Category Archives: Inflation

‘Taper Tantrum’ About Life With Less Quantitative Easing

China, Debt, Economy, Federal Reserve Bank, Inflation

Essentially, the monetary upheaval being experienced has come about because of a mere threat of the withdrawal of quantitative easing. The sell-off that “took the Dow Jones down more than 10 percent from its peak valuations” must be seen in the context of “seven years of zero percent interest rates,” avers fancier and Austrian Economist Peter Schiff. At work are gains that have come about likely not “from bona fide improvements in the economy,” but due to “the twin props of Quantitative Easing and zero percent interest rates.”

“The Fed has already removed one of the props, and it’s no accident that the markets have gained no ground whatsoever in the eight months since the QE program was officially wound down. As the market considers a world without the second prop, a free fall could ensue. …”

… Stock valuations [have been] extremely high and earnings are falling and the economy is clearly decelerating. The steady march upward in stock prices has been enabled by a wave of cheap financing and share buybacks. There are very few reasons to currently suspect that earnings, profits, and share prices will suddenly improve organically. This market is just about the Fed.

And Donald, “The Fed Is Spooking the Markets, Not China.”

Related: “Sinophobia Trumps Common Sense” & ‘Monetary Rigor Mortis.’


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‘Monetary Rigor Mortis’

Debt, Economy, Federal Reserve Bank, Inflation

Intrinsically, libertarians of the Austrian School of Economics know all too well what’s afoot across global financial markets. As of Friday, the Dow was at 16,450, down 1,018 points for the week. Yet, search libertarian websites high-and-low and you’ll be hard pressed to find decent commentary on the state of financial markets. Doug Casey and Jeff Berwick agree that financial collapse is imminent, writing that “we are now exiting the eye of the hurricane and rapidly heading towards what he terms the Greater Depression, and Jeff Berwick believes a collapse is being planned for September, moving the world closer to a one world government.”

Monetary rigor mortis is David Stockman’s term for what’s underway. Doug Noland fleshes things out at Stockman’s Contra Corner:

… Global financial tumult has now attained sufficient momentum so that even U.S. markets can no longer remain comfortably oblivious. Yet, for most in the U.S. there remains little worry: the economy is sound, housing is booming, Silicon Valley is heroic, the banking system is rock solid, and the corporate sector is awash in cash. The U.S. economy is viewed as insignificantly exposed to China’s economic slowdown – and to global issues for the most part. Analysts speak of a “normal” stock market pullback – yet another buying opportunity. There is, however, little normal about current global financial, economic and geopolitical backdrops.

The last seven years have witnessed unprecedented EM debt expansion, led by what should be a frightening ballooning of Chinese Credit. In particular, Chinese and EM banks have coalesced into historic lending growth and balance sheet (assets and liabilities) expansion. This week saw indications of what has the potential to erupt into an Asian and EM banking system crisis of confidence. Faith that Chinese and EM government officials have the situation under control is surely being shaken. This is a game-changer for global finance and for the world economy. Financial conditions are tightening around the world – and this has zero to do with a possible September Fed (“baby step”) rate increase. …

… there’s a recurring theme that is especially pertinent these days. Financial and economic Bubbles invariably prove much more resilient than Bubble analysts presume. And, at the end of the day, the excesses and consequences go beyond what even the hardcore “bears” could anticipate. The adage around our office became: “It’s Always Worse Than You Think.”


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#PabloPicasso’s Sublime Art And #Inflation

Art, Debt, Economy, Inflation

Picasso’s “Les femmes d’Alger” in French, “The women of Algiers” in English, and “Women of Aljeers” [sic] in CNN “English,” is a sublime piece of art. But as heavenly as this painting is, there is more to the price it fetched this month in auction than the power of Picasso at his best (although I still adore the master’s blue period. See “Blue Nude, 1902 by Pablo Picasso” below). It’s what happens when lots of money chases a one-of-a-kind asset, against the backdrop of low to no interest rates …

The Babbling Brooke (BB), aka Brooke Baldwin of CNN, did a frivolous segment on the work of art that commanded “a cool $179 million.” For information, BB turned to Manhattan art dealer Richard Pleitgen, who has been “in the art business for 57 years.”

The transcription, however, appears inexact. I heard live the explanation given by Pleitgen for the painting’s price. He explained that interest rates were such (so low) that unfathomably wealthy individuals needed to park their money some place.

True to type, Babbling Brooke giggled during what I thought was a lesson—Pleitgen’s—on inflation. Here she was doing a “fun” segment on a Picasso masterpiece and her guest was talking low- to no interest rates (as set by the Fed).

Pleitgen was on the money. If anyone can locate the TV segment, please send it along.

[11:45:06] BALDWIN: Could you be interested in owning an incomparable piece of art? I’m certainly a Picasso fan. I don’t know if I could shell out a cool $179 million, though. This painting by the iconic artist sold for a record-breaking amount at an auction here in New York City. Pablo Picasso’s 1955 canvas, “Women of Aljeers,” part of the series. It was snapped up by an anonymous buyer and was the centerpiece of the event. Last time at auction, it sold for a merely $31.9 million, that was in 1997.

Let me bring in Manhattan art dealer, Richard Pleitgen.

Richard, you were telling me you have been in the art business for 57 years. RICHARD PLEITGEN, MANHATTAN ART DEALER: Yes.

BALDWIN: You were there.

PLEITGEN: Yes.

BALDWIN: Five people were ultimately, over the phone, fighting over this beautiful art, going up incrementally, going up by a million, starting at $120 million. Take me in the room and tell me what it was like.

PLEITGEN: You sort of get hardened to these numbers.

BALDWIN: Did you blink at that amount of money?

PLEITGEN: I didn’t expect to bring that much, but I didn’t blink at it. I was this also when it sold for $32 million in 1997.

BALDWIN: Who was buying — listen, I studied Spanish, loved Picasso, cubism. The idea of spending that kind of money — who has that kind of money? Are we talking actors, celebrities, investment bankers, Warren Buffetts of the world?

PLEITGEN: Well, you know, frankly, to spend that kind of money, $179 million on a painting — imagine what kind of wealth you’ve got to have. A billion dollars would never do it. You’re not going to spend 17 percent of your wealth on a painting. You’re talking about really vast narns are prepared to spend that kind of money. I don’t even know who would spend $105 million on an important on central park that you’re never going to live in. The kind of money that exists out there is prodigious.

BALDWIN: If you were there when it went for $30 million something in the late ’90s and it’s $179 million today, in 50 years, is what will it be worth? He laughs at me. He laughs. He scoffs. Make a guess. Let’s be crazy. Make a wild guess.

PLEITGEN: I don’t know because, you know, if interest rates rise, so people have an alternate place to put money, some of these prices may drop —

BALDWIN: You could get a sale on a Picasso. I was kidding. I was kidding. OK. We’ll see, so in 50 years, if any of us are around to potentially bid on it.

Richard, thank you very much. I appreciate it.

Manhattan art dealer on the Picasso that went for just about $180 million.

Thank you, sir. I appreciate it.

PLEITGEN: You’re welcome.

[SNIP]
Again, I believe the transcript is inexact here.


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‘Economic Circus’

Debt, Federal Reserve Bank, Inflation

Operating on a fractional reserve basis, the Federal Reserve Bank is empowered to create money on its own credit. Or, out of thin air.

Janet Yellen, the woman in charge of the larder and the laundering, has opted to keep “its interest-rate guidance intact on Wednesday, passing up an opportunity to inch closer to exiting its ultra easy monetary policy,” reported the Wall Street Journal.

“An economic circus,” counters Ron Paul: one person determines the money supply and the interests rates which affect us all in what is a crisis of debt.

Audit the Fed, a Paul initiative, has just passed in Congress, but other than shine some light on the “shenanigans”—the monkeying with the money done by the Fed—any initiative by a corrupt legislature is likely futile in the long run.

Abolish both Fed and Congress.


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Orwellian Labor Day

Economy, Inflation, Labor

Even when America’s official cognoscenti—those who see to the dissemination of information—finally report reality as it is, they will typically obfuscate it by cleaving to the truth as they see it. What do I mean? The title of a PBS news story covered on Labor Day is “U.S. optimism lags behind economic gains, study finds.” The subterranean message PBS is transmitting with the title is that Americans have failed to notice the “steady economic recovery” afoot. Too dense, perhaps? In fact, the headline twists the researcher’s finding, as he states them, for he did not make any mention of these so-called “economic gains.”

Smart.

The fact “that more people feel there’s been permanent damage [to the economy] now …” tells me that the cohort questioned is cognizant that something in the (inflationary) policies pursued by DC, irrespective of who’s in power, is “damaging” their prospects for good, and that whatever the stock exchange is doing; this has no bearing on their financial well-being.

… 42 percent say they have less in savings and salary now than they did five years ago.

And they say that their current economic status for three out of five of them is either fair or poor. And so they have had some diminution of the quality of life. We asked two questions that allow us to try and frame this, whether they have had a major or minor change in the quality of their life and whether it’s been temporary or permanent.

And we have one-third in the country — so that’s 80 million people — who say there has been a permanent impact or their quality of life, either major or minor. So whatever has happened in the stock market and other indicators is not getting through to Main Street at all. People are struggling, and there’s been no letup really in the last five years. …

… We asked them how much confidence they had in Washington’s ability to solve problems. Just 2 percent said a lot. Another 20 percent said some.

If they had to choose between President Obama or the Republicans in Congress to handle the economy, they said neither of the above at 40 percent. And they don’t think unemployment is going to get better even if the Republicans take both houses of Congress in the fall.

MORE.


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Stock Exchange A Laughing Stock

Debt, Economy, Federal Reserve Bank, Inflation

“An increase in the price of an item is not the same as an appreciation in its value.” Consequently, it’s hard to understand the happy hyperventilating over the Dow having broken through 17,000 for the first time. Keeping the printing presses roaring, as the Federal Reserve has done, will result in a rise in prices, stocks included. Homes too.

A cleareyed look ahead to “a very serious bond-market crisis” is more appropriate.

Warns David Stockman, author The Great Deformation: The Corruption of Capitalism in America:

If you allow a $17 trillion debt to be financed at $250 billion a year when it really should be $700 billion or $800 billion under normal interest rates, then politicians are gonna take the easy way out. They’re not going to fall on the sword. They’re not going to lay out the real painful choices to the public. They’re not going to vote against the squeaky wheels and the powerful constituents when the Fed is printing the money and doing the job of financing the debt for them.
So I think that’s where the crisis comes. When the Fed finally reaches the point where the entire monetary system is threatened – and I think it would be if it had continued at $85 billion a month – we come to the juncture where the Fed can no longer keep its big fat thumb in the market buying up the monthly and weekly issue of Treasury debt. At that point, we are going to see the rubber meet the road, so to speak. We’re gonna have the day of reckoning, because there isn’t demand out in the real marketplace among real investors for massive amounts of additional Treasury debt at these sub-economic interest rates. And when interest rates normalize, Katy, bar the door, because the carry cost on the federal debt— which will by then be $20 trillion— will soar by half a trillion a year. The politicians will finally panic, but I’m afraid by then it might be too late—- that we’ll be in a very serious bond-market crisis.


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