Perspectives on the global economic changes

[svinayak]

http://davidstockmanscontracorner.com/2 ... out-there/

Stockman also issued this warning: “I don’t understand why the bulls on Wall Street can never catch their breath and think about these things long enough to realize none of this is stable. China is just one massive speculative bubble that one of these days is going to blow big-time.

They’ve created a financial and economic volcano and it’s only a matter of time before it blows. Maybe we are getting a little venting out of the side of the volcano now as obviously some people got caught on the wrong side of copper and are having to liquidate their positions. But clearly it’s evidence of how shaky the foundation of the whole global financial system is, and it is cause for great worry, even alarm.”

[Austin]

Here in the US, the latest debate about the economy has to do with wages. At the center of the debate is the Fed, which began dialing back its Quantitative Easing program in December at a pace of $10 billion per month. That puts the Fed on course to end QE by the end of this year. But the question is, what next? Well, the next step is rate hikes, but then the question becomes - when? Erin takes you through what this means for the US economy.

http://rt.com/shows/boom-bust/us-capita ... -fail-046/

[Austin]

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss financial ear wax and collateral the size of a spider’s egg. In the second half, Max interviews Chris Whalen, an investment banker and the author of a new book, “Financial Stability: Fraud, Confidence & The Wealth of Nations,” about a financial system replete with fraud and how what is happening in Detroit relates to fraudulent derivatives.

http://rt.com/shows/keiser-report/episo ... eiser-050/

[Christopher Sidor]

Recently we met with a group of north Europeans for one of our projects. There were people from Sweden, Denmark, Netherlands and Finland. After the talk one was stuck with the fact, that these people did not see themselves as Europeans. Yes they like the euro, they want to keep it but they were politely critical of the Southern European counties like Greece, Spain and Italy. How these countries were late in industrialization and needed to get their house in order. There was also talk about 2 speed euro. While that was dismissed, the fact was that there was a small under current of concern the help that was given to the Southern European nations.

The most striking was the absence of a European identity. This leads to a question if the push comes to shove how long will these people consider keeping the euro. And if Euro fails what next. Do we see a return to a pre 1914 Europe?

[panduranghari]

Except Norway the other Northern Europeans are poor. Still living on government hand outs where 80% population is on benefits! kids are zombies! no concept of what is family. Shoddy education also has drilled into them that they will always be rich. How are they considered rich then?

Scandinavian welfare myth

Southern Europe has gotten rich very recently when colonisation was rife.

As usual it's all regressing towards mean.

[panduranghari]

Austrian Business Cycle Theory explained-

Internationally, the ABCT might work something like this: the Fed expands credit, and thereby the money supply, during a recession in order to stimulate domestic aggregate demand. But it creates more money than US citizens want to hold, so they buy more imported consumer goods from China and investments from EM countries. The export of investment funds causes the boom in the higher order phases of the capital structure in EM nations instead of the US where the Fed intended the funds to go.

Of course, Europe and Japan add to the world’s stock of reserve currencies and tend to expand credit in sync with the US, thereby multiplying the effects.

At some point, the Fed will begin to cut back on credit expansion in order to head off rising price inflation at home. Investors will repatriate their money from EM nations and cause a decline in the EM foreign exchange rate with respect to the dollar, yen, and euro. The IIF report from October warned that, “... other things equal, if market expectations for the U.S. policy interest rate were to rise from the current 1 percent at end-2015 to 2 percent, this could result in a retrenchment of EM portfolio flows of around $43 billion ...”[3]

The sliding exchange rate will make debts by EM governments and businesses that are denominated in dollars and euros more difficult to repay and cause some bankruptcies. If EM nations try to defend their foreign exchange rate through higher interest rates to attract more investment, they make domestic borrowing more difficult and run the risk of exacerbating the business slump.

So EM nations face two problems at the same time: (1) the withdrawal of investment funds from the US and (2) a collapse in the demand for commodities as the boom ages and turns into a bust.

If only the Fed could see the damage it causes not just at home, but worldwide.

http://mises.org/daily/6692/Fiat-Money- ... ng-Markets

[panduranghari]

One of the comments to the above article was worth reproducing as it explains things very very succinctly.

This is an interesting article since it frames an old process in a new light. However, in order to better understand what's going on, we need to go back to the origins: the Bretton-Woods (B-W) agreement. Before this agreement the fiat-gold standard kept printing more or less under control. After this agreement the Dollar was equated to gold. Dollars were the new gold and were and are kept stored in Central Banks as "reserves". Is this process that made the US prosperity in the 60's so efficient. The Fed printed ungodly (for the time) amounts of Dollars without the need to worry about inflation because most of these "excess" dollars (i.e. digital currency) was exported to Europe. As a matter of fact, so many dollars were "exported" that a new term was coined: the Euro-Dollar.
However, at the time, most Euro-Dollars were actually kept in Central Banks and were not part of the economy. They were sterilized.

Fast-forward to the 70s. The US was embroiled in the Vietnam war. France (and to a lesser degree other countries) begin to withdraw gold from US as per the B-W agreement. Nixon closes the gold window, but the Dollar is still used as a reserve currency. The Dollar is still exported to EM markets, primarily as Euro-Dollars and Petro-Dollars fuelling EM market's debts. The 70's and beginning of the 80's was the decade when most of EM countries monstrous debt was created. This was the first international boom generated by Fed's printing.
During this decade many of these "excess" dollars began to enter the market, but mostly as financial and not productive assets. These dollars were mostly held and managed in the Forex market where trading strategies such as the TED-Spread are developed. These strategies were effective because the Euro-Dollar (or Latin-Dollar) behaved differently in effect than the US Dollar. The Euro-Dollar was a quasi-independent currency.

Past this point, excess Dollars (this time mostly private investments) continue to flock to EM nations but they are now subject to EM nations' debt-repayment limits. In other words, as soon as EM nations went into financial crisis (and many into debt default) these Dollars were re-patriated back to US. At this point mad Fed printing and repatriation created massive inflation in US.

Fast-forward to the 80s. At this point EM country debt markets were saturated with Dollars and the biggest part of debt growth was due to so-called "re-financing". Excess dollars had to find another "investment". They did: tradable EM country debt bonds and productive investments. These were not your classic investments but were short-term, speculative ones. As soon as EM countries went into Bust cycles, these funds would leave said countries. In Latin America they even coined an expression: Capitales Golondrina (Swallow Capitals or hot money). Re-patriated Dollars (and printing) ended up creating Booms and Busts in US.

Fast-forward to the 90s. Yet another twist of the story. Up to this point, primarily external events (external to US) determined the location and use of "excess" dollars. However in the 90's Fed's printing was so massive that variations in "excess" dollars amounts overwhelmed any other local consideration. This was the time of the carry-trade, but directed towards EM market investments (some productive). It was cheap to borrow in US and invest else ware at large ROIs. This is the beginning of the dependency of EM (and indeed world-wide) bubbles (booms and busts) on Fed printing. Ever since them bubbles are created and implode internationally to a large degree depending of Fed's doing or undoing.

This fact is nothing new but simply a natural evolution of the B-W agreement. The only difference is that it is increasingly difficult to see where the next bubble is being created because of the massive amounts of Dollars. This article sheds some light into this question. It is obvious now that the exorbitantly vast amounts of printed Dollars have become pervasive. The entire world, and particularly EM markets, has become a massive bubble and as such trapped in boom and bust cycles.

[Austin]

Thats basicly saying when the Fed Bubble Bursts the entire EM economies will get into bankruptcy ......How robust is our Economy to Fed gradual tapering of QE by end of this year ?

David Stockman had suggested to go back prior to BW where the Gold Standard and amount of printing had strict discipline and things were under control but seems like that train has already left the station for now.

David Stockman-This Is Not a Viable System-It's a House of Cards

http://youtu.be/6Bqibl2ay5U

[Christopher Sidor]

We are currently seeing a lot of traction from our European and American clients for new work and projects. Compared to last year it is almost 3-4 times. We are maxed out and if any one or two projects extra come through we might have to go on a hiring spree. The issue is that unlike pre 2007 the projects and proposals are leading to lower margins. I have not sat down and isolated the reasons why that is so. Due to more competition, due to higher input costs and wages or due to some other reasons.

We are bracing for the second quarter of 2014 when Indian companies budgets will open up. Though not as lucrative as American or European projects, they do help us keeping manpower and machinery occupied fruitfully rather than keeping it idle. They also allow us to hedge, not much just a little, just in case.

What we are most concerned is the end of year and the following year, I.e. 2015. A lot of American and European companies now depend on the Asian and Latin American markets to a higher degree as compared to 2007-2008. With the fed taper expected to be completed by end of the year we are anticipating some major disruptions in the so called emerging markets, that will impact these companies and will then impact us.

The biggest unknown is the state of PRC's economy. If it implodes or goes through a down turn then all the bets are off. We might see retrenchment in that scenario.

[Austin]

China loosens grip on its currency

China's central bank has further loosened its hold on the yuan, making a big move that gives teeth to a government pledge to move toward a more market-driven economy.

The People's Bank of China announced Saturday that it would double the allowable trading range for the yuan against the dollar to 2% from a midpoint rate it sets every day.

The change, which is effective Monday, means the yuan will go up and down in value more than it has in the past.

While the move had been largely expected, as the yuan was already trading in the last month at a wider range than usual, the announcement remains significant for a government that has always tightly controlled the exchange rate to keep it at favorable terms.

In fact, it's been nearly two years since the government broadened the yuan's trading range.

[Austin]

These Six Euroarea Countries Are In Outright Deflation As Eurozone Inflation Slides To Four Year Lows

[Austin]

Jim Rickards, lawyer, economist, investment banker, is a self-proclaimed gold-vigilante with over three decades of experience working in capital markets. In .

Jim Rickards: Bernanke and the Fed

[panduranghari]

These Six Euroarea Countries Are In Outright Deflation As Eurozone Inflation Slides To Four Year Lows

How do you see this playing out? I have a theory, but want to hear your (and others) perspective on this.

[Austin]

panduranghari , cant make much out of it as there are too many factors into play , Whats your take ?

[panduranghari]

ECB will make deflation bite more, until people start complaining even more. It will make them restive enough*. I think ECB is desperate to undertake QE. However, this QE would be different from the QE by fed. ECB could devalue EURO by 50%, saying the deflation is biting hard. I doubt Fed or BOE could match this. Devaluing USD by 50% would finish USD as a global reserve currency. And they certainly do not have the option of 50% devaluation as the govt stats of inflation have just got below 2%. Gold would gain immensely but it will need to decouple from the paper gold market. ECB will perhaps actively encourage rising gold price while USFed will supply more gold to suppress it.

Let's watch what happens. But that's my theory.


*Germany would not want the spill over of Ukraine, Latvia to worsen. They would hope for the Russian problem solved without upsetting Russia.

[chanakyaa]

+1 You are definitely on the money with your intuition on ECB's desire to do some sort QE. And, it will be interesting what policy bull$hit they use to convince the rest of the world; thus devaluing (or stealing, strictly speaking) world's holdings of their Euros. But it is hard to believe that outright devaluation (let alone 50% magnitude) would be in cards, when Euro and Dollar are both somewhat competing for reserve currency status (or significantly benefit from that status), while Yuan, which is not too far behind, seeking such status in future.

[Suraj]

Here's some strange data that zerohedge flagged:
Major holders of US treasuries
There's something strange about tiny Belgium buying so much in the last three months. They went from $175-180B steady holdings to $310B .

[Austin]

ECB will make deflation bite more, until people start complaining even more. It will make them restive enough*. I think ECB is desperate to undertake QE. However, this QE would be different from the QE by fed. ECB could devalue EURO by 50%, saying the deflation is biting hard. I doubt Fed or BOE could match this. Devaluing USD by 50% would finish USD as a global reserve currency. And they certainly do not have the option of 50% devaluation as the govt stats of inflation have just got below 2%. Gold would gain immensely but it will need to decouple from the paper gold market. ECB will perhaps actively encourage rising gold price while US Fed will supply more gold to suppress it.

Let's watch what happens. But that's my theory.

Doesnt the ECB and BOE work in close co-ordination with Fed as in arnt they hand in glove in this crime ?

I dont think ECB would do any thing that would hurt the USD or even do any thing that gives the perception of hurting USD.

What ever happens hence forth be it the bubble in US Stocks or ECB deflation , Gold would be the net winner in this game.

[TSJones]

Here's some strange data that zerohedge flagged:
Major holders of US treasuries
There's something strange about tiny Belgium buying so much in the last three months. They went from $175-180B steady holdings to $310B .

stupid question but I sincerely do not know.......where is the euro controlled from? Belgium? I know Germany is the big player in the euro but don't they make their decisions in Belgium? ditto for NATO headquarters?

[Suraj]

The European Central Bank is in Frankfurt, Germany.

[Austin]

Here's some strange data that zerohedge flagged:
Major holders of US treasuries
There's something strange about tiny Belgium buying so much in the last three months. They went from $175-180B steady holdings to $310B .

Interesting indeed for Belgium to get that jump.

Why does India hold such low amount of US Treasury ? Do we hold Euro and other currency in Forex reserves ?

[Suraj]

Yes, the RBI holds a basket of currencies. They do not publicize the breakdown of the basket.

[panduranghari]

Here's some strange data that zerohedge flagged:
Major holders of US treasuries
There's something strange about tiny Belgium buying so much in the last three months. They went from $175-180B steady holdings to $310B .

Amirkhan entities in IMF in Belgium buying the T Bills?

[panduranghari]

+1 You are definitely on the money with your intuition on ECB's desire to do some sort QE. And, it will be interesting what policy bull$hit they use to convince the rest of the world; thus devaluing (or stealing, strictly speaking) world's holdings of their Euros. But it is hard to believe that outright devaluation (let alone 50% magnitude) would be in cards, when Euro and Dollar are both somewhat competing for reserve currency status (or significantly benefit from that status), while Yuan, which is not too far behind, seeking such status in future.

Ok. Now why did they create the EURO? They could have stuck with USD longer? And if Amirkhan defaulted on gold convertibility in 1971, why did they not just increase the gold price from 35$ to say 200$ for every USD in 1971 thus keeping the gold convertibility longer? Why did the Eurozone sign the Rome accord of 1957? And why was Mastricht treaty of 1992 so important?

ECB will make deflation bite more, until people start complaining even more. It will make them restive enough*. I think ECB is desperate to undertake QE. However, this QE would be different from the QE by fed. ECB could devalue EURO by 50%, saying the deflation is biting hard. I doubt Fed or BOE could match this. Devaluing USD by 50% would finish USD as a global reserve currency. And they certainly do not have the option of 50% devaluation as the govt stats of inflation have just got below 2%. Gold would gain immensely but it will need to decouple from the paper gold market. ECB will perhaps actively encourage rising gold price while US Fed will supply more gold to suppress it.

Let's watch what happens. But that's my theory.

Doesnt the ECB and BOE work in close co-ordination with Fed as in arnt they hand in glove in this crime ?

I dont think ECB would do any thing that would hurt the USD or even do any thing that gives the perception of hurting USD.

What ever happens hence forth be it the bubble in US Stocks or ECB deflation , Gold would be the net winner in this game.

I always thought BOE and ECB will work together. But they parted ways in 1999.

CEntral Bank Gold Agreement aka Washington agreement.

The first Central Bank Gold Agreement, also known as the Washington Agreement on Gold, was announced on 26th September 1999. It followed a period of increasing concern that uncoordinated central bank gold sales were destabilising the market, driving the gold price sharply down.

At the time, central banks held nearly a quarter of all the gold estimated to be above ground, equivalent to around 33,000 tonnes in September 1999, and had an enormously influential position in the gold markets.

The central banks of Western Europe in particular held—and still hold—substantial stocks of gold in their reserves. Those in the Netherlands, Belgium, Austria, Switzerland and the UK, had already sold gold or announced their intent to do so. Others were taking advantage of rising demand for borrowed gold and increasing their use of lending, swaps and other derivative instruments. An increase in lending typically resulted in additional gold being sold, meaning that the trend was adding further supplies to the market.

In addition to the destabilising effect of these sales, market fears about central bank intentions were causing further falls in the price of gold. This was causing considerable pain for gold producing countries. Among these were a number of developing countries, including a significant number of those classified as HIPCs (Heavily Indebted Poor Countries).

In response to these concerns, 15 European central banks—those of the then 11 Eurozone countries and of Sweden, Switzerland and the UK, as well as the European Central Bank—drew up the first Central Bank Gold Agreement, ‘CBGA1’. The agreement was signed in Washington DC, during the 1999 annual meetings of the International Monetary Fund.

In it, they stated that gold would remain an important element of global monetary reserves, and agreed to limit their collective sales to 2,000 tonnes over the following five years, or around 400 tonnes a year.

They also announced that their lending and use of derivatives would not increase over the same five-year period. The signatory banks later stated that the total amount of their gold they had out on lease in September 1999 was 2,119.32 tonnes.

The signatory banks accounted for around 45 per cent of global gold reserves. In addition a number of other major holders—including the US, Japan, Australia, the IMF and the Bank for International Settlements—either informally associated themselves with the Agreement or announced at other times that they would not sell gold.

The announcement of the agreement came as a major surprise to the market. It prompted a sharp spike in the price over the following days, but it also removed much of the uncertainty surrounding the intentions of the official sector. Once the markets had adapted to it, a major element of instability had been effectively removed with the introduction of greater transparency

Read more here http://www.gold.org/reserve-asset-manag ... agreements

We can also see why yUK is the lapdog of Amirkhan.

CBGA2

On 8th March 2004, the signatory banks announced the second Central Bank Gold Agreement. Like the first agreement, ‘CBGA2’ covered a five-year period, in this case from 27th September 2004 to 26th September 2009.

The second agreement started by reaffirming the first clause in its predecessor: “Gold will remain an important element of global monetary reserves”.

While the rest of the agreement covered similar ground to the first, there were some important differences.

The UK signed the first agreement but not the second, having previously stated that it had no plans to sell gold. Greece, which had not been a member of the Eurozone in 1999, did not sign the first Agreement but signed the second. Slovenia became a signatory to the second Agreement in December 2006, shortly before adopting the euro as its currency. Cyprus and Malta also joined CBGA2 just after they joined the euro.

[chanakyaa]

Here's some strange data that zerohedge flagged:
Major holders of US treasuries
There's something strange about tiny Belgium buying so much in the last three months. They went from $175-180B steady holdings to $310B .

I would put my bets on IMF. Definitely not Belgium. That kind of size way is beyond Belgium's pay check. Interesting thing is that why incorrectly report it as Belgium?

[Austin]

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the Potemkin factories that may create a manufacturing renaissance in America, or at least the perception of one. They also discuss a version of the future where elite-guided drones end the Age of the Gun and the Age of People Power and return us to another Dark Age of the elite. In the second half, Max interviews Elizabeth Rossiello of Bitpesa.co about the Silicon Savannah in East Africa where mobile currencies and now digital ones bring in greater remittances and new spending power.

http://rt.com/shows/keiser-report/episo ... eiser-814/

[Austin]

Max Keiser and Stacy Herbert discuss teddy bears, sunk cost fallacies and home buying binges. They also look at Wells Fargo returning to the subprime mortgage market just as Blackstone may be looking to bail on its 43,000 single family homes. In the second half, Max interviews Chris Whalen about the imminent default in Puerto Rico and what this could mean for the greater debt market.

http://rt.com/shows/keiser-report/episo ... eiser-482/

[Neshant]

Here's some strange data that zerohedge flagged:

There's something strange about tiny Belgium buying so much in the last three months. They went from $175-180B steady holdings to $310B .

I bet many western countries are setting up shell companies overseas and using that to buy their own govt bonds to keep interest rates down. All paper "assets" are suspect. If and when this game ends, a VAST amount of creditors wealth will be destroyed in a flash.

[vishvak]

Neshant ji, any connection to loophole in 'international' currency that may offload debts across 'global' currency mix? Words like 'international' offer seriously twisted image, perhaps, of everything must be right since people with maximum power sit at top and act most civilized. No one apparently would be affected if some discrete offshore entity goes bust.

[Austin]

David Stockman : Fed’s Taper Kabuki is Farce; Gong Show of Cacophony, Confusion and Calamity Coming

[panduranghari]

Neshant ji, any connection to loophole in 'international' currency that may offload debts across 'global' currency mix? Words like 'international' offer seriously twisted image, perhaps, of everything must be right since people with maximum power sit at top and act most civilized. No one apparently would be affected if some discrete offshore entity goes bust.

Puerto Rico is going bust this week.

It will be a slow and gradual process. However, the dominos will fall.

And how will the off shore debt go bust. Who saves off shore? Individuals and companies. You must read about Eurodollars. It will help you understand the problem is so much bigger than what meets the eye. The dollars present overseas will never find a home and they will have no bearing on the outcome of the collapse of the offshore entity.

The assets in offshore entities are in ways guaranteed by the issuing entities. Jersey for eg. Has many corporations registered within but the law governing jersey is the British law. The companies are thus governed by British law. If Jersey goes bust, the effect on London will be substantial. London having problems affects NY, HK too. It's all interconnected. The contagion once unleashed cannot be controlled. What co-ordinated global action of throwing money at debt ridden banks achieved in 2008 cannot be repeated again. It was their last throw of the dice. The stimulus within US in excess of a trillion from 2009 has achieved less than 3% growth.

This is how the central bankers wish it would be



This is how it is

[chanakyaa]

Ok. Now why did they create the EURO? They could have stuck with USD longer? And if Amirkhan defaulted on gold convertibility in 1971, why did they not just increase the gold price from 35$ to say 200$ for every USD in 1971 thus keeping the gold convertibility longer? Why did the Eurozone sign the Rome accord of 1957? And why was Mastricht treaty of 1992 so important?

...

sirji, how does these thoughtful questions lead to the conclusion of higher odds of Euro's outright devaluation by 50%?

[panduranghari]

Udaym ji,

The reason why I asked those questions, is to prod you into thinking why euro came into being. What was it they did not like which prompted the formation of euro? And what is it about the idea of euro, if not euro specifically, have to do with the current economic paradigm.

I will leave you with 3 graphs.







If you want to really understand this, here is a link.

statistical treatment of international reserves

[svinayak]

Can you give more details
This is good.

In 1995 they took some decision which created the rivalry between Eu and US

[Austin]

panduranghari , had a question ....lets say of Russia decides to Dump $100 billion of Fed Bond ....can they just buy $100 Billion worth of Gold for that money say in an instant ......is there Gold available in open market for any country to buy ?

[Austin]

Fed Policy Change: Replacing Phony 6.5% Unemployment Target With Pure Politburo Jabberwocky
Michael Pento

The New Chairperson of the Federal Reserve showed off her dovish feathers after the latest meeting of the FOMC. Ms. Yellen abrogated the threshold of 6.5% on the unemployment rate as the starting point for short term rate hikes and replaced it with amorphous and ambiguous language that allows plenty of wiggle room with rates.

Just like a child sometimes changes the rules of a game in mid-stream in order to guarantee a favorable outcome, the Fed has ripped up the rulebook to suit its own needs.

The Fed was fully aware when it first stipulated its guidelines for starting rate hikes, that a 6.5% unemployment rate threshold could be breached with the help of a contraction in the labor force participation rate and not fully through increased hiring. However, it still drew a line in the sand in which investors were forced to determine when the cost of borrowing money would begin to be increased directly by the central bank.

To the central bank’s credit it did follow through on the promised continued reduction of asset purchases by $10 billion per month. The Fed is now purchasing $30 billion in Treasuries and $25 billion worth of MBS. This reduction was already in the cards and didn’t surprise anyone. Nevertheless, the Fed completely abolished a numerical threshold for the unemployment rate to fall below before it begins to raise the Fed Funds Rate. The reason for this is clear; the Fed realizes it cannot raise short-term rates without pricking the asset bubbles it has worked so hard at creating and sending the economy into a deflationary tailspin.

The condition of the U.S. economy (and indeed global GDP as a whole) is so anemic that even after 5+ years of massive Federal Reserve market manipulations, the Fed cannot raise short-term interest rates. In other words, they will keep making excuses as to why they can’t raise interest rates and continue to move the goal posts for their convenience.

The Fed is in the process of trying to end QE, but the stock market and Fed don’t yet realize that the tapering of asset purchases is tightening monetary policy. This will cause long-term interest rates to rise-and the worst is still to come. For instance, the 10-Year jumped to 2.77%, from 2.68% on the same day of FOMC’s decision to reduce asset purchases by another $10 billion. And short-term rates are rising to an even greater extent, despite the fact that the Fed is still posting a bid of $55 billion each month for these debt instruments.

The Federal Reserve’s quantitative easing program was the only reason why the 10-Year Note, and longer-term interest rates in general, are as low as they are today. Ending QE will cause a huge spike at the long-end of the yield curve unless the economy is sharply contracting. Whether or not the Fed admits this is irrelevant.

The fact is the Fed is going from buying all of the newly issued Treasury debt, to zero of the newly issued debt market. And there isn’t any entity that I am aware of in the entire world that will supplant the Fed’s purchases at anywhere near today’s rates. So interest rates are going to rise, and that is deflationary and also bullish for the U.S. dollar in the short-term.

But the anemic economic data should continue to worsen as interest rates rise. This means that the Fed will stop tapering sometime in the very near future — probably in the summer or early fall — and then they will feel compelled to launch QE V. When this shift in policy takes place it will be incredibly significant for world markets–beyond anything we have seen before.

In the interim, investors that have bet on an easy escape from QE will find out how wrong they have been. The equity market should undergo a severe correction once it becomes clear that asset prices and the economy have been highly reliant on debt monetization from the Fed.

The gold market has priced in a worst case scenario for the yellow metal–a balanced budget and no growth in the money supply. That’s clearly not going to happen. In fact, the opposite is much more likely to occur. However, as I’ve stated many times before, the major move higher in precious metals won’t occur until the overwhelmingly-accepted notion regarding the Fed’s ability to end QE and raise interest rates with full impunity is proven to be fantasy.

Therefore, a significant spike in hard asset values will occur when the Fed acknowledges the fact that there is no easy escape from QE and the economy is destined to head into a deflationary collapse without the Fed’s continuous support of bond prices. Although that would be healthy for the economy in the long term, it isn’t going to happen voluntarily because of the hubris of politicians and their constituents. The Fed will stop tapering and undergo a massive and extended QE program in the latter part of 2014. That is when investors need to go all-in on inflation hedged securities. Until then, it is prudent to hold an abnormally high level of cash in your portfolio to be able to take advantage of the coming selloff.

[Austin]

So if I got this right are we looking ahead for QE 5 just to keep short and long term interest rates low ?

[chanakyaa]

Udaym ji,

The reason why I asked those questions, is to prod you into thinking why euro came into being. What was it they did not like which prompted the formation of euro? And what is it about the idea of euro, if not euro specifically, have to do with the current economic paradigm.
.......

If you want to really understand this, here is a link.

statistical treatment of international reserves

Much appreciated...I shall be back.

[member_28502]

What co-ordinated global action of throwing money at debt ridden banks achieved in 2008 cannot be repeated again. It was their last throw of the dice. The stimulus within US in excess of a trillion from 2009 has achieved less than 3% growth.

It was intended to in the first place (for growth)

The Banks never lent the money to business, it was used to fix the books and then also lend it back to Federal Govt via treasury bonds investment to 2% interest with no risk.

So the growth never happened, If the money was spent for infrastructure fixing and building new (like Bullet train in US for inter city transport etc)
then growth could be seen (GDP, Taxes, and money multiplier effect through people buying goods through higher employment)

Also even now if the CRR is raise by 3/4 percent then most of the EU banks would go under.

Basel III IV V will still not fix the problem.
The banks really dont know nor do they want to know what their real status is.

[vic]

The massive asset price increase and QE in Japan turned the middle class into serfs and broke their spirit. The same is happening in USA. The money is moving from middle class to elite and assets are getting costly. We are slowly going back to 19 th century politics and social structure.