What Can Yellen Really Do?

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

For one, eurodollar futures are “obliged” to take account of any threats from the FOMC even though, in the end, they might only be self-fulfilling. Because the Fed has very little actual ability to condition money markets, none of that is truly “real” but there remains the unknown and money dealing agents still seem reticent about any kind of (further) showdown. Where the eurodollar curve was shriveled toward nothing up to the September payroll report released on October 2, the October payroll report has advanced the recent run of Yellen’s apparently restored resolve.

At pivotal points on the curve, such as the June 2018 maturity, that has obliterated the “dollar” run trend that began back around July 6. However, as the fuller curve displays, that seems to be only a change in policy perceptions and not especially much more than that.

ABOOK Nov 2015 Dollar Eurodollar

Again, the entire curve had been flattening up to October 2 before meandering throughout October while trying to survey that FOMC resolution. The October FOMC seems to have reversed further doubts and pushed expectations back toward a rate hike. However, as the eurodollar curve today demonstrates, that amounts only to a shift in that policy view rather than a complete outlook. Continue reading

Merkel Must Call Highest Level UN Emergency Summit Over Refugees

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

German Chancellor Angela Merkel needs to do something, urgently, that should have been done months- if not more- ago. There has to be a UN emergency summit on the European refugee crisis, it has to involve leaders at the very highest levels, and it has to take place within weeks at the latest. Or else.

Of course any leader could call for the summit, and if Merkel waits too long -as she is wont to do- someone else should. But she is the best person for the job. No-one else who leads an entire continent looks ready to take this on, and moreover it’s her own country that quite possibly faces the gravest consequences of the crisis.

That is to say, for now Germany still comes in way after Greece in that regard, but if Alexis Tsipras would attempt to call such a summit, his appeal would fall on deaf ears, and at best lead to lots of international Merkel-style diddling (or ‘Merkeln’, as the Germans put it). And there’s already been far too much of that.

The renewed urgency comes from a number of directions. First, the continuing drownings of refugees in the Aegean sea. The lack of urgency with which those drownings have been met has become a huge and immediate threat to Merkel, if only because the entire European project has already died with the babies washing up on the shores of Greece.

Even if it will take a long time for people to recognize that, given the ideological ‘union’ blindness that pervades Brussels and European capitals. Angela’s legacy risks being not only her responsibility for thousands of deaths, but also the very demise of the EU. And that’s just for starters.

Secondly, It was Merkel herself last week who warned of renewed military conflicts in the Balkans if the approach to the refugee crisis wouldn’t change, and rapidly. Continue reading

The end-point in financial credit

Submitted by Alasdair Macleod – FinanceAndEconomics.org

Since the 1980s, markets have had to adapt to a world of infinite credit.

Of course, this credit has not been available to everyone: it has been principally deployed in favour of governments, financial markets, and big business. It amounts to a cartel, planned or unplanned, a partnership between banks and government that dominates and controls previously free markets.

The justification for this arrangement is based on anti-market macroeconomic theories, always sympathetic to central planning. The partnership is between governments, their central banks and the commercial banks, granting them a licence to operate by expanding credit out of thin air. To this state-sponsored monopoly has been added control of securities markets, inflating them as well. Bank credit and securities markets are on parallel tracks, because bank credit fuels the securities business. We should look at them both to make sense of the implications, and to understand the consequences for the ordinary person.

It has been said not one person in ten thousand understands the process by which banks conjure money out of thin air, but it is a simple process. A favoured customer asks the bank for a loan. The bank credits the customer’s account with the money at a stroke of the keyboard. As the customer draws on the facility, for example to pay his creditors, this creates matching deposits at the creditors’ bank accounts. Their deposits are recycled through the banking system to cover the original loan as it is drawn down.

This is how a loan creates deposits, and from the bank’s point of view it can expand its loan book and deposits to the maximum level related to the bank’s own capital as set by the government regulator. The regulator is usually under the control of the central bank which oversees the system, ensuring the process operates seamlessly. The fact that the state regulates the banks legitimises credit creation, maintaining public confidence, so that whatever their misgivings, people believe the system is controlled in their interest. Continue reading

The Leviathan

Submitted by James Howard Kunstler  –  www.kunstler.com

The economic picture manufactured by the national consensus trance has never been more out of touch with reality in my lifetime. And so the questions as to what anyone might do can hardly be addressed. How can I protect my savings? Who do I vote for? How do I think about where my country is going? Incoherence reigns, especially in the circles ruled by those who guard the status quo, which includes the failing legacy news media.

The Federal Reserve has morphed from being a faceless background institution of the most limited purpose to a claque of necromancers and astrologasters, led by one grand vizier, in full public view pretending to steer a gigantic economic vessel that has, in fact, lost its rudder and is drifting into a maelstrom.

For more than a year, the fate of the nation has hung on whether the Fed might raise their benchmark interest rate one quarter of a percent. They talk about it incessantly, and therefore the mob of financial market observers has to chatter about it incessantly, and the chatter itself has appeared to obviate the need for any actual action on the matter. The Fed gets to influence markets without ever having to do anything. And mostly it has worked to produce the false narrative of an advanced economy that is working splendidly well to the advantage of the common good.

This is all occurring against the background of a larger global network of economic relations that is quite clearly breaking apart. The rising tensions between the US, Russia, China, and the Euro Union grew out of monetary mischief “innovated” by our central bank, especially the shenanigans around debt monetization, which have created dangerous distortions in markets, trade, and perceptions of national interest. Nations are rattling sabers at one another and bluster is in the air. The world is bankrupt after thirty years of borrowing from the future to throw a party in the present, and the authorities can’t acknowledge that.

But they can provide the conditions for disguising it, especially in the statistical hall of mirrors that once-upon-a-time produced meaningful signals for the movement of capital. Instead of reality-based choices and decisions, the task at hand for the people in charge has been the ever more baroque elaboration of a Potemkin economic false-front, behind which lies a landscape of ruin scavenged by desperate racketeers. That this racketeering has moved so seamlessly into the once-sacred precincts of medicine and higher ed ought to inform us how desperate and perilous it has become.

The latest installment of the disinformation game was Friday’s employment release from the US Bureau of Labor Statistics. It was a “blockbuster,” implying blue skies everywhere from Montauk to Malibu. Except that no one with a remaining shred of critical faculty can be expected to believe it. 80 percent of the new jobs numbers were attributed to the mystical birth-death model, a pseudo-scientific fantasy of hypothetical new business starts and associated hypothetical new hires. Demographically, the most new jobs went to the over-55 age cohort — grocery baggers and Walmart greeters —  and the fewest to men 25 to 54 (that bracket substantially lost jobs). The official unemployment rate fell to 5.0 rate, with no meaningful discussion of the huge numbers of discouraged people who have dropped out of the workforce.

But the perception of an economy on full throttle chug sent the stock indexes up. The Dow, the S & P and the NASDAQ are the only signaling mechanisms that the legacy media pays attention to, and the politicos take their cues from them, in a feedback loop of false information that begets more delusional positive psychology in those same markets. I suspect the sentiment that reigns now is about nothing more than getting through the holiday season without a financial accident.

But this Fed now finds itself in a trap of its own making. Having so interminably yapped about the interest rate hike, the central bank will have to put up or shut up in December. Only the year-final BLS employment figures might give them an out, if the numbers don’t look so phosphorescent. I think the truth is, this phony baloney economy can’t withstand even a measly quarter-point benchmark interest rate hike. For one thing, it would blow up the operating models of Fannie Mae and Freddie Mac, the buyers of home mortgages who are keeping the construction industry on life support, as well as the parallel rackets in securitized auto and student loans. Imagine all the derivatives bets that would go south. In reality, the Fed knows that it will have to shovel more ZIRP money into the debt-saturated maw of a dying financial leviathan. It can do that, of course, and probably will in the coming winter of 2016, but when that time comes, it will have absolutely no credibility left. And the leviathan will be a little closer to heaving up dead on the beach.

The Next Level of John Law Type Central Planning Madness

Submitted by Pater Tenebrarum  –  The Acting Man Blog

Cries for Going Totally Crazy are Intensifying

What are the basic requirements for becoming the chief economist of the IMF? Judging from what we have seen so far, the person concerned has to be a died-in-the-wool statist and fully agree with the (neo-) Keynesian faith, i.e., he or she has to support more of the same hoary inflationism that has never worked in recorded history anywhere. In other words, to qualify for that fat 100% tax-free salary (ironically paid for by assorted tax serfs), one has to be in favor of central economic planning and support policies fully in line with today’s economically illiterate orthodoxy. Meet Maurice Obstfeld, who has just taken the mantle.

BN-JL827_Obstfe_M_20150720120520New IMF chief economist Maurice Obstfeld (left) and fellow monetary crank Haruhiko “Peter Pan” Kuroda, governor of the BoJ

Photo credit: Yoshikazu Tsuno / AFP

For all we know the man is merely misguided and otherwise a nice person (in fact, he’s laughing a lot in photographs and seems a personable enough fellow). But his proposals could eventually affect the lives of countless people in the whole world, so he is fair game for robust criticism. We personally believe that he and other members of our “enlightened” technocratic ruling class should resign without delay and start looking for productive work instead of parasitizing and hampering the ever shrinking class of genuine wealth producers, but it seems unlikely that they will be interested in our opinion.

There once was a time when monetary cranks of the sort in charge nearly everywhere today were laughed out of the room. Today they are perfectly free to drive what is left of the market economy over the cliff. Mr. Obstfeld turns out to be yet another in a long list of luminaries belly-aching about (non-existing) “deflation” – this is to say, the alleged danger that the purchasing power of consumer incomes and savings might increase at some point. Allegedly, this remote eventuality has to be guarded against at all costs. Continue reading

China’s Central Bank Buys Another 14 Tons of Gold … Bullion Falls To 3 Month Low

Submitted by Mark O’Byrne  –  GoldCore

– PBOC declared gold reserves now about 55.38 million troy ounces or 1,722.5 metric tonnes

– Central bank gold rose to $63.26 billion by end-month – less than 2% of $3.53 trillion FX reserves

– China disclosed on July 17th that its gold holdings had surged 57% since 2009

– China officially owns around 1,720 tonnes of gold  –  true total figure likely much larger

– China’s total gold holdings much higher as also owns gold in CIC

China’s central bank likely added another 14 tonnes of gold to its reserves in October as the People’s Bank of China (PBOC) continues to allocate to gold bullion as part of a plan to diversify its massive $3.53 trillion in foreign-exchange reserves and position the yuan as a global trading and reserve currency.

[click to expand]
GoldCore: Chinese Gold Reserves

Gold prices rose 2.5 % in October but fell nearly 5% last week on continuing speculation of a possible Fed interest rate rise. Despite much poor U.S. economic data in recent weeks, the positive jobs number on Friday saw safe haven gold fall.

Based on the London Bullion Market Association (LBMA) afternoon gold price on the last trading session of October, China’s reserves likely totalled 55.378 million troy ounces or 1,722.5 tonnes at the end of last month. That would be an increase of about 14 tonnes from September. The PBOC reveals the dollar value of its gold reserves early in the month, before revealing the volume numbers later on.

China’s gold reserves rose by about 15 tons in September, 16 tons in August and the highest monthly purchase was nearly 19 tonnes in July. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Dash For Debt Ahead Of US Rate Rise (FT)
• Ex-GAO Head David Walker: US Debt Is Three Times More Than You Think (Hill)
• Fed Proves Irrelevant in $2.6 Trillion Slice of Debt Market (Bloomberg)
• Zombie Debt Is Menacing America And Mine Even Has A Name: Kathryn (Guardian)
• Dollar Bulls are Vulnerable as Currency’s Strength May Cap Rates (Bloomberg)
• Global GDP Worse Than Official Forecasts Show, Maersk CEO Says (Bloomberg)
• China Slowdown Hits Earnings in Japan (WSJ)
• China’s Trade Drop Means More Stimulus Measures Coming (Bloomberg)
• China Exports Slump as Global Demand Shrinks (WSJ)
• Steel Exports From Top Producer China Drop as Trade Friction Rises (Bloomberg)
• China Delays Economic Liberalization (WSJ)
• Greece Told To Break Bailout Deadlock By Wednesday (Kath.)
• Global Coal Consumption Heads for Biggest Decline in History (Bloomberg)
• Saudi Arabia Will Not Stop Pumping To Boost Oil Prices (FT)
• Kuwait Sees Oil Glut of Up to Five Years (Bloomberg)
• Airpocalypse Now: China Pollution Reaching Record Levels (Guardian)
• The Unbearable Lightness Of Chinese Emissions Data (Reuters)
• New Zealand To Reform Intelligence After Illegal Spying On Kim Dotcom (NZH)
• German Disagreement Over Tighter Asylum Rules (Bloomberg)