Fed reopening unsecured Forex swap lines with the ECB

Here we go again!!! The Fed is lending unsecured to the ECB to keep libor rates from skyrocketing over there. Where is the outrage??? Where are all the "taxpayer on the hook" morons who scream bloody murder in this country???

There goes my euro short!

We are bailing out Europe and there is not a peep said about it here in the U.S. Our citizens suffer, but any amount of money for Europeans is okay. They have their own central bank, so why are we doing it???

Unless the Fed does something stupid...

In my previous post I pointed out that the national debt has risen 13-fold in the past 30 years and interest rates have gone from 20 percent to zero. Yet despite this unequivocal proof that there is no connection between the so-called "debt" and rates, all of mainstream economics and the media continue to warn that spiralling debt will cause rates to spike.

They are flat out wrong...

Unless...

...the Fed does something dumb, like raise rates on the belief that rising debt will create a need to "attract capital."

I wouldn't put it past them. (Doing something dumb, that is.)

If you listen to Bernanke's recent remarks about the need to reduce the deficit and "fiscal sustainability," it appears that he, too, doesn't understand that it is the Fed--and the Fed alone--that determines rates. (You'd think he'd understand this by now after the historic exercise in rate reduction that has occurred by his own hand! Amazing!!!)

So when the idiots at Moody's S&P and Fitch downgrade America's credit rating (and believe me, they will!) the Fed's reaction to this could easily be to raise rates on the belief that they need to do that to attract capital.

This would set in motion a rate increase cycle of who-knows-how-high proportions. Not a pretty sight.

In contrast, a Fed that understood its role as rate setter, would counter the rating Agencies' credit downgrade, by pushing rates down to zero and keeping them there until everyone very clearly understood that the rate was going nowhere north of that level.

No...better yet...if the Fed were really smart (like, if it were run by me!) I'd wait until all the lemming fools shorted Treasuries on a credit downgrade, then I'd bury them all once and for all by pushing rates down to zero. Get rid of all the cockroaches at once!!

More moronic comments from Peter Schiff

Here's another sampling of Schiff's idiocy.





Schiff is also completely missing what is going on in Europe with the Eurozone and how THOSE countries are all seriously at risk to see skyrocketing interest rates, not the U.S. which is a currency issuer. He doesn't understand this.

The U.S. public debt has gone from $900 billion in 1980 to $13 trillion currently and interest rates have fallen from 20% to 0%! Yet Schiff and most of the mainstream of economics still cannot see that there is absolutley no connection between the national "debt" and interest rates when a country spends in its own currency and where that currency is non-convertible. The interest rate is a parameter set by the central bank, period!!

I'll be on "Countdown to the Closing Bell" with Liz Claman on 4/26 at 3pm-4pm on Fox Business!

I'll be the featured guest for the entire hour on "Countdown to the Closing Bell" with Liz Claman on the Fox Business Network, Monday, April 26 (my birthday!) at 3pm - 4pm. We will be discussing a lot of the topics I talk about here: debt, deficits, the Fed, monetary policy, the euro's troubles and plenty more stuff. Hope to spread the word about Modern Money Theory. Please tune in if you can!!

Greek yields at highs as unemployment rises

Greek falling further into the abyss.

“The labour market will continue to deteriorate in the coming months, as a result of plunging demand, large spare capacity levels and an increasingly worrying economic outlook,” said Diego Iscaro at IHS Global Insight.

Pressure mounting. Long consolidation in the euro at 1.35 will give way to much lower exchange rate. Read how you can make up to 20 times your money on a euro crash! Go here.

Citigroup Net More Than Doubles as Loan Costs Decline

Where's Meredith Whitney now? Got lucky on the way down...clueless on the way up!!! Just like Schiff!!

Taxes for Revenue are obsolete!

This was a great article sent to me by Warren Mosler. It was written by NY Fed president, Beardsley Ruml back in 1946. He clearly understands the distinction between a sovereign currency issuing nation that's not on a gold standard and one that is. Too bad all of academic economics and current policy makers at the highest level DO NOT UNDERSTAND!!

Some excerpts...

The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements. The first of these changes is the gaining of vast new experience in the management of central banks. The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. The United States is a national state which has a central banking system, the Federal Reserve System, and whose currency, for domestic purposes, is not convertible into any commodity. It follows that our Federal Government has final freedom from the money market in meeting its financial requirements. Accordingly, the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes. In general, it may be said that since all taxes have consequences of a social and economic character, the government should look to these consequences in formulating its tax policy. All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.

Very enlightening. Read the full article here and send it to your representatives in Congress!!

Let it be known...Bill Gross, Larry Kudlow, Larry Summers, Tim Geithner, all of the financial media and every economist on Wall Street...DO NOT UNDERSTAND THIS BASIC CONCEPT!!!

New York’s Fifth Ave. Sets Record with $300m Lease

And things are not getting a bit crazy again???

Japanese clothier Uniqlo agreed to pay $300 million over 15 years for a location on 5th Avenue. That's $1.67 million per month!!

Too bad...I'm long Japan. However, it seems they haven't learned anything. This is like the $3 million golf club memberships back in 1990!

Forex markets set to explode!

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SEC accuses Goldman Sachs of fraud!!

Wow!!!

Here's the article!

Loans surge $428 billion in the latest week!

Loans are back!

This could be the start of something big!!

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U.S. deficit down in first half 2010

The deficit for the first half of the year is $64 billion less than last year and full-year estimates have it as much as $300 bln lower.

Since deficit spending adds to the net wealth of the private sector in the form of greater holdings of financial assets, this constitutes a drain of private sector wealth. It's one reason that I remain bearish on the stock market.

Anyone who has been reading my report, "Fiscal Trend Digest" already knew of these trends months ago. Fiscal Trend Digest is the only daily in-depth analysis of fiscal trends anywhere!

Subscribe to Fiscal Trend Digest here.

Europe bankrolls Greece

"BRUSSELS—European governments said they were prepared to extend Greece a €30 billion bailout if needed, in an effort to deliver the country from a debt crisis that has rattled markets for months and tested Europe's monetary union." -Wall Street Journal 4/12/2010

Great. Now are they prepared to do that for Spain, Italy, Ireland and Portugal? Because that's what they'll need to do as each of those countries are struggling with similar--or worse--debt problems.

Greek banks plead for more aid in debt crisis

From an article on Reuters today:

(Reuters) - Greek banks, hit by a series of credit rating downgrades linked to the country's debt crisis, have asked the government for more financial support, Finance Minister George Papaconstantinou said on Wednesday. "The banks have asked to use the remaining funds of the support plan," he told reporters, referring to a package first agreed by the previous conservative government in 2008. About 17 billion euros ($22.72 billion), mainly in state guarantees, remain in the 28 billion euro support scheme, launched to help Greek lenders cope with the global credit crisis. The Central Bank of Greece said non-performing loans in the banking system rose further in the last quarter of 2009, bringing the full-year ratio to 7.7 percent. The banks' plea for extra help highlighted the problems facing the entire Greek economy, which is expected to contract by at least 2 percent this year, partly as a result of austerity measures imposed to slash a huge budget deficit. IMF officials began talks in Athens on Wednesday on implementing the austerity plan, just as the latest market jitters over Greece's ability to manage its debt mountain eased slightly, despite uncertainty over a euro zone rescue plan.

The IMF proposed austerity plan will sink the Greek economy even further, putting more stress on bank assets. Banks failures will increase and that will precipitate bank runs.

Greece and all of the other countries in the Eurozone have no credible deposit insurance. Bank runs could easily spread from Greece to the rest of the weaker periphery and, ultimately, to the big economies of Germany and France. The dominoes will soon start falling.

Learn how you can make 20 times your money on the coming crash of the euro here.

Euro hits the skids as Greece situation deteriorates!

The euro is down sharply today on the heels of renewed stress in Euro bond markets.

Read email I received from Warren Mosler, below:

Greece - from bad to worse. As the markets worry about Greece pushing back on the austerity measures that need to be taken to achieve IMF funding (politicians balking at being pushed out of their jobs by the public reaction), the markets are showing their anger. The 10-year spread to Bunds is just about to break 400bp (55bp wider today) and the 2-year yield is out ~150bp on the day. It's worth noting that in these conditions there's very little true trading going on - there are no bids, mkt is one sided. Even the domestic mkt makers are no longer showing bids.

Find out how you can make 20 times your money on the coming crash in the euro. Better hurry, it's beginning to happen! Read here.

April Fools

This announcement poster below provides another reason why April 1st is called 'April Fools Day'.



Think of all of the wasted time and financial resources that occurred at this event. Discussions about "fiscal solutions" for the U.S. when nobody on the list of speakers evidences an understanding of Modern Monetary Theory; which leaves out the true "solutions" that are possible for our County that operates under a free floating, non-convertible currency system. A Country whose Treasury spending is never revenue constrained.

Obama: US would go bankrupt without health changes

This is an outrageous statement by the president. It displays total ignorance of our monetary system. But this view is widespread and it will result in policies that limit our economic growth and bring on the very hardships that come with real bankruptcy. What a shame.

Profit from the coming crash of the euro!

When world famous speculator George Soros made one billion dollars back in 1992 he bet that the British Pound would plummet. He knew that Britain would be forced to pull out of the Exchange Rate Mechanism, a system of fixed exchange rates that existed in Europe at the time. Pressures had been mounting in the British economy and it was forced to de-peg its currency from the other European currencies and allow it to float freely in order to avoid skyrocketing interest rates and an economic crash.

Soros shorted the Pound and cleaned up to the tune of ONE BILLION DOLLARS!

A similar thing is about to happen with the euro, only much, much, bigger!

Read on...

Dollar's reserve status is what keeps it weak, not strong!

Most economists have this totally wrong. They believe that if the dollar loses its role as the reserve currency, then it will collapse. In fact, it's exactly the opposite.

The dollar's reserve currency status is part of what keeps it weak. It MUST supply the currency to those around the world who wish to hold it or use it for transactional purposes. Therefore the U.S. runs trade deficits--not by its own design--but as a consequence of other nations exporting to America to acquire dollars. (They need dollars to pay for oil, for example.) On balance the U.S. imports more than it exports because there is a desire by the rest of the world to "net save" in dollars. Were that not the case the dollar would be scarce and, therfore, fetch a higher exchange rate.

JPMorgan, Lehman, UBS Named as Conspirators in Muni Bid-Rigging

March 26 (Bloomberg) -- JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.

More evidence of Wall Street's criminality. The financial sector has become like a cancer on the economy. It needs to be shrunk dramatically. Many of these firms should be shut down. (At least Lehman's gone!)

And to think, Jamie Dimon has been considered a front runner for Treasury Secretary at times. Not surprising considering who's in there now!

The euro is becoming more of a joke every day!

The euro is becoming more of a joke every day. Why it fetches anything in foreign exchange markets is beyond me.

Today Germany's Chancellor, Andrea Merkel, said that the IMF would be needed as part of a Greek bailout.

The IMF!!!

Wasn't that the organization that was brought in time and again to inflict suffering and destroy small, emerging economies with its ridiculous austerity plans?

The sight of the Eurozone, with a total economic output larger than the U.S. calling in the IMF to help one of its neighbors would be like America turning to the IMF to bail out California. Americans would go livid at the very idea!

Yet that is the stupidity that is currnetly going on and, yet, the euro is still amazingly 30% stronger than the US dollar. (Whoever said markets were rational??)

Think about it...what is the total balance sheet of the IMF anyway? Possibly $500 billion, if that? And it's being asked for help when the Eurozone has a $15 trillion economy!!!

Moreover, the IMF is not a currency issuer. I cannot "print" euros as the ECB can to help member states. The whole thing is getting to be like a Marx Brothers comedy.

ANYONE who reads this blog is INFINITELY more informed and capable of solving Europe's problems than the current leadership over there. (That's why you'll never get the job!)

Here's the problem, though. The same, idiotic mentality is pervasive in the U.S. I've even heard some lawmakers talk about America possibly needing help from the IMF. (Maybe that dope, Judd Gregg.)

Two things are for sure:

1. Unless Europe gets its head out of its ass soon, the euro will be worthless. (See how you can make money on that, here.)

2. Things are not likey to get materially better in the U.S. anytime soon.

Top Fed official doesn't understand monetary operations

Yesterday (3/24) I was on Fox and we had Kansas City Fed President Thomas Hoenig on and he was talking about the need to reverse the "extraordinary measures" that the Fed has taken since the crisis because it raises the potential for huge inflation.

Specifically, Hoenig spoke with great concern about how the Fed must sell off its huge portfolio of mortgage backed securities.

I sat there listening to this guy, utterly dumbfounded that he does not even understand basic monetary operations.

From his comments one could surmise that Hoenig believed the purchase of MBS was nothing more than some kind of irresponsible speculation--a position the Fed took for monetary gain--which it now has to carefully sell in order to "book" the profits.

He should know that the Fed's purchase of mortgage backed securities was the way by which it sets interest rates. To get mortgage rates down, the Fed needed to purchase MBS and that's what it did. It was not a "trade."

The Fed's purchase of securities--whether they be MBS or Treasuries or anything--is always the mechanism it uses to manipulate reserve balances higher and that puts downward pressure on rates.

"Exiting" is achieved by simply doing nothing, because the Treasury's ongoing sales of securities functions to drain reserves automatically. In the last six months the Treasury has sold nearly $4 trillion of securities. That is nearly four times the current level of system reserves!

It is very disturbing that such a high level monetary official is so lacking in knowledge when it comes to basic operational realities of the Fed and government finance.

St. Louis Fed's Bullard on "Exit Strategy"

CNBC interviewed St. Louis Fed President Bullard this morning. This is the video below. It's a bit of a long clip, so if you are interested only in his comments with respect to exiting the "Quantitative Easing" aka Credit Easing, fast forward to the 11:00 mark.

There is a massive preoccupation in the financial media with this so called "exit strategy". The Fed is of late very accommodating in addressing these concerns.

Obama Pays More Than Buffett as U.S. Risks AAA Rating

March 22 (Bloomberg) -- The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.

Read this and if you still believe that markets are rational then I've got a bridge to sell you.

Markets are a function of the actors that comprise them. If the belief systems that mold the behavior of those actors is based on myth, fallacy or just plain ignorance, then the market's behavior will mirror that.

In a rational world there is no way in hell that corporate bonds of any kind shoiuld be yielding less than those of a sovereign, currency issuing nation. Yet, that is exactly what we are seeing because the participants believe that the U.S. has too much debt or that it can go bankrupt, when if fact there is absolutely no chance of that.

No matter how financially secure Warren Buffet's firm is, it is infinitely more risky than the U.S. Government because at the end of the day Berkshire Hathaway cannot simply credit bank accounts to meet all payments.

This is a clear indication of an old saying: "Garbage in, garbage out."

Investors believe this garbage about the U.S. going bankrupt and they seem to trust Warren Buffet even more. Were it not for the fact that the idiot rating agencies will soon downgrade U.S. debt (I absolutely believe this), arbitraging Bershire bonds against Treasuries (sell the former, buy the latter) is probably the greatest trade of all time!

Richard Wyckoff - Mag of Wall Street on Gold - July 11, 1931

A friend of mine brought this article to my attention. It came from a magazine published back in 1931.

Gold Does Not Make Prosperity To men, as to nations, the possession of gold is a symbol of prosperity. Let's see. The United States has more gold than it ever had-and less prosperity. The banks are bursting with gold and barely meeting their dividends. Our great corporations have immense reserves of gold and their business is dwindling. All the nations are sending gold to us and our business with them is fading away. The truth is that large accumulations of gold are an inverse measure of prosperity. Probably four-fifths of the gold in the Federal Reserve banks is idle - and nobody ever contended that idleness makes for prosperity. The fact is that except as it is used as the basis of bank credit, gold has no relation to prosperity. But when there is no business, there is no credit and gold is useless. In other words, business gives gold a utility value. Gold is dead until vitalized by commerce. The piling up of gold in any country does not signify that is is prosperous; it merely shows that the country is giving other countries more goods than it receives; that it is parting with more usable wealth than it is getting back. Today the United States is receiving gold and going without goods it would like to have. And because it is receiving gold it is selling less than it would liike to. When we are prosperous, which means that credit is being freely extended, we need gold because it is the one commodity that mankind has agreed to accept on balance in place of the goods it would rather have. It is merely a balancing item in the offsetting of credits against debits. It might be epigrammatically said that prosperity "makes" gold and "unmakes" it instead of gold making or unmaking prosperity.

The highlighted section can also be applied to export policies, in which a nation sends away its real wealth for a worthless asset, namely, a non-convertible currency of another nation. And this is exactly the direction we are headed because of false beliefs about debt and deficits.

The idea that gold's value comes from economic output and wealth creation, not the other way around, is instructive. You can substitute "money" in place of gold and then you will understand that money is created from the growth in the economy, not by the cental bank. That is to say it is created endogenously: the monetary authorities MUST supply the amount of money demanded by the public. It has no choice. The public, therefore, has control over the money supply.

Defeat of health care on Sunday could be disastrous for stocks

A defeat of health care on Sunday could be disastrous for stocks and it has nothing to do with whether health care reform is good or bad.

Rather, a defeat would mean that the president has been fatally wounded, politically. That means it would be doubtful that he could pass a single legislative initiative in the remainder of his term. The nation would be left essentially without a leader. It's tremendously destabilizing and the markets would react accordingly.

U.S. Military Captured

No never of course on the real battlefield, but it looks like the US Military is now starting to take notice and perhaps be "captured" by the mainstream view of "debt" and deficits.

This link is to a recent document published by the U.S. Joint Forces Command titled: 'Joint Operating Environment 2010'. This year USJFC has included a section on "Economics". Here are some choice excerpts:

“The dollar’s “extraordinary privilege” as the primary unit of international trade allows the U.S. to borrow at relatively low rates of interest. However, the emerging scale of U.S. Government borrowing creates uncertainty about both our ability to repay the ever growing debt and the future value of the dollar. Moreover, “any sudden stop in lending…would drive the dollar down, push inflation and interest rates up, and perhaps bring on a hard landing for the United States…”

“if current trends continue, the U.S. will be transferring approximately seven percent of its total economic output abroad simply to service its foreign debt.”

“Interest payments, when combined with the growth of Social Security and health care, will crowd out spending for everything else the government does, including National Defense.”

“Habsburg Spain defaulted on its debt … its overseas empire collapsed. Bourbon France became so beset by debt due to … its overthrow by revolution. Interest ate up 44% of the British Government budget …..inhibiting its ability to rearm against a resurgent Germany. Unless current trends are reversed, the U.S. will face similar challenges…..going to pay interest on the money borrowed to finance our deficit spending.”

It appears that the USJFC did not come to these conclusions on their own. The report cites many references to mainstream organizations and authors. Among them are: Peterson-Pew Commission (key word here being 'Peterson'!), Heritage Foundation, 'The Old' Paul Krugman, Niall Furguson, World Bank and others.

I have to this point taken some solace in the fact that our Military had never shown any evidence of overt acceptance of these dangerous beliefs. I will try to provide a more detailed review and some counterpoints to some of the report over the next few weeks.

The stakes in this intellectual 'war' between the mainstream and modern monetary theories are being raised.

Greece hit by strikes, riots over austerity plan

Serious violence is erupting in the streets of Athens as people protest forced austerity measures being imposed upon them. The very fabric of society is unraveling and it is getting uglier by the day.

For what reason?

For some arbitrary deficit target that is being imposed by bureaucrats in Brussels? Is this sufficient cause to destroy a society?

See how irrational this is? The leaders of Greece are forcing terrible conditions on the citizens of their own country because of something that is totally arbitrary. As a result there is violence, the loss of jobs and people going without the means to support themselves.

This is nothing short of tyranny, but it's a self-imposed tyranny. Greece can escape from its troubles in a heartbeat, by simply exiting the euro and becoming a currency issuer once again. Yet ego, shame and all other kinds of negative and irrational emotions and self-imposed limitations will not allow this to happen. Instead, Greece has chosen a path that will devolve into total chaos and anarchy.

The United States faces similar turmoil, not because the U.S. is no longer a currency issuer, it is, but because it is embracing policies based upon ignorance and limitation. By forcing ourselves to adhere to some arbitrary and meaningless standard about deficits we allow millions of people to remain unemployed, perhaps without food or with the loss of their homes and places of residence. It's a form of tyranny.

Chaos of the order seen in Greece may not happen in the U.S. because there are so many layers of police and law enforcement in this country. However, a police state could be imposed if things get bad enough and it is certainly heading in that direction. You simply can't have millions and millions of people unemployed and not expect them to rise up in protest at some point. Especially when speculative finance capitalists have free rein to loot the nation's assets and wealth.

Justice Looking Into Hedge Fund Euro Trades: WSJ

There was a story that appeared in the WSJ last week about how the Justice Department was investigating a number of large U.S. hedge funds to see if they acted in concert to drive down the euro.

This is an example of how misguided and backward our policy has become.

First, the idea that a handful of hedge funds can manipulate the euro, a currency based on an economic zone whose output is bigger than the entire output of the U.S. is patently ridiculous.

But if it's true that a half dozen or so hedge funds did collude to push the euro down then the Justice Department's reaction seems hypocritical. That's because it didn't seem to have any problem when hedge funds and other speculative entities pushed down the value of the U.S. dollar, or drove up the price of gasoline or heating oil or wheat or corn or sugar in the past several years, causing Americans to suffer when they were already suffering from job loss and a dire economy.

Seriously, where was the Justice Department then?

Are they saying to us that it's okay if this stuff happens to Americans, but watch out if the Europeans fall prey to speculative attack? Do European workers and families have more rights than Americans? No other conclusion can be drawn when you look at the response.

Perhaps it's all part of the current administration's desire to be loved by the rest of the world. That makes it okay for Americans to suffer, but not Europeans? And we are the ones responsible??

I am against just about everything that hedge funds stand for these days. They're dangerous and what makes them dangerous is that they comprise huge pools of money that are run by people who don't have a clue of what they are doing. It's like giving firearms to children. They're a bunch of gunslingers and they've created a Wild West type of atmosphere where innocents get hurt or even killed!

Contrary to what you hear from industry associations and from the halls of academia, heldge funds don't do any good at all. All that tripe about providing liqudiity and assuming the risk that regular businesses don't want to assume is just baloney. Hedge funds make markets illiquid by either distorting fundmaentals and manipulating prices or their activities raise risk and volatility making it more difficult for long-term investors and businesses who need stable conditions in which to save and invest.

What's ironic in the case of the euro, however, is that this could have been the one time that hedge funds' activities proved beneficial. With Greece and the other peripheral countries facing imminent financial and economic collapse and with the prospect of any meaningful bailout unlikely (there is no overriding fiscal authority in Eueope that can do that) a lower euro would have helped to assuage the situation by keeping exports strong. That would have been the one bright spot in an otherwise dismal picture. The crisis could have been averted. And if the hedge funds were the reason for that, then they should have been congratulated, not made the target of investigations.