In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
When you type a website address into a browser, you might have noticed that the letters “http” appear at the front. “HTTP” stands for Hypertext Transfer Protocol. In typing a Web address, you are actually sending an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
“As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding […]
The Keynesian disaster recovery plan has been to lower rates, force people to take more risk in search of yield, and entice others to borrow and spend and, magically, more jobs will be created. If people won’t buy stocks, central banks will.Back in 2011, Ben Bernanke, when asked if QE2 was driving up stock prices, […]
According to the Bureau of Labor Statistics, consumer prices are rising at a 2.1% annual rate. This suggests to us that the current stock market boom will die with a bang, rather than a whimper.Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why […]
Real progress happens through real people, ideas, and innovations. Not by legislation argued and debated in Congress. Right now, one of the most influential technologies is changing the way people do business. And reinventing the future in the process.
As the world gets more digital, people forget about the benefits of transacting in cash. And government officials know that.
The experts will tell you the recession is over, but they’re only torturing the data to hide the truth. The economy never recovered from the downturn it experienced. But the downturn happened in 2000, not 2008. The country’s been in the middle of a 14 year recession and hardly anyone knows the truth.
Every time Bitcoin crashes, it winds up at a price greater than it’s previous high. Yet the experts still call it a currency fad that will fade away. But a little over a year since it really took up, the digital currency is still going strong, and is once again seeing its price rise. But is there another reason why people are buying Bitcoins.
All paper currency has a shelf life. It could be 5 years or 500 years, but at some point, the value of any paper currency eventually reaches zero. That's why, for centuries, people have turned to one shiny metal to safeguard their personal store of wealth. And, as Jim Rickards explains, you still have that option. Read on...
Edward Snowden’s one year visa in Russia expires at the end of next month. With only a few weeks left before he finds himself without a safe country to live in, he sat down to give an exclusive interview. Here are the most important things he wants you to remember from his recent sacrifice.
It’s a destructive cycle that comes around everytime your politicians ask you to take to the polls. The government’s meddling creates unexpected problems that eventually overshadow the planners’ original intentions. But that only leads the way for even more interventions.
Politicians love inflation. It’s a way to pay for the government’s debts without upsetting the public by raising taxes, or their special interests by cutting government. So they’ll flood the economy with easy money and eat away at your savings. But that’s only part of the story...
Obama recently claimed this was the “Decade of the Brain”. But it not the first time the government made that promise. The last time they did it, they wasted millions of your tax dollars. Now they’re back for round two. But this time, their failure could mean more than squandered money. It could mean making Alzheimer’s even worse for those who suffer from it.
“So we have, indeed, had a disappointingly slow recovery, and our consistent expectations for a pickup in growth have been dashed over a number of years… And the labor market is behaving in some perplexing ways and showing patterns that are novel.”–Federal Reserve Chairperson Janet Yellen in a speech to the Economic Club of New […]
Politicians who love Big Government love talking about the minimum wage. It’s one of the few policy where they don’t have to ask their constituents to pony up the extra tax dollars to pay the higher costs. Instead, they pass the buck to business owners. They can’t print money, nor can they can force you to pay more. So they cut back hours and fire the very workers politicians tried to help. But that’s how things go when you mess with the economy.
Economists aren’t physicists. But they sure do like to act like they are sometimes. When scientists reach a consensus about something, it usually means they’re breaking new ground on a theory based on hard facts and proven evidence. When economists agree on something, it shows the limitations of a field that tries to model how humans are supposed to behave. And that’s where the danger lies. Especially when it comes to things like U.S. Treasurys.
Ask a D.C. insider what’s the best way to solve the debt crisis. Nine times out of ten, they’ll recommend taking on more debt. That’s how things operate in the Potomac swamp. Up is down, right is left, digging yourself into more debt is the best way to get out of it. But it wasn’t always like this. In fact, there used to be common sense when it came to the economy. So where did it all go wrong?
Just because you’re retired doesn’t mean you have to stop working. Especially now that you have all the time in the world to do what you really want. Entrepreneurs don’t only come out of Silicon Valley. They come from all walks of life, from all different ages. If you’re retired and want to stay active while you relax, then find out the steps you need to take in order to start, manage, and grow your next small business.
Austrian economics does more than tell you what happens when the government disturbs market forces. In the hands of knowledgeable investors and entrepreneurs, it can tell you exactly what to expect from the market. Market behavior depends on how people behave. And how people behave is central to the Austrian perspective.
The U.S. dollar has been the world's reserve currency for almost a century, and already there are signs it may be in decline. But that doesn't mean it's not still valuable. On the contrary... As Chris Mayer explains, there are many reasons the U.S. dollar will remain relevant on the world stage for years to come. Read on...
The government will do whatever it takes to make sure it has enough of your money to fund itself. On the surface you might think that means enduring a grueling audit. But the IRS and the government is more than willing to ignore your privacy in the cold relentless pursuit of the money they think they deserve. As they get bigger and bigger every year, the smaller and smaller your paycheck becomes as they leach off it.
World War II might have dragged the country out of the Great Depression, but it did so at a great price. Central planning took center stage, and politicans and bureaucrats suddenly knew what was best for America, the economy, and your life. On top of that, they replaced the free market with a new economic system… Creditism.
Argentina is suffering the ravages of government debasement of the currency -- i.e., inflation, the process by which government pays for its ever-increasing debts and bills by simply printing more paper currency. The expanded money supply results in a lower value of everyone’s money, which is reflected in the rising prices of the things that money buys.
There’s no way it could happen in the United States. That’s the conventional wisdom on this side of the pond about the ECB’s bailout of the banks in Cyprus. That caper looks as if it may take a chunk out of the hides of at least some bank depositors on the tiny Mediterranean island.
So far, the Cyprus parliament can’t pull the trigger on a plan to tax insured and uninsured bank deposits to pay a share of the bailout. However, a bank holiday has been declared and Cypriot depositors are nervous, taking all they can from ATMs. The Cypriot banks, loaded with Greek debt, are on the verge of collapse.
William Isaac, a former chairman of the FDIC, calls the idea of taxing insured deposits in the U.S. “unthinkable.” He went on to tell American Banker, “I can’t believe the Europeans were that insensitive to the psychology of depositors throughout the world. They have a government pledge to cover these people, and they’ve reneged on it.”
At the same time, Isaac says governments have a right to give a “haircut” to (aka steal from) uninsured depositors. He adds, “But I would question in light of the worldwide financial instability over the past five years whether this is the right time to make that move, particularly without any notice.”
In the good old US of A, the Federal Deposit Insurance Corporation (FDIC) has an unbroken track record of repaying insured deposits, as the American Banking Association is quick to remind us. “While the crisis in Cyprus is a real concern for depositors in Cypriot banks, it has no implication for depositors in U.S. institutions.”
You gotta believe it because, see, the FDIC has $33 billion in reserves to handle such occasions. Banks pay into the fund each year to make sure there is money to repay depositors. The ABA states, “Simply put, U.S. insured depositors are safe and their deposits are protected by a strong FDIC fund, a financially secure banking system and the full faith and credit of the U.S.”
OK, but while $33 billion sounds like a lot of money, total domestic bank deposits in the U.S. stand at over $9.4 trillion. Of that, $7.4 trillion are insured. That means the FDIC’s reserve fund provides 45 basis points (a basis point is 1/100th of 1%) worth of coverage. Only a bank trade group would characterize that coverage as “strong.”
And just how financially secure is the banking system?
Over at The New York Times, Floyd Norris makes the point that if the big banks in the U.S. used the same accounting rules as Europe, U.S. banks would be much bigger. But more to the point, it would be apparent that JP Morgan (for instance) is an even bigger financial edifice teetering on the head of a pin.
JPM has $2.4 trillion in stated assets, but it also has derivatives with an additional market value of $1.5 trillion not listed on their balance sheet. So instead of being leveraged at 11.6-to-1 and being well capitalized, JPM is employing leverage at just short of 19-to-1 and is a dicier proposition.
Nothing can go wrong when leveraged at 19-to-1.
That’s OK. JPMorgan head man Jamie Dimon is supposed to be the smartest guy in the room. Not according to Jim Rickards, however, who told Maria Bartiromo and Bill Griffeth on CNBC that Dimon makes money only because of government subsidies and doesn’t understand the risks of derivatives.
The author of Currency Wars shocked the CNBC anchors saying, “Having Jamie Dimon as CEO is like having a welder in charge of a hospital. You don’t want someone working on your heart with a blowtorch.”
You might wonder why JP Morgan and their peers don’t have to count the derivatives. Well, as Norris explains:
“Under American accounting rules, banks that deal in derivatives can net out most of their exposure by offsetting the assets against the liabilities. They do this based not on the nature of the asset or liability, but on the identity of the institution on the other side of the trade — the counterparty, in market lingo.
“The logic of this has to do with what would happen in a bankruptcy. What are called ‘netting agreements’ allow only the net value to be claimed in case of a failure. So the bank shows the sum of those net positions with each party.”
Of course, no one knows for sure the strengths and weaknesses of their counterparties in a pinch. The three simple letters that remind us are A-I-G. The notional amount of derivatives in federally regulated institutions at the end of last year was $224 trillion, nearly 10 times greater than the derivatives exposure at banks in the dark ages of 1997, which was $25.4 trillion at year-end.
The accountants were going to blow up this whole netting exercise thing a few years ago. The bankers got them to back off. Most derivatives positions are disclosed in the financial footnotes, but repo and reverse repo positions are not. According to Norris:
“The sort-of invisible derivative assets and liabilities are only part of the reason that it is so hard to really get a handle on just how risky any given bank is. Regulators look at banks’ ‘Tier 1 capital ratios,’ in which they divide capital by ‘risk-weighted assets.’ They get high numbers.”
A 300-page report prepared for the Senate concerning JP Morgan’s $6.2 billion loss contends the bank hid the loss from regulators and investors. Of course, if you’re the smartest guy in the room like Mr. Dimon, you can make the numbers up as you go and tell investors it’s all a “tempest in a teapot.” Just what were those London Whale trades? The subcommittee report described the portfolio as a “make-believe voodoo magic composite hedge.”
Bank earnings in 2012 were the second highest ever. But the largest contribution to earnings came from reduced provisions for loan losses, plus increased trading revenue and asset sales. Another downturn and this all reverses itself in a hurry.
Finally, the last line of defense for U.S. depositors is the full faith and credit of the U.S. government. Uncle Sam is an entity with over $16 trillion in direct obligations and is currently running an annual deficit of somewhere around $1 trillion, give or take.
Social Security and other promises stretch the total obligations to numbers beyond comprehension.
On the plus side, for now, dollars can be created ad infinitum from nowhere.
That’s the real problem. The Cypriots can’t print their own money and are depending upon the kindness of strangers.
Americans should take a lesson from the Cypriots, just in case one of these days the product of Uncle Sam’s printing press is not so welcomed and the notion of “unthinkable” is tested.