a slave to the mining company. As the song states,
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store
Negative Interest Rates
Let's put the song aside for the moment and have a look at a concept that has been bandied about by the European Central Bank (ECB) for a while now. Since the collapse of the central banks would doom the world (their claim, not mine), it is essential that the banks be saved no matter what else must be sacrificed. Efforts to "save" the situation have been implemented through quantitative easing (QE) and the setting and continuation of low interest rates. Unfortunately, in spite of record profits by banks and staggering bonuses handed out to senior bank executives, somehow the QE and low interest rates have not created the prosperity desired. The economy is still in the tank. What to do?
A solution being considered is to create "negative interest rates." Sounds logical, doesn't it? If low interest rates have kept the economy from crashing but haven't fixed it, surely, negative interest rates can only be more positive.
And what are negative interest rates? Well, it simply means that, if you keep your money in a bank, instead of the bank paying you interest, you pay the bank to hold your money.
No central bank has ever done such a thing, so, not surprisingly, it sounds like a bitter pill to swallow. However, the ECB will present it as an "unfortunate necessity."
Electronic Currency
Let's once again change subjects for the moment. If the fiat currencies, such as the euro and the dollar, collapse (as I believe is all but inevitable), the EU and US are likely to immediately come up with an alternate currency (or currencies), since if an alternative is not made readily available, people will turn to whatever currency is handy in order to be able to continue to purchase goods and to trade.
We are in the electronic age. We are also seeing the EU and US heading in a direction that is marked with increasing controls on the capital held by their citizens. Therefore, the ideal currency would be an electronic one. No more paper notes in the wallet, no more coins in the pocket; just a plastic debit card to take care of all purchases.
All purchases. Whether the purchaser buys something as major as a car or as insignificant as a Cadbury bar, the card would be used for every monetary transaction.
This, of course, is a handy solution to the fuss of dealing with what was formerly regarded as money. But there is an extra advantage—quite a major one, in fact—to the government. It now has a record of every single transaction that you make. There could be no "under the table" transactions, as only the debit card would represent currency.
Of course, a bank would be needed to handle the transactions. The bank would receive your electronic paycheck directly from your employer, and you would spend what you had in your account. The bank would be the central clearing house though which all your financial transactions took place.
And the tax need not be under one heading. Just as your bank now lists a host of confusing charges on your credit card, so the government may have a wide variety of confusing and even redundant taxes that it deducts on a regular basis. Just as with the bank, the rates for each tax might go up or down (but mostly up) without explanation. (The more numerous the tax categories and the greater the frequency of deductions, the more confusion and, therefore, the fewer the complaints.)
How Does All This Fit Together?
Let's go back to the ECB. If a negative interest rate exists, the bank no longer pays you interest to encourage you to keep your money with them. They now control all your monetary transactions, and you cannot function without them. The servant has become the master. Therefore, it would not be possible to cease to use the bank for your transactions, should their "negative interest rates" start to climb.
At this point, the government and the bank would, between them, control your money totally. You would find yourself, in effect, "owned by the company store." It's even possible that bank fees and tax rates could be increased as your income increased, so that you might never be able to truly save money, invest, or indeed, act independently of your "owners." The flow of your money would have become centralised, and you could not function without them.
Of course, this is all theory. Surely, this could not come to pass, because people inherently do not wish to be enslaved.
And yet it happened on a wholesale basis in Kentucky and other mining areas in the US. So the question really is, "How did it become possible that people in mining towns volunteered for their own slavery?"
First there was a depression. Many people lost their jobs and their incomes and were prepared to do anything in order to feed their families. So they signed up for the only game in town: the mines. It was dangerous work, there were no benefits, and the coal dust would kill a miner after a time. But as long as he lived, his family had enough to eat. He accepted the deal, because (again) it was the only game in town.
So, back to the present day, where the Greater Depression will soon be on us in full force. A large percentage of jobs will be destroyed, but in addition, this time around, the currency will also be destroyed. In order to pay for goods, particularly food, people will do whatever they have to, to obtain currency. Desperate times, indeed.
But there's a light at the end of the tunnel! The government has chosen to eliminate bank notes and coins, as they ultimately proved to be so destructive. Never again will this be allowed to happen. The new Electronic Currency System will ensure that all money is centrally managed.
The press will declare the new system brilliant, and the harder an individual has been hit by the Greater Depression, the more quickly he will jump on board. The greedy rich have all but destroyed his life, and his government, like a knight in shining armour, has come to save him. Like the miner, he will not be musing on how this will all play out over the decades; he will opt for the promise of relief for his family now.
If this all plays out as described above, it will not be just Kentucky, but entire nations.
Editor's note: The day after this article was written, the ECB announced the introduction of a negative interest rate: 0.1% on deposits. As predicted, the media have already begun to the praise the measure.
To see what the consequences of economic mismanagement can be, and how stealthily disaster can creep up on you, watch the 30-minute documentary, Meltdown America. Witness the harrowing tales of three ordinary people who lived through a crisis, and how their experiences warn of the turmoil that could soon reach the US. Click here to watch it now.
Signs Pointing To A Severe Economic Slowdown And Higher Food & Oil Prices
Inflation Rises as CPI Gains, Housing Stars Decline
June
17 (Bloomberg) — Bloomberg’s Michael McKee breaks down economic data on
inflation, CPI and housing starts for the month of May. He speaks on
Bloomberg Television’s “Bloomberg Surveillance.”
CONSUMER PRICE INFLATION PICKS UP
Evidence is mounting that inflation is starting to accelerate.
New
data released this morning shows that consumer prices climbed 0.4%
month-over-month in May, which was higher than the 0.2% expected by
economists.
Excluding food and energy, CPI increased by 0.3%, which was a tick higher than the 0.2% expected.
This was the strongest gain in core CPI since August, 2011.
On a year-over-year basis, prices climbed by 2.1% and 2.0% respectively.
What “Low-Flation”? Core CPI Jumps Most In 3 Years As Food Costs Push Higher
Does this look like the Fed has inflation concerns under control?
Driven by “Food at Home” costs soaring…
Housing Starts Fall More Than Expected
Housing starts fall 6.5% in May to 1 million annual rate
Is the economy really picking up? Not likely
Commentary: This doesn’t feel like a real recovery
The real world is telling
us a different story than the pundits think they see in their crystal
balls. Rather than picking up, the economy is still plodding along, not
necessarily declining — but not shifting into high gear either.
Take retail sales, for
example. They represent one-third of the economy and two-thirds of total
consumer spending. In May, they rose only 0.3% — less than half the
0.7% expected by the Street.
Even this was worse than
it looked. Take autos out of the picture, and sales barely budged,
rising 0.1% compared with the consensus forecast of 0.4%.
Housing is still in the basement. Builders’ expectations may be bright, but they have yet to ramp up the pace of home building.
Rather than fall in the
latest week as was thought, new claims for unemployment benefits rose.
Employment is still weak, the long-term jobless rate remains at a
postwar high, and would-be workers continue to leave the labor force,
discouraged by the lack of job prospects.
The recent jump in oil
prices will hurt buying power as it ripples through the pipeline to the
ultimate consumers of gasoline, heating oil, fuel for industry, and,
yes, prices of items that are made with oil, such as plastics. This
comes as people are trying to cope with the rising cost of food and
health care.
Rubino: Odds of another oil crisis, central banks buying trillions of dollars of stocks
“If the
Middle East blows up here, we basically have nothing to show for 40 or
50 years of extremely high, extremely expensive intervention over there,
you know, because we’re right back where we started, except we’re more
deeply indebted than ever.”
“[China]
has accumulated the biggest stock portfolio in the world…That explains,
in part, while the world’s equity markets have held up so well: you’ve
got all this public sector money flowing into private sector equity
investing. It wouldn’t be a surprise if the U.S. was also doing this…”
Behind the cornucopia of higher food prices
Alert
shoppers are accustomed to watching food prices go up and down. But a
string of forces—from droughts to diseases—is raising the cost of a trip
to the grocery store at a rapid clip.
And it looks like it will be a while before the price pressure eases.
Why Q2 GDP Will Disappoint In 1 Chart
Housing Hit The Wall Of Wall Street In May
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
It
always starts with a toxic mix. Last fall when sales that had been
predicted to continue their miraculous ascent were suddenly swooning,
soothsayers dealt with it by developing a whole plethora of excuses. At
each new disappointment, they dragged out new excuses. But in May, the
toxic mix came to a boil, and now there are no more excuses: sales
plungedand inventories jumped. The housing market is buckling under its own inflated weight.
And
what excuses they’d come up with! Last fall, the fiscal cliff, the
threat of a government shutdown, the possibility of default that was
belittled by everyone supposedly made home buyers uncertain. But these
issues were swept under the rug, and sales continued to drop into the
winter. Polar vortices were blamed, though in California, where the
weather was gorgeous, sales dropped faster than elsewhere. Then the
spring buying season came around when massive pent-up demand was
supposed to sweep like a tsunami over the land. But sales continued to
decline. So tight inventories were blamed. There simply weren’t enough
homes for sale, it went.
Alas, in May, new listings rose 6.5% from a year ago to a four-year high in the 30 markets that electronic real-estate broker Redfin tracks.
People were dumping their homes on the market; new listings soared
25.5% in Ventura, CA, 15.8% in West Palm Beach, and 15.4% in Baltimore.
This is what it looked like for all 30 markets combined:
The
onslaught of new listings added to the unsold inventory and pushed up
the total number of homes for sale by 9.1% to the highest level since
August 2012. And in this elegant manner, the final excuse of tight
inventories causing the plunge in sales went up in smoke.
This
rise in inventory has been going on all year. Yet, as Redfin pointed out
with a soupçon of irony, it was “surprising to some, given the
speculation about extremely low inventory creating intense pent-up
demand among buyers who have been waiting for months with low interest
rates burning holes in their pockets.”
Real
estate is local. During the last housing bust, some areas started to
crater in early 2006, while others hung in there for a while longer. San
Francisco’s bubble hit its peak in November 2007, and everyone thought
that the city, being so unique, would be immune to the pandemic of
housing mayhem. A month later, it cratered. So this time too, it isn’t
impacting all markets equally. In 10 of the 30 markets, inventories were
actually down. But in some of the hottest markets a year or two ago,
inventories skyrocketed: up 14.6% in Los Angeles, 15.5% in Washington,
DC, 16.2% in San Diego, 23.1% in Sacramento, 27.9% in Orange County,
30.9% in Riverside-San Bernardino, CA, and up – I’m not kidding – 33.4%
in Phoenix.
And
this inventory isn’t selling: in the 30 markets, sales in May plunged
10% from a year ago. Now that homes are coming on the market in large
numbers, buyers, faced with sky-high prices and higher mortgage rates,
went on strike:
In some
of the hottest markets of 2012 and 2013, sales are falling off a cliff:
down 11.6% in Las Vegas, 12.2% in Chicago, 12.3% in Seattle, Orange
County, and Los Angeles, down 12.5% in Washington, DC, 13.1% in Long
Island, 13.5% in San Francisco, 14.6% in Sacramento, 20% in Phoenix, and
down 20.8% in San Diego. These are ugly numbers.
But, but, but… the median sales price still rose
8.2% in May from a year ago, though that’s down from the 14.5% increase
in May 2013, and from the 20% at the peak of 2012. Redfin reported that
its agents had observed “the shift away from a sellers’ market, with
buyers having more power and less competition.” But apparently, “many
sellers still haven’t read the memo.”
Since
early 2012, Wall Street players, armed to the teeth with the nearly free
and limitless money that the Fed in its infinite wisdom has made
available specifically for these purposes, piled into the market, buying
up hundreds of thousands of homes helter-skelter and turning them into
rental properties. It switched these homes from for-sale lists to
for-rent lists, where many languished unperturbed, and it drove up
prices in record time. Current homeowners welcome that.
But
first time buyers, the natural force in the housing market, were
effectively pushed aside and are now priced out of the market. Even many
current homeowners who want to sell are locked into their homes as they
cannot afford the next home, given higher mortgage rates and sky-high
prices. At these prices, even investors can’t buy these homes and rent
them out at a profit. In many areas of the country, that business model
is kaput. So they pulled back too. This is how the Fed fixed the housing market.
The
only thing lacking in this “fixed” housing markets are willing and able
buyers. So inventories are piling up, and someday sellers will “read the
memo.” Then prices will be whittled down to where they make economic
sense in this economy. We’ve been through this before. Only this time,
it’s different: the Fed, which so eagerly took credit for having “fixed”
the housing market, is going to be hard-pressed to cut interest rates
further, or do anything else it isn’t already doing.
“Recently,
the billionaire venture capitalist Vinod Khosla went hunting for
one-bedroom apartments in San Francisco.” And then he opened his mouth.
Read… The untimely end of San Francisco’s Tech and Housing Bubbles
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