Trapped in a Narrative

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Harris&Ewing National Capital digs out after storm Jan 14 1939

I’ve addressed the issue a hundred times, and it pains me to see it only gets worse. But it does. And it’s not my pain that counts, it has no meaning whatsoever, it’s the fact that we are inching ever closer to the kind of situations none of us would choose.

That is, war, people dying from sheer misery, people dying because they have no access to the services we take for granted, and even people being shelled by their own government.

All these things are happening as we speak, and we accept them lying down – on our couches -, and choose to ignore and even deny them, because we are trapped in narratives spun by those who see a profit in spreading these narratives. And who have a solid grip on what gets spun and what is not.

This is not going to end well. Not unless we speak up. Not for anyone amongst us. This one will not pass by your door, or mine. We’re approaching decision time. For the world, for your life and mine. It’s time to pick sides.

As I said, I’ve talked about this numerous times. I suggest you read for example 2014: The Year Propaganda Came Of Age. And then realize that the age of innocence is gone. That ‘I didn’t know’ no longer counts for anything. That ‘I’m just trying to make a living’ only goes so far. That your life is not only about you.

February 12 seems to have been a busy day. There had been a 16 hour – largely overnight – meeting in Minsk attended by Merkel, Hollande, Petroshenko and Putin. Why Putin was asked to attend – ostensibly representing the Donbass ‘rebels’ – is up for questioning, but he was there. The rebels themselves were not.

Not long after the cease-fire was announced, perhaps even prior to it, US Senator Jim Inhofe released photos, which he claimed prove Russian troops are in Ukraine. These were subsequently found to be fake. Like every other single ‘proof’ has been found wanting. Continue reading

Monetary Aggregates Compared

Submitted by Pater Tenebrarum  –  The Acting Man Blog

The Fed has Provided the Bulk of Money Supply Growth since 2008

We have discussed the topic of money supply growth extensively in these pages over time. Below is a brief recap of how the system works in the US. Note that although fractional reserve banking and central bank-directed and backstopped banking cartels are in place all over the world, there are several “technical” differences between them. So the workings of the US system cannot be transposed 1:1 to e.g. Japan’s system or the euro system.

There are two possibilities of growing the fiat money supply: In “normal” times, commercial banks will extend loans which are partially “backed” by fractional reserves. These loans create new deposit money, which once again can serve as the basis of further credit creation, which again creates new deposit money, and so forth. It can be shown mathematically that based on a hypothetical fractional reserve requirement of 10%, extant deposit money in the system can be grown 10-fold (for a detailed discussion of the “money multiplier”, see here).


In actual practice, reserves have not represented a constraint for credit and money supply growth by commercial banks for quite some time. In the US banks can e.g. “sweep” money from demand deposits into so-called MMDAs (money market deposit accounts) overnight, letting these funds “masquerade” as savings deposits, which allows them to circumvent reserve requirements. Moreover, if credit demand is so strong that interbank lending rates (i.e., the Federal Funds rate) threaten to rise above the target rate set by the Federal Reserve, the central bank will supply additional reserves to the extent necessary to keep the rate on target. Thus the required fractional reserves will be supplied even if commercial banks don’t have sufficient excess reserves to lend to banks short of reserves.

None of this has been of importance since the 2008 crisis however, as “QE” has created such an overhang of excess reserves that interbank lending rates have continually wallowed close to the lower end of the 0.00%-0.25% Federal Funds target corridor. Moreover, up until late 2013/early 2014, commercial bank credit growth had slowed to a crawl anyway. So barely any money supply growth has come from the banking sector after the crisis. Enter the Fed, and “QE”.

In theory, if the central bank buys securities directly from banks, it would only issue bank reserves in payment (the selling bank receives a check drawn on the Fed, and upon depositing it, its reserves account at the Fed is credited). In actual practice however, QE in the US system concurrently also creates new deposit money at close to a 1:1 ratio. Most of the broker-dealers the Fed uses as counterparties in its open market operations belong to banks, but they are legally distinct entities (i.e., they are legally non-banks). Hence, when their accounts are credited, not only bank reserves are created, but new deposit money as well. Continue reading

Debt As Wealth; The Caution of Unfit Past Experience

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

With the G-20 recoiling itself back into the same kinds of mistakes made in the 1960’s, leading directly to the Great Inflation, we will have to take into account the other end of that, namely other forms of “stimulus.” With the global economy sinking, and worries about it beginning to resound beyond just inconvenient bears, there is growing official consensus on central banks taking a clearer approach but also that governments need to face up to “austerity.”

Paul Krugman has been leading the critique against what he sees is a disastrous and ignorant deformation against debt. In times like these, which he “predicted” based on too little government spending, Krugman derides fiscal sense as “cold-hearted.”

This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least…
People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!

The above quoted passage was taken from a column he wrote back on New Year’s Day 2012. While it has aged three years, given the global slowdown that was about to take place and the ineffectiveness of monetarism alone to dispel it, his words are being taken increasingly as both prescient and prescriptive. However, the logic behind his anti-austerity agenda is more of a sleight of hand than actual argument.

The primary misdirection lies in that second last sentence of the second paragraph quoted above, “budget deficits to send interest rates soaring.” While that could be a concern under some conditions, that is by no means proof that so much “fee money” isn’t a negative factor. The problem with this government-centric view is that it is government-centric not just to begin with but in every part of the formulation. Governments occupy a unique place in society, by design, but that doesn’t necessarily translate into superpowers:

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

Debt isn’t money in the truest sense of the word, but Krugman is right that national debt functions in many ways like currency. But that is taken a step further. This argument isn’t new, in fact it was used many times in the nineteenth century to end fiscal restraint (how well did that work?). Even in the US, in 1865, Jay Cooke wrote a famous pamphlet extolling the virtues of the national debt incurred to fight and complete the Civil War. He made the same argument that Bank of England officials had been making throughout the first half of that century about English colonialism, explicitly that national debt was not debt but actual wealth. Continue reading

Debt Doesn’t Matter …

Submitted by William Bonner, Chairman – Bonner & Partners

The Bad Analogy Debtberg

Last week, McKinsey Global Institute reported that the world’s total debt levels were twice what we thought – $200 trillion, or about three times the planet’s total output.

So, what a relief it was to discover… only a few hours later… that there was nothing whatsoever to worry about. Our concern was totally misplaced. It was nothing but a colossal misunderstanding or, as Nobel laureate economist Paul Krugman put it in the New York Times, a “bad analogy.”

So now, we can go back to our Portuguese lessons here in São Paolo without a care.

1-Global Debt Growth

Growth in global debt, per the latest McKinsey report on the non-deleveraging echo bubble era: Since Q4 2007, global debt levels have increased by a cool $57 trillion. Thankfully, Paul Krugman informs us that it “doesn’t matter”. Phew! Dodged a bullet there! – click to enlarge. Continue reading

From Dreaded ‘Deflation’ To ‘Aided’ By It

Submitted by Jeffrey Snider  –  Alhambra Investment Partners


There has been a lot made of the fact that European GDP wasn’t worse in Q4, especially as Germany rallied to the continent’s economic defense. While initially the reactions were unabashedly positive, I think reality set in more so later after fuller digestion. In other words, everything we thought about Europe before today is still a problem, only that Germany pulled forward or “borrowed” some “demand” from Q1.

In any case, though Eurostat hasn’t updated its full database yet (this was the “flash” GDP reading, after all), Q4 was undoubtedly “aided” by Europe’s descent into “deflation.” The only question remains to what degree has nominal GDP degraded over previous quarters. Like Japan’s three decade journey, there is nothing about a negative calculated inflation rate that “helps” an economy – only the simple math of how GDP is constructed.

ABOOK Feb 2015 EU GDP Real

Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

‘Finance Is The New Warfare’ Michael Hudson: Has the IMF Annexed Ukraine? (NC)
Ron Paul: ‘Get NATO, Foreign Countries Out Of Ukraine To End Civil War’ (RT)
In Ukraine, The New World Disorder Enters Europe (Observer)
Contrarian US Bond Manager Braces For Big Ukraine Losses (FT)
The War Next Door: Can Merkel’s Diplomacy Save Europe? (Spiegel)
Russia Shrugs Off US Envoy’s ‘Evidence’ Of Russian Troops In Ukraine (RT)
New Anti-Russia Sanctions to Enter Into Force Monday (Sputnik)
Igor Sechin: The Oil Man At The Heart Of Putin’s Kremlin (Independent)
Greece And Creditors Continue Talks Ahead Of Eurogroup Meeting (AFP)
Do Derivatives Make The World Safer? (Guillaume Vuillemey)
Derivatives No Longer Used For Hedging But For “Alpha Generation” (Zero Hedge)
Goldman Warns Over-Supply Means Oil Prices Will Be Much Lower (Zero Hedge)
Libya Warns of Complete Oil Shutdown as Attacks Escalate (Bloomberg)
Start Saving Those Pennies Now, Robert Shiller Warns Investors (CNBC)
UK Tories Told To Shun Wealthy Donors To Avoid Scandal (Guardian)
New York’s Streets Are Suddenly Safer. Why? (Guardian)
GMO Apples Win Approval For Sale In US (Reuters)
Germany Moves To Legalise Fracking (Guardian)
South Africa Bars Foreigners From Owning Land (Reuters)
Planet Earth Is The Titanic, Climate Change The Iceberg (Paul B. Farrell)
Punxsutawney Phil Wanted By Police, Offered Asylum At Ski Resort (ExpressTimes)

Much more here: Debt Rattle February 15 2015 –