31 August 2016 by Brandon Smith
The latest Federal Reserve meeting in Jackson Hole, Wyoming, is over and so far it would seem that the general investment world is not too happy about Janet Yellen’s statements as well as those of other Fed officials. In fact, many people are looking for some simple clarity as to what the central bank is actually planning.
Most importantly, investors want to know why the Fed is suddenly so adamant about continued interest rate hikes in 2016. Only a couple months ago, almost everyone (including alternative economic analysts) was arguing that the Fed would “never dare” to raise rates again so soon, and that there was no chance of a rate hike so close to the presidential elections.
Instead, investors have been greeted with surging rate-hike odds as Fed officials openly hint of another boost, probably in September.
As I have been saying for years, if you think the Fed’s motivation is to protect or prolong the U.S. economy, then you will never understand why they do the things that they do. Only when people are willing to accept the reality that the Fed’s job is to undermine the U.S. economy can they grasp central bank behavior.
Here is the issue that scares mainstream markets — many day traders are greedy, but not necessarily dumb. They KNOW full well that the only pillar holding up stocks at record highs has been central bank intervention. A vital part of this intervention has been the use of near-zero interest rates. That is to say, cheap and free overnight loans through the Fed have allowed banks and other corporations to remain “solvent,” and these loans have been the fuel companies have used for corporate buybacks of stocks.
Corporate buybacks have been a primary driver in the bull market rally that supposedly saved the world from the ongoing deflationary destruction of capital. In 2015, buybacks reached historic levels and garnered one of the largest equities reversals in history. While these buybacks do little or nothing to heal the economy on Main Street, they certainly do wonders for equities portfolios. By buying up their own shares, corporations boost the value of remaining shares through a brand of legal trickery. And, in the process, these corporations also boost the overall perceived value of global stock markets.
As Edward Swanson, author of a study from Texas A&M, noted on stock buybacks used to offset poor fundamentals:
“We can’t say for sure what would have happened without the repurchase, but it really looks like the stock would have kept going down because of the decline in fundamentals… these repurchases seem to hold up the stock price.”
Yes, to us he seems to be stating the obvious, but for the average American, a green stock market means a recovering economy. There is no deeper question of why the markets are rallying, and this lack of understanding is dangerous for our country.
Even marginal hikes in borrowing costs will kill the party and, while people not involved in finance and stocks are oblivious, day traders know exactly what is going on. This is the reason for the underlying panic felt by the investment world at any hint of a rate hike by the Fed.
As we saw with the limited audit of TARP, the Fed was pumping tens of trillions in overnight loans into distressed banks and companies, even foreign companies overseas. I suggest that if a FULL audit of the Fed were ever conducted, we would find tens of trillions more in overnight loans since 2008.
Imagine for a moment if those loans never stopped. Imagine that such loans have been an ongoing mainstay of our financial system and stock markets in general. Now, ask yourself, what would happen if the companies reliant on these free loans suddenly had to pay interest on them?
Think about it; what would the interest cost be on a mere .5% to 1% of $16 trillion in overnight loans through TARP? What would the cumulative cost be on all the loans banks and companies need to survive every quarter? In the end, corporations would either drown in billions of dollars in exponential debt or they would have to stop accessing loans from the Fed. Once the loans stop, the stock buybacks stop. Once the buybacks stop, stock markets crumble.
Without free cash from the Fed, the bubble in stock markets will finally and thoroughly implode, crashing down to meet all other fundamentals.
Why would the central bank pull the plug on life support to stock markets? There are multiple reasons, but a top reason is that this is the Federal Reserve’s modus operandi. They consistently seem to raise rates into recessionary conditions that they also tend to create. In essence, the Fed likes to acclimate and addict markets to low interest percentages, and then increase those percentages to agitate and elicit a chaotic reaction.
In my article Brexit Aftermath – Here’s What Will Happen Next, I stated:
“Really, the only safe measure the Fed can take from now on is to do nothing. I highly doubt that they will do nothing. In fact, even in the face of the Brexit I still believe the Fed will raise rates a second time before the end of the year. Why? This is what the Fed has always done as recession takes hold. Historically, the Fed raises rates at the worst possible times. As with the Brexit, I am going to have to take the contrary position to most analysts on this.”
What analysts out there need to understand, whether they are independent or mainstream, is that a great shift in central bank policy and attitude is coming. Christine Lagarde at the IMF calls it the “economic reset,” some Fed officials, like Atlanta Fed President Dennis Lockhart, state that central banks are entering a “brave new world.” These are highly loaded phrases that represent a drastic overhaul of the global financial system; an overhaul that is quite deliberate and inevitably destructive for certain nations and economies, including the U.S.
If we examine the policy pursuits and recently stated goals of central banks around the world, and those statements made after the Brexit referendum, we find that a process of complete global centralization is underway. This includes a push for all central banks to “coordinate policy” under a single directive.
Alternative analysts already know that all central banks are ALREADY covertly coordinated by the Bank for International Settlements. So, when central bankers call for policy coordination in the mainstream press, what they really mean is, they want the existing coordination that is covert to become publicly accepted and celebrated. They want that which is illegal to become legal. That which is morally reprehensible to become morally relative.
Central bankers also want their position of authority over the global economy to become a public priority. Ten years ago, when I asked average people what they knew about the Federal Reserve, most of them responded with confusion. They had never heard of the institution, let alone what its function was. Today, almost everyone knows about the Fed, but there is also an assumption attached that central banks, whether they are successful or not, are supposed to maintain economic stability. Keep in mind that global stocks barely vibrate today until a central bank somewhere publishes a policy statement. This is not how investment is supposed to function. The jawboning of central banks should be mostly meaningless.
The brave new world of central banking is a plan to expand on this corrupt correlation. That is to say, the general public and the mainstream should be questioning whether central banks should exist at all. Instead, people are arguing over what policies are better for central banks to adapt. The existence of central banks is considered an absolute. The masses are only given the option to debate what faces and what hats central banks should wear. If we get anything out of this deal, we only get to choose the form of our destructor.
I should point out also the growing trend in the mainstream media of criticism against the Fed. This is a relatively new thing. For the past several years the more effectively critical the alternative media became against the Fed, the louder MSM talking heads would cheerlead for the establishment. With central bankers becoming more open about their global shift into something “different”, a new program of stabbing at the Fed has been initiated. This is not a coincidence.
As I have argued in various articles, the Fed itself may be just as sacrificial to the elites as the U.S. economy. In the process of global centralization, the Fed would eventually have to take a back seat to the IMF, World Bank and the BIS. It is not surprising to me in the slightest that the bought-and-paid-for mainstream media is changing gears and attacking the institution they once desperately defended. Priorities are evolving.
I believe that with the advent of a second rate hike in 2016, many conditions will change. The Dow and some emerging markets will no longer enjoy unmitigated support, and they will begin to fall going into the elections. As I have mentioned many times in past articles, Donald Trump is the most likely candidate to take up residence in the White House. Conservatives will be lulled into a temporary euphoria, happy just to have defeated she-demon Hillary Clinton, only to discover that an overall global implosion has entered a new stage. This implosion will of course be blamed on those same conservative movements.
In the meantime, central banks around the world are going to start openly coordinating while the IMF will take up a “leadership role” in managing international policy. Central banks will also be branching out and taking on new powers. As suggested at Jackson Hole, many central bankers are arguing for “new tools” to fight future fiscal downturns, and no, this does not mean negative interest rates. Instead, watch for central banks to change the definition of inflation on a whim, or adjust the relative value of currencies through agreements with other countries instead of allowing free markets to determine values, and watch for complete overhauls in how economic instability is calculated.
What we are heading for is a world in which many nations will suffer from reductions in living standards and where some first world nations will be reduced to third world conditions. In order to normalize increased global poverty, you have to stop calling it poverty and start calling it a “brave new world.” You have to convince the populace that the economic degradation is not a problem that can be solved — rather, it is a problem we must all adapt to and accept.
Be very wary when elites and international financiers mention “global reset,” or a “brave new world,” or a “new world order.” What they are talking about is not a program that is in your best interest. What they are talking about is the deliberate creation of chaos; a slow burning calamity that can be exploited to derive the benefits of even more centralization and even more power.
They will call it random. They will call it coincidence or fate or even blame it all on their ideological opponents. In the end, they will eventually call it a natural progression of events; a social and financial evolution. They will call it inevitable. None of this will be true. There is nothing natural about a totalitarian framework — it is a machine that is carefully crafted piece by piece, maintained by the hands of a select few tyrants and fed with the labor, sacrifice and fear of the innocent.
The only solution is to expunge the parasites from our fiscal body. These institutions and the people behind them should not exist. Most if not all of our sociopolitical distress today could be cured if a “brave new world” meant wiping the slate clean and dispelling financial elites and central bankers into a bottomless pit.
Central banks now asking governments for help
August 29, 2016
Central bankers in charge of the vast bulk of the world’s economy delved deep into the weeds of money markets and interest rates over a three-day conference here, and emerged with a common plea to their colleagues in the rest of government: please help.
Mired in a world of low growth, low inflation and low interest rates, officials from the Federal Reserve, Bank of Japan and the European Central Bank said their efforts to bolster the economy through monetary policy may falter unless elected leaders stepped forward with bold measures. These would range from immigration reform in Japan to structural changes to boost productivity and growth in the U.S. and Europe.
Without that, they said, it would be hard to convince markets and households that things will get better, and encourage the shift in mood many economists feel are needed to improve economic performance worldwide. During a Saturday session at the symposium, such a slump in expectations about inflation and about other aspects of the economy was cited as a central problem complicating central banks’ efforts to reach inflation targets and dimming prospects in Japan and Europe.
From left, People’s Bank of China Gov. Zhou Xiaochuan, ECB President Mario Draghi, Fed Chairwoman Janet Yellen and Bank of Japan Gov. Haruhiko Kuroda.
ECB executive board member Benoit Coeure said the bank was working hard to prevent public expectations about inflation from becoming entrenched “on either side” – neither too high nor too low. But the slow pace of economic reform among European governments, he said, was damaging the effort.
“What we have seen since 2007 is half-baked and half-hearted structural reforms. That does not help supporting inflation expectations. That has helped entertain disinflationary expectations,” Coeure said.
Bank of Japan governor Haruhiko Kuroda said he is in regular talks with Japanese Prime Minister Shinzo Abe about opening Japan to more immigration and other politically sensitive changes needed to improve potential growth, currently estimated at only around one percent annually.
Fed Chair Janet Yellen devoted the final page of her keynote talk on possible monetary policy reforms to a list of fiscal and structural policies she feels would help the economy.