StealthFlation – Defined

 

By Bruno de Landevoisin

STEALTHFLATION:  An intractable economic condition that inevitably arises as excessively issued fiat currency compulsively pursues non-productive wealth assets in a grossly over-leveraged economy which has been artificially reflated by Central Banking authorities in a misguided attempt to synthetically engineer economic growth via extreme monetization (ie: Counterfeit Quantitative Easing & Interest Rate Suppression).

This ill-advised monetary regime effectively prevents the real economy on the ground from realizing the healthy normalization of free market forces crucial to genuine capital formation, authentically derived from bonafide industrious productivity which generates actually earned savings, the very life blood essential to creating legitimate and sustainable growth.

Under the imposition of StealthFlation, asset prices are deliberately inflated in an irrational attempt to elicit a vapid wealth effect, while the generative velocity of money is extinguished. Worse still, the seeds of hyperinflation are sown, as the compromised overtly financialized economy becomes increasingly dependent upon the interminable entirely destructive monetization largess.

Also known as; wishful thinking, and robbing Peter to pay Paul.

This entirely synthesized approach to capital formation brings about the following disastrous conditions:

1) Engenders stealth dormant velocity of money, concealing embedded inflationary risks to the economy.

2) Produces highly unstable and recurring capital market asset bubbles.

3) Drives superfluous misallocation of true investment capital, disregarding and disadvantaging the crucial SME sector.

4) Generates excessive capital market volatility and unpredictability, disrupting deliberate business development and planning.

5) Delivers lethargic overall economic activity with limited and unsustainable growth.

6) Encourages deleterious off-shoring of the manufacturing base.

7) Facilitates fantastic fiscal deficit spending sprees.

8) Decreases median incomes and new job creation.

9) Spawns extreme income inequality and social discontentment.

10) Eviscerates the essence of money by compromising the means of exchange and its crucial role as a conduit for savings.

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Visualizing the Vanishing Velocity of Money Vortex 

The inflationary risks are deliberately concealed and remain latent due to the synthetic suppression of determinant free capital market forces.  However, the grossly excessive supply of money has definitively been created, and it will debase the currency via inflation, it’s just a function of time.

R.I.P. – ALI

By Bruno de Landevoisin

One of the first who openly told the Neocon Warmongers to get lost…………………at great cost to himself I might add.

“My conscience won’t let me go shoot my brother, or some darker people, or some poor hungry people in the mud for big powerful America. And shoot them for what? They never called me nigger, they never lynched me, they didn’t put no dogs on me, they didn’t rob me of my nationality, rape and kill my mother and father.

Shoot them for what? How can I shoot them poor people? Just take me to jail.  Why should they ask me to put on a uniform and go 10,000 miles from home and drop bombs and bullets on brown people in Vietnam while so-called Negro people in Louisville are treated like dogs and denied simple human rights.

This is the day when such evils must come to an end. I have been warned that to take such a stand would cost me millions of dollars. But I have said it once and I will say it again. The real enemy of my people is here.

I will not disgrace my religion, my people or myself by becoming a tool to enslave those who are fighting for their own justice, freedom and equality. If I thought the war was going to bring freedom and equality to 22 million of my people they wouldn’t have to draft me, I’d join tomorrow.

I have nothing to lose by standing up for my beliefs. So I’ll go to jail, so what? We’ve been in jail for 400 years.”

The bad smell hovering over the global economy

Contributor Guest Post – Written by Gray Elliot

All is calm. All is still. Share prices are going up. Oil prices are rising. China has stabilised. The eurozone is over the worst. After a panicky start to 2016, investors have decided that things aren’t so bad after all.

Put your ear to the ground though, and it is possible to hear the blades whirring. Far away, preparations are being made for helicopter drops of money onto the global economy. With due honour to one of Humphrey Bogart’s many great lines from Casablanca: “Maybe not today, maybe not tomorrow but soon.”

Helicopter money is closer than you think

But isn’t it true that action by Beijing has boosted activity in China, helping to push oil prices back above $40 a barrel? Has Mario Draghi not announced a fresh stimulus package from the European Central Bank designed to remove the threat of deflation? Are hundreds of thousands of jobs not being created in the US each month?

In each case, the answer is yes. China’s economy appears to have bottomed out. Fears of a $20 oil price have receded. Prices have stopped falling in the eurozone. Employment growth has continued in the US. The International Monetary Fund is forecasting growth in the global economy of just over 3% this year – nothing spectacular, but not a disaster either.

Don’t be fooled. China’s growth is the result of a surge in investment and the strongest credit growth in almost two years. There has been a return to a model that burdened the country with excess manufacturing capacity, a property bubble and a rising number of non-performing loans. The economy has been stabilised, but at a cost.

The upward trend in oil prices also looks brittle. The fundamentals of the market – supply continues to exceed demand – have not changed.

Then there’s the US. Here there are two problems – one glaringly apparent, the other lurking in the shadows. The overt weakness is that real incomes continue to be squeezed, despite the fall in unemployment. Americans are finding that wages are barely keeping pace with prices, and that the amount left over for discretionary spending is being eaten into by higher rents and medical bills.

For a while, consumer spending was kept going because rock-bottom interest rates allowed auto dealers to offer tempting terms to those of limited means wanting to buy a new car or truck. In an echo of the subprime real estate crisis,vehicle sales are now falling.

The hidden problem has been highlighted by Andrew Lapthorne of the French bank Société Générale. Companies have exploited the Federal Reserve’s low interest-rate regime to load up on debt they don’t actually need.

“The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand,” Lapthorne says. “The effect on US non-financial balance sheets is now starting to look devastating.”

Gold’s Timeless Truth

By Bruno de Landevoisin

One should never be too concerned about the gold price measured by a suspect faltering monetary regime.  The value placed on the timeless hard asset class in terms of a fiat currency solely backed by the good faith and credit of bankrupt Governments, whose Central Banks are counterfeiting paper money, is only viable so long as the presiding monetary authorities legitimately maintain their credibility and supremacy.

The history of fiat money, to put it kindly, has been one of failure. In fact, EVERY fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse, of not only the currency, but of the economy that housed the fiat currency as well.  (The Daily Reckoning)

The inevitable failure of the western world’s fiat based financial system will leave gold as the only veritable monetary store of value still standing.  Once the capital and economic breakdown befalls, the trust between the nations tied to the previous monetary order will have been irrevocably shattered.  Gold then emerges as the essential and only time-honored common denominator between the sovereign States, which no longer value each others’ previously accepted paper obligations.  Having been entirely discredited, failed fiat currencies, that had hitherto readily facilitated the exchange of goods and services between nations, are simply discarded like worthless paper soiled with spilled ink, promptly tossed into the trash bin of history.  Same as it ever was……..

The severe monetary, commercial and geopolitical dislocations which invariably ensue, unalterably follows the disintegration of the previous global means of exchange, in this case the Dollar.  This is precisely the moment Gold takes center stage.  When the dust finally settles, the only remaining store of value still trusted and acceptable as a means of fair trade is gold.  It has consistently been so for well over 2,000 years of civilization’s monetary history, which is about determinative a probability as they come.

In time, a new monetary system is eventually reestablished between the decimated distrusting parties, forced to the negotiating table so as to resolve the ongoing global financial cataclysm.  During that conspicuously uncertain period,  the new monetary order can only be based on a universally recognized real money currency, and that my dear friends has always been gold.  At the end of the day, the honest and genuine hard asset class is quite simply in a class of its own, unequivocally valued by all concerned parties, particularly at critically perilous junctures in time…..

It’s really quite simple, it’s not about the new Stock Market highs, nor the Dollar and U.S. Treasury safe haven.  It’s all about tomorrow’s confidence in our Monetary System. Are you confident in the malignant malfunctioning monetization?  At the end of the day, the only relevant question still remaining, is not if, but when our cocksure menacing monetary mad men will entirely lose their grip on their perverted paper

Money is stored labor. Labor is part of life.  When you debase money, you devalue life itself.

Oh, and for those that incessantly dismiss gold as a barbaric relic, please be advised that the metal remains the best performing asset class of the New Millennium, by a country mile.  Be sure to let me know when that changes……

Moreover, Gold serves as crucial financial insurance, whether you have paid $45 per month or $65 per month for the crucial insurance coverage becomes entirely irrelevant when an instantaneous incendiary inferno burns down your home.

To quote the timeless Bobby Dylan:  “Come in she said, I’ll give you shelter from the storm”

Donald Trump – Bad For Dollar, Good For Gold?

Submitted by Mark O’Byrne  –  GoldCore

Donald Trump’s emergence as the Republican frontrunner and possible future U.S. President is causing some gold and investment analysts to suggest diversifying into gold according to the Wall Street Journal.

Donald Trump – Gage Skidmore via Commons.wikimedia.org

 

From the WSJ:

The other winner from Super Tuesday could be gold.

With Donald Trump solidifying his status as the front runner in the Republican field, some investors and analysts watching from overseas say that the ascendancy of the brash New York businessman could rattle global markets as the November presidential election inches closer. Nervous investors, they say, could pile in to gold and other safe-haven assets as an insurance policy.

The journal quotes David Govett of London-based commodities broker Marex Spectron:

“The mere thought would suggest a good opportunity to buy gold,” said Mr. Govett, who heads the firm’s precious-metals trading desk.

“Who knows what could happen should he be handed the keys to the White House,” said Mr. Govett.”

James Sutton, a London-based portfolio manager on the global natural resources equities team at J.P. Morgan Asset Management concurs:

“If there’s any uncertainty regarding the U.S. election and the potential for a slightly off-center candidate, whether that be Sanders or Trump winning the election, then I can see a scenario where that’s bad for the dollar.”

It is important to note that gold’s fundamentals are very sound and the possible “Trump gold factor,” if there is one, is only one of a myriad of fundamentals that are driving the gold market.

Here Come The SDR Bonds

Submitted by J.C. Collins  –  philosophyofmetrics

Over two years ago now I began a series of articles titled SDR’s and the New Bretton Woods.  The ten post series focused on the SDR and its eventual evolution into an internationally traded asset. There was very little information out there at the time on this future transformation of the IMF’s Special Drawing Right currency, and POM broke new ground on many of the facts, trends, and methodologies behind the transition to a multilateral monetary framework.

Each month more and more information and confirmation of the POM thesis emerges which further validates much of what has been presented to readers for over two years.  The latest validation comes from the G20 Communique from last weekend’s summit in Shanghai.

Item 11 under Issues for Further Action states the following:

“We look forward to the IMF’s report to examine and reflect on the possible broader use of the SDR by July.”

This one statement provides the largest validation yet for POM readers that we are in fact on the correct course with this thesis.  What isn’t clear in the statement is whether July is the deadline for the report to be presented, or when the broader use of the SDR should begin.  Considering the time it takes to decide on changes and implement them, it would be my interpretation that it is only the report which is meant to be completed by July.

What started as a recreational analysis on the Federal Reserve, China, and a new monetary framework, has morphed into a full time obsession which has defined a new path in my life.  The evolution of my understanding and comprehension surrounding this transition has increased by hundreds of multiples. Presenting this information to the tens of thousands of readers out there who are interested in such things has been one of the greatest honors of my life.

Another Dead Cat Bounce – And They’ve Already Buried The Cat

Submitted by David Stockman – The Contra Corner Blog

That didn’t take long. We’ve just had another short-covering rip from the 1870 Bullard Bottom on the S&P 500 and it’s already petered out. Not even another one of the St. Louis Fed President’s bouncing billiard balls could keep the machines slamming the buy key.

And that’s why there is a monumental market storm brewing dead ahead. Yes, James Bullard is a complete joke who gives zig-zagging a whole new meaning. After yesterday’s about face from rate increase hawk to dove, I’d even be inclined to designate him as a “monetary whirling dervish”. His policy pronouncements fit the urban dictionary’s definition perfectly:

(n.) A person whose behavior resembles a rapid, spinning object. These actions are often spastic fidgeting and incessant babbling. The actions of the whirling dervish are irritating and annoying, often exhausting other people in the immediate vicinity.

You can’t disagree with that, but the issue isn’t Bullard; its the entire central bank policy regime that is now racing towards a fiery dead-end. Bullard is just idiomatic—–the least reluctant of what will soon be a desperately flailing gaggle of Fed heads trying to explain that recession has returned, but that they are out of dry powder without a clue on what to do next.

So it won’t be long before we get the big breakout to the downside. The stock market has been churning and cycling in no-man’s land between 1870 and 2130 on the S&P 500 for 700 days now. There have been upwards of 35 rally attempts and all of them have failed, including this most recent machine driven three-day spasm.

^SPX data by YCharts

It is a sheer understatement to say that the market’s generals are in full retreat and that the internals are looking ever more precarious. As to the latter, fully 60% of the S&P 500 members are down 20% or more and are thereby already wrestling hard with the bear.

The true role of gold

Submitted by Alasdair Macleod – FinanceAndEconomics.org

At a time of growing concern about the global financial system, it is time to remind ourselves why physical gold is so important for the benefit of the nearly three quarters of a million BitGold and GoldMoney customers, as well as those who might be considering what the benefits are of opening a gold deposit account.

This article explains the role of gold as money, and the dangers of leaving money on deposit in the banking system. In the interests of informing and educating a wider audience about the potential benefit of using gold for day-to-day payments, I would be grateful for readers to share this article with their friends and family as widely as possible.

We all know that for thousands of years, gold has been used as money. It qualified for this role because of its rarity and its ornamental utility: in other words, it will always have a value, come what may. This contrasts with unbacked paper money issued by governments, which has no such fundamental value. It is no accident that all collapses in money’s purchasing power have involved either debasing gold and silver coinage, or far more often the over-issuance of government paper currency. To these two versions of fraud on ordinary people, we must add a third, and that is by banks licenced by governments to create credit out of thin air.

How banking works

Let us look at bank credit for a moment, because that is the source of most money in circulation today. If a bank agrees to lend you money so you can pay your creditors or buy new equipment, you pay these obligations by transferring money from your loan into their banks. Meanwhile your bank does not need to have the money to lend to you. It balances its books by borrowing the funds from other banks with surplus funds to lend.

To illustrate the point as simply as possible, imagine there is only one bank. The bank lends you money, and you spend it. And as you spend it, the people and businesses who sell you stuff see their bank balances rise as they are paid. The bank created the loan for you, which was then covered by the deposits created by your spending, as you draw down funds from the loan. This works for multiple banks as well. All they need is a mechanism to ensure deposits are efficiently allocated between them, so that all the banks end up with balanced books. That is the function of the money market.

So by this magic, the money originally lent to you was created out of thin air by your bank, and then covered by deposits taken from the other banks where necessary. Banking is in effect a closed money-creation system. Note that your bank has not had to use its own money to create the loan to you. So a simple banking balance sheet consists of its own money (its capital, or shareholders’ funds), money owed to it by borrowers, such as you in the example here, and owed by it to depositors, such as the people you have paid.

If you borrow money from the bank, they will charge you a rate of interest, which if you are an ordinary person, can be anything perhaps between five and twenty per cent. With interest rates close to zero, the bank can fund this loan to you at about half of one per cent. That is nice business, particularly when it doesn’t have to put up its own money. Obviously the bank faces a risk which it it has to cover out of its own capital if necessary, and that is if you default on the loan.

Industrial Production Is Leaving Little Doubt

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Industrial production fell 0.7% in January 2016 which was slightly better than the (revised) -1.9% estimated for December. It was, however, the third consecutive month showing a decline and, more importantly, the 6-month average turned negative for the first time in the “cycle.” Industrial production, at least as far as the Federal Reserve’s estimated series for it, is actually a lagging indication particularly in the average. In other words, in every other cycle by the time the 6-month average falls below zero the recession is already several months old.

The consistency with which we find that to be the case is very significant. In every recession since World War II, we find contracting IP shortly after each official cycle peak (declared by the NBER). The one exception is the 1990-91 recession where industrial production briefly dropped to slightly negative several months prior to the start of that recession, only to rebound somewhat into its early stages and before again falling further below zero in accordance with this overall long-term pattern.

ABN AMRO Predict Gold At $1,300 By Year End, Up From $900

Submitted by Mark O’Byrne  –  GoldCore

Gold is holding solidly above $1,200, brushing off news of the freshly released Fed minutes. Iranians cautiously welcome the Saudi-Russian oil production pact, while stating that they support cooperation to achieve higher oil prices, they also have domestic pressure to ramp up export of supply and cash in after years of being locked out of the market. This may possibly weigh down future oil price rises.

Gold in USD -1 Year

Interestingly, one of the biggest gold bears, ABN AMRO group have changed their long-held negative slant on gold and turned bullish — targeting $1,300 for 2016, stating that the global economy continues to weaken with lower oil prices affecting emerging markets, but the U.S. in particular. Analyst Georgette Boel wrote, “Having been long-standing bears we have now turned bullish on precious metal prices,” and “Our new scenario sees a longer period of weaker global growth.”

You can read the full article on Bloomberg here.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Negative Interest Rates Set The Stage For The Next Crisis (Stephen Roach)

• Why Negative Interest Rates Spell Doom For Capitalism (Romano)

• Central Banking Is In Crisis. Can The World Economy Be Far Behind? (Economist)

• Bank of Japan Baffled by Negative Reaction to Negative-Rate Policy (WSJ)

• Nomura Sees Yen Falling More Than 10% on BOJ Negative Rates (BBG)

• Abenomics? How About Kurodanomics? (BBG)

• OECD Calls for Urgent Increase in Government Spending (WSJ)

• China Bears Say the Capital Outflow Is Just Beginning (BBG)

• Red Ink In China (Economist)

• Overproduction Swamps Smaller Chinese Cities, Revealing Depth of Crisis (WSJ)

• You Cannot Print Your Way to Prosperity (Ron Paul)

• The Real Economy Is Talking, but Treasuries Aren’t Listening (BBG)

• Number Of UK Homes Worth More Than £1 Million Set To ‘Triple By 2030’ (G.)

• 400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts (ZH)

• The Political War on Cash (WSJ)

• Swiss MPs Want New 5,000-Franc Banknotes To ‘Save Privacy And Freedom’ (L.)

• The Stressed-Out Oil Industry Faces an Existential Crisis (BBG)

• Oil Gives Up Gains as Inventories Build (WSJ)

• Anglo American Cut to Junk for Third Time This Week (BBG)

• Wary On Turkey, EU Prepares For Refugee Crisis In Greece (Reuters)

The US Economy Has Not Recovered And Will Not Recover

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

The US economy died when middle class jobs were offshored and when the financial system was deregulated.

Jobs offshoring benefitted corporate executives and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits.

However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.

The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits.

Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One sourcre of this credit was the rise in housing prices that the Federal Reserves low inerest rate policy made possible. Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it.

The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized.