“The consistent raising of nuclear tensions justifies continued economic reactions in order to keep Western economies stable and on track, which may include further justifications for continued monetary easing. International tensions also provide a rationale for a ‘flight to safety’ that reinforces the primacy of Western markets, in particular US bonds and equities. The up and down security posture of the West versus Russia (and China) can create alternatively a depression of ‘animal spirits’ and waves of euphoria that can lift markets. Finally, a fluid period of inter-state animosity can provide justifications for an eventual stock market crash that can usher the next phase of economic internationalism.” Continue reading

“In every instance of inflation or credit expansion there are two groups, that of the gainers and that of the losers. The creditors are the losers; it is their loss that is the profit of the debtors. But this is not all. The more fateful results of inflation derive from the fact that the rise in prices and wages which it causes occurs at different times and in different measure for various kinds of commodities and labor. Some classes of prices and wages rise more quickly and to a higher level than others. While inflation is under way, some people enjoy the benefit of higher prices on the goods and services they sell, while the prices of goods and services they buy have not yet risen at all or not to the same extent.” Continue reading

“The agency that controls monetary policy for the United States has an unlimited amount of money to buy support, compliance, or least silence within that segment of professionally trained economists that specializes in money and banking. The Federal Reserve gets to keep all the money that it wants for operations. It has to turn back over to the Treasury Department any money that is not used for operations, but it does not answer to Congress or the Treasury with respect to how it spends its money. This means that the Federal Reserve has essentially unlimited funds available to buy off those critics who might challenge Federal Reserve policy.” Continue reading

“Last week the ECB announced that it was cutting its headline lending rate to 0.15 percent and taking its deposit rate to negative 0.10 percent. That means banks must pay the ECB to hold their money, a move the ECB hopes will spur lending. It will also make $545 billion worth of inexpensive loans available to banks with the caveat that they lend more to the private sector. First tranche euro zone banks will be permitted to borrow up to 7% of the value of their corporate loans with additional tranches of funding [on the way]. While the goal of easing is to improve economic conditions at home, the money will ultimately flow to where it can find the greatest returns, as our own experience has shown.” Continue reading

“The near-autarkic, commanding and controlling states that emerged from the Depression, World War II, and the early Cold War exist only as pale shadows of their former selves. Today, the combination of technological innovation and international economic integration has created entirely new forms of organization—vast, privately owned networks—that were scarcely dreamt of by Keynes and Kennan. Are these new networks really emancipating us from the tyranny of the hierarchical empire-states? Or will the hierarchies ultimately take over the networks as they did a century ago, in 1914, successfully subordinating them to the priorities of the national security state?” Continue reading

“It’s not only Treasury yields that are falling; nominal interest rates are in free-fall around the world: German bunds yield just 1.4 percent and French government bond yields fell to 1.65 percent — the lowest level since 1746! Two of Europe’s most troubled PIIGS, Spain and Italy, also have witnessed record low bond yields of 2.6 percent and 2.76 percent, respectively. Yield spreads on emerging market Tdebt and junk bonds compared with Treasuries are likewise sinking toward new lows. his compression in nominal yields around the global has important implications for investors and could prove very bullish for certain asset classes. Case in point: Gold.” Continue reading

“The central bankers have reason to inflate. The European experiment is precarious and economies around the world are teetering. Part of Mr. Andors’s speech, no doubt, has to do with creating the possibility, rhetorically at least, that the EU, too, can join in the mass inflation building around the world. This no doubt seems the only way out for those who have engineered the current economic cul de sac. They will print and print until the danger is past and stock markets have traveled through the roof. Wealth is to be destroyed and pensioners bankrupted, but the system itself is to be perpetuated and expanded. It continues to be a cynical exercise in creating haves and have-nots.” Continue reading

“For nearly a quarter century, Japan’s diligent savers have funded its government deficits. Now, the savers are retiring. They need their money back. At the same time, Japan’s trade surplus is disappearing. Where will the money come to keep the lights on? Nowhere. Already, there are days when scarcely a single buyer steps up to buy Japanese bonds. The central bank of Japan takes up the slack. And as people get older (spending their savings rather than adding to them) and as the country’s current account surplus disappears (Japan is not the export powerhouse it once was), more slack appears. The Bank of Japan will come to the rescue, of course.” Continue reading

“The authorities are about to funnel large sums into Japanese stocks openly and deliberately under the next phase of Abenomics, both by regulatory fiat and by purchasing the Nikkei index directly with printed money. Prime minister Shinzo Abe is unshackling the world’s biggest stash of savings, the $1.3 trillion Government Pension Investment Fund (GPIF). Officials say the ceiling on equity holdings will rise from 12pc to around 20pc as soon as August, opening the way for a $100bn buying blitz. Mr Abe’s move comes sooner than expected and amounts to a market shock, though nobody should be shocked anymore as he keeps doubling down on the world’s most radical economic experiment.” Continue reading

“After the financial crisis proved the government would spend tens of trillions of dollars to keep banks from going belly up, you would think that nothing will kill them. But now the ineffable forces of Stanford-branded reinvention are going after their customers. Do investors in publicly traded lenders need to get out before it’s too late? A case in point is student lending giant, SLM – formed as the Student Loan Marketing Association — which is in the cross-hairs of a San Francisco-based peer-to-peer lending powerhouse, Social Finance, Inc. (SoFi). As CEO Mike Cagney, a graduate of Stanford Business School, explained, SoFi is growing fast.” Continue reading

Fed Prepares to Maintain Record Balance Sheet for Years

“Federal Reserve officials, concerned that selling bonds from their $4.3 trillion portfolio could crush the U.S. recovery, are preparing to keep their balance sheet close to record levels for years. Central bankers are stepping back from a three-year-old strategy for an exit from the unprecedented easing they deployed to battle the worst recession since the Great Depression. The Fed is testing new tools that would allow it to keep a large balance sheet even after it raises short-term interest rates, a step policy makers anticipate taking next year. They would use these tools to drain excess reserves temporarily from the banking system.” Continue reading

“BNP Paribas is expected to plead guilty in the coming weeks to charges that it processed payments for companies and countries that were subject to United States sanctions. BNP Paribas is also expected to pay financial penalties of about $8 billion, which would leave a sizable, though manageable, dent on its balance sheet. Despite those potential punishments, some regulators want to do more. Specifically, Benjamin M. Lawsky, New York State’s top financial regulator, is considering whether to temporarily suspend BNP Paribas’s ability to process dollar payments, according to people briefed on the settlement talks.” Continue reading

“This morning, the ECB took the radical stepof cutting its deposit rate to negative 0.1 percent. It also lowered its benchmark lending rate (similar to the federal funds rate the U.S. Federal Reserve has been raising and lowering for decades) to 0.15 percent from 0.25 percent. Furthermore, it tried to boost the mortgage and business loan businesses by offering to buy Asset Backed Securities (ABS) and by launching more Long-Term Refinancing Operations. While central banks in Sweden and Denmark took tentative steps in the direction of negative rates, the ECB’s move is unprecedented because no major world central bank has ever tried it before.” Continue reading

“Once again, monetary inflation is being confused with high-end entrepreneurialism. Ludwig von Mises, the great Austrian economist, was not fooled about the wealth effect of modern finance and, indeed, with his colleague FA Hayek dealt a devastating blow to the ever-reoccurring idea that ‘this time it’s different.’ It’s not different. Never. It just depends on where you are in the business cycle. Like a bad penny, this dream often recurs when the Fed has dumped enough money into the economy. These funds slosh around in the recesses of commercial banks and financial firms and then gradually find their way into stock markets and thence into high-end real estate.” Continue reading

“When the price of money goes down banks’ profit margins go up; by moving to zero interest rates, the Fed handed them higher earnings. And by guaranteeing the debt of the weakest institutions, the Fed gave big bonuses to the worst managers. Now, the alcohol is taking effect. All around the world markets stagger. Economies slur their words. Investors have severe memory loss. Businessmen can’t tell up from down. And the poor consumer gets a headache every time he checks his bank balance. Some people have access to the free money. Others don’t. Those with the access tend to be in the financial elite. It is no wonder the rich get richer; the game is rigged.” Continue reading

“The Lebanese banking sector has been preparing for FATCA like the teacher’s pet not because it is a major advocate of reining in tax havens — Lebanese law explicitly allows companies set up with offshore tax status — or greater taxation transparency and new tax laws in the country. Rather, the sector is exceedingly wary of international regulators, specifically of falling foul of the US Treasury. This is due to Lebanon’s immense exposure to American leverage: some 70 percent of local deposits are held in US dollars; [..] no one wants a repeat of the 2011 Lebanese Canadian Bank fiasco, when the bank was accused by the US of money laundering and subsequently closed its doors.” Continue reading

“Nearly 70 countries have agreed to share information from their banks as part of a U.S. law that targets Americans’ assets overseas. Starting in March 2015, these financial institutions have agreed to supply the IRS with names, account numbers and balances for accounts controlled by U.S. taxpayers. The law requires American banks to withhold 30 percent of certain payments to foreign banks that don’t participate in the program — a significant price for access to the world’s largest economy. The withholding applies to stocks and bonds, including U.S. Treasurys. Some previously owned securities would be exempt from the withholding, but in general, previously owned stocks would not.” Continue reading

“Nothing about these markets is normal – especially in the face of continued economic weakness. These markets are being shoved higher for a reason. In fact, the idea behind these nonsensical valuations is to convince investors to buy-buy-buy. Only when enough of them have entered again will markets ready themselves for a crash. We’ve stuck to our predictions of higher equity marts not because there are any underlying factors that justify these valuations – there are not. But our conviction remains that powerful players want a higher market – a sky-high market – because a crash from that elevation may be painful enough to produce a consensus for yet more market globalization.” Continue reading

“How high those delinquencies rates actually are, though, is an open question, which is turning into confusion on how to fix the problem. The most dire assessment is that one in three borrowers trying to repay student loans was late by 90 days or more at the end of 2012, according to The Federal Reserve Bank of New York in April. The U.S. Department of Education only publishes default statistics, and the official number of borrowers who default within two years of entering repayment is currently 10 percent. The default rate after three years is 14.7 percent. The default rates have been widely criticized for not giving an accurate picture of the number of student loan borrowers in distress.” Continue reading

“Economic citizenship programs are proliferating. That’s something to celebrate. These programs are a bracing antidote to the increasing tendency of governments to impose travel restrictions against their citizens, using passports as weapons. This has long been the policy of authoritarian governments like North Korea and China. But in recent years, the US and UK have made much greater use of passport revocations and even involuntary loss of citizenship against persons they perceive as ‘enemies of the state.’ Is it really surprising that a market has arisen to deal with these draconian restrictions on one of humanity’s most basic rights, the right to leave one’s own country?” Continue reading