Monday, November 24, 2014
Ronald Reagan and David Stockman
David Stockman was elected to Congress at age 29 back in 1976; he was an avid student of Austrian economics and supported a gold-backed money system and a balanced budget. He later joined the Reagan administration as Budget Chief, where he watched in awe as the Reagan administration quickly became the most profligate spenders in the history of the United States.
After leaving the Reagan Cabinet, he worked at the well-known investment house Salomon Brothers, and later co-founded the Blackstone Group alongside legendary hedge-fund manager Steve Schwarzmann.
In his most recent book, The Great Deformation: The Corruption of Capitalism in America,Stockman systematically repudiates and dismantles the myths surrounding the Fed’s supposed past successes at helping the US economy avoid major breakdowns, going all the way back to the crash of ‘29. Instead, as he explains, “Programs born out of desperation or idealism 75 years ago have ended up as fiscal time bombs like Social Security or as captive fiefdoms of one crony capitalist syndicate or another… Policies undertaken in the name of public good inexorably become captured by special interests and crony capitalists.”
The most important lesson I took from the book and the interview? Remember that there has never been a time of such profound debt saturation, coupled with intense crony capitalism, as today. No one has ever been here to tell how it turns out. We truly are in an unprecedented era…
David, can you explain how the ‘Fed put’ works on the stock markets and bond markets? How exactly does it translate into artificially higher stock prices and lower interest rates? Continue reading
The desperation and fraud of the Keynesian policy apparatus gets more stunning by the day. Apparently, the pettifoggers in Brussels will soon be announcing a new $400 billion bazooka to blast the euro-economy out of its lethargy. This massive new “stimulus” is supposed to spur all manner of infrastructure and private investment that is purportedly bottled-up for want of cheap capital in the private markets.
Are they kidding? Thanks to the Draghi Put (“whatever it takes”) and the hedge fund gamblers who have gone all-in front running the promised ECB bond-buying campaign, this very morning the corrupt and bankrupt government of Spain can borrow all the money it could possibly need for infrastructure at hardly 2.0% for ten years. And any healthy German exporter or machinery maker can borrow at a small spread off the German 10-year bond which is trading at 73 basis points. For all intents and purposes, sovereigns of any stripe and reasonably healthy businesses in most parts of Europe can access capital at central bank repressed rates which are tantamount to free money.
And, yet, these fools want to bring coals to Newcastle. Well, its actually worse than that because not only does Newcastle not need any coal, but the impending “Juncker Plan” doesn’t include any new coal, anyway! Continue reading
Submitted by Mark O’Byrne – Founding Partner of GoldCore
The Dutch central bank said Friday it is repatriating some of its gold reserves from the U.S., making it the latest central bank in Europe to address public concerns about the safety of its gold in the wake of the eurozone debt crisis.
As the debate regarding whether or not Switzerland should keep the bulk of its gold reserves at home on Swiss soil reaches it’s climax – the referendum takes place on Sunday – it is telling that the Dutch announced on Friday that they have just secretly repatriated 122 tonnes of their sovereign gold reserves from New York back to Amsterdam.
The gold, worth $5 billion at today’s prices, represents 20% of the Netherlands total reserves. It now keeps 31% of its reserves in Amsterdam. Another 31% is believed to be in New York, with the remainder spread between Ottawa and London – the same locations where the bulk of Swiss gold is purported to be stored. Continue reading
Submitted by Bill Bonner – Chairman, Bonner & Partners
US stocks hit new highs last week. Gold fell back below the $1,200-an-ounce mark…
…and MIT economics professor Jonathan Gruber came dangerously close to committing truth.
The ancient Egyptians believed Pharaoh was divine. They called him a god. That gave him the right to tell people what to do.
This belief persisted in ancient Rome. The Romans referred to the first Roman emperor, Augustus Caesar, as Divi Filius – “Son of the Divine.” Later, the emperor Caligula declared himself a god. (After announcing he would leave Rome to live in Alexandria to be worshipped as a god, his guardsmen assassinated him.)
And in Britain up until the Revolution of 1688, and in France up until its revolution a century later, people believed their king was divinely appointed. He wasn’t a god. But God had given him the divine right to tell others what to do. Continue reading
What really drives the price of gold? Some say it’s a fear gauge. Others prefer to look at the demand coming from the Indian wedding season. But the silliest of all conclusions to reach is that the dollar price of gold should be determined solely by its value vis-à-vis another fiat currency.
The truth is the primary driver of gold is the intrinsic value of the dollar itself, not its value on the Dollar Index (DXY). The intrinsic value of the dollar can be determined by the level of real interest rates. Real interest rates are calculated by subtracting the rate of inflation from a country’s “risk free” sovereign yield. Right now the level of real interest rates in the U.S. is a negative 1.55%.
A key factor is to then determine the future direction of real interest rates. The more positive real rates become, the less incentivized investors are to hold gold. And the opposite is also true. The more negative real rates become, the more necessary it is to own an asset that is proven to keep pace with inflation. The Fed has threatened to begin lift off from its zero interest rate policy in the middle of next year. However, the Fed has made it clear that it will only raise nominal yields if inflation is rising as well. Therefore, there is no reason to believe real interest rates will rise anytime in the near future. Continue reading
Submitted by James Howard Kunstler – www.kunstler.com
Wall Street is only one of several financial roach motels in what has become a giant slum of a global economy. Notional “money” scuttles in for safety and nourishment, but may never get out alive. Tom Friedman of The New York Times really put one over on the soft-headed American public when he declared in a string of books that the global economy was a permanent installation in the human condition. What we’re seeing “out there” these days is the basic operating system of that economy trying to shake itself to pieces.
The reason it has to try so hard is that the various players in the global economy game have constructed an armature of falsehood to hold it in place — for instance the pipeline of central bank “liquidity” creation that pretends to be capital propping up markets. It would be most accurate to call it fake wealth. It is not liquid at all but rather gaseous, and that is why it tends to blow “bubbles” in the places to which it flows. When the bubbles pop, the gas will tend to escape quickly and dramatically, and the ground will be littered with the pathetic broken balloons of so many hopes and dreams. Continue reading