The so-called recovery is only built on debt and printed cash declares our own Byron King. In the long term, the only option for the government to continue financing it's operations is to print too many dollars. Money printing has it's limits, however. It's Byron's opinion that at some point, perhaps very soon, the government will have to turn to more desperate measures. Namely, capital controls. In the following featured essay, Byron outlines 4 probably ways the government will take your cash and one play you can buy through your broker to prepare today. Read on...
When’s the best time to invest in something? When everyone else is trying to get their money out of it. It might go against conventional thinking, but following the crowd usually makes you miss the real opportunities. At one monetary metal conference recently, the smartest guys in the industry sat down to discuss where these real hidden gems lay.
In a 2009 article, the Huffington Post went into considerable detail about the number of people with PhD degrees in economics employed by the Board of Governors of the Federal Reserve System. This is the government’s branch of the Federal Reserve. It is not one of the 12 regional Federal Reserve banks, all of which […]
Greetings from Maine! Right now, I’m writing from within foghorn distance of the sea. And this gives me an opportunity to tell you a down east tale that should serve as a warning to every investor: Maine’s Great Gold Swindle.I’m not talking about central banks, or manipulation of today’s markets. I’m talking about something from […]
The U.S. dollar is the dominant global reserve currency. All markets, including stocks, bonds, commodities, and foreign exchange are affected by the value of the dollar.The value of the dollar, in effect, its “price” is determined by interest rates. When the Federal Reserve manipulates interest rates, it is manipulating, and therefore distorting, every market in […]
Let’s head back in time…In 2004, a mere decade ago, the US national debt rang the register at $7.4 trillion. That represents “debt per citizen” of over $25,000. You, me, your neighbor, your 4-yr old grandson, you name it and they’re portion of the U.S. debt is $25k.But flash forward to today and you’ll see […]
Alexander Hamilton was America’s first Secretary of Treasury under President George Washington. When he first entered office in 1789, America was an agricultural nation of just 4 million still broke from its financially costly victory over the British Empire in the Revolutionary War.The states had accumulated relatively massive debts to finance that war, which mostly […]
Remember that correction we’ve been quietly talking about over the past couple of months?Well, it might be right around the corner. Stocks waited until the last day of the month to nose-dive. The S&P 500 posted its first 2% down day since April — and the Dow wasn’t far behind. Early this morning, futures continue […]
A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
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 […]
We’ve been telling anyone who will listen that the Fed has gone where the central bank has never gone before. Pre-crisis, the Fed’s available resource looked like it always had in the postwar period. Nearly overnight, thanks to its magical money creating powers of buying debt with funds it created, the Fed’s balance sheet shot up — like straight up. In fact, it tripled — from $900 million to more than $3 trillion. It’s not stopping either: the Fed will soon have $4 trillion in its coffers.
Why does Bernanke say he did this? To give the economy a jolt and thereby fix unemployment. It’s true that headline unemployment could sink below 6.5 percent. If that were to happen, Bernanke and his posse might douse their QE campfire and head home.
Trouble is that this isn’t likely to happen anytime soon. The latest unemployment number is 7.9 percent. And in the last quarter, productivity as measured by the GDP fell. Fell!
Think of it: the Fed will have quadrupled its balance sheet in five or six years time. The results: stagnation and persistent unemployment.
What’s missing from this catalog of bad effects of loose money? You and I might have expected prices to soar. Back in 2008, if you had known that by the end of 2013 the central bank would triple its balance sheet, and that a year or two later it further expanded its footings to four times, you might have thought we’d been making history Zimbabwe-style by now.
Why haven’t we seen historic levels of hyper-inflation? The necessary triggers are not there. The demand for holding money (instead of spending it) is higher than normal. The banks are licking their crash inflicted wounds, parking reserves at the Fed insteading of lending. You have to have lending in order to have money creation and hyperinflation. That isn’t happening.
How unusual is this conundrum? It’s happened before. In fact, the Fed’s balance sheet has ballooned even more just after the Fed was created in 1913. The sorry tale is chronicled in Economics and the Public Welfare by Benjamin Anderson.
After the Fed was created, It didn’t take long for the Fed’s Board of Director’s first chairman, Charles Sumner Hamlin, to figure out how to grow his business. He wasn’t even a banker. He was a lawyer, academic, and unsuccessful gubernatorial candidate.
The Fed wasn’t even in operation when the Austrian crown prince was assassinated in Sarajevo on June 28, 1914. Investors in Berlin and Paris pushed the panic button in late July. The Vienna exchange closed on July 27 and Austria declared war on Serbia.
In the next few days, stock markets around the world closed. On July 31, 1914, the London market closed. Five hours later, just before it was to open for trading, the authorities of the New York Stock Exchange told brokers they would not ring the bell.
The next day, Germany declared war on Russia and on August 4th, England declared war on Germany.
Talk about markets tightening up! Of course in those days the world was on a gold standard. Benjamin Anderson writes: “when grave uncertainties arise, and, above all, when unexpected war comes, men prefer gold to real estate…With the apprehension of war, however, the effort is made to convert illiquid wealth into liquid form as rapidly as possible, even though heavy sacrifices are involved.”
But New York’s loss of gold abruptly turned and gold began flooding in “a rate never dreamed of before,” writes Anderson. Over a billion dollars of gold flowed in from December 1914 to May 1917. The dollar strengthened, the pound and other currencies dropped. Goods were flying out of America, but only gold was coming back.
After the U.S. entered the war in 1917, the Federal Reserve Act was quickly amended to allow the issuing of federal reserve notes against both gold and commercial paper. Member bank reserve requirements for demand deposits were reduced to 13 percent in central reserve cities, 10 percent in reserve cities, and 7 percent in country banks. The percentage had been 25 percent not long before that.
“Bank credit was easy,” writes Anderson. “It was easy to float new securities.”
The wartime boom was on. And the Fed’s balance sheet exploded in size. The Fed’s total resources on November 26, 1915 were $637 million. The vast majority of that was cash and gold. Member bank reserves made up most of the liabilities..
By late October 1918, just prior to the Armistice, cash and gold at the Fed quadrupled. It’s reserves stood at $2.1 billion. Once you add in war bonds, discounted obligations, and bills bought in the open market, you get a grand total of $5.3 billion — all in three short years.
Meanwhile, member banks added to their reserves. Bank deposits also jumped up from $17.4 billion in June 1914 to $28 billion in June 1918.
Sounds like a prescription for hyperinflation, does it not? But this didn’t happen.
Anderson explains why: the markets were broken.
This is a remarkable exhibition of restraint in the employment of bank credit in a great war. We had to finance the government with its four great liberty loans and its short-term borrowing as well. We had to transform our industries from a peace basis to a war basis. We had to raise an army of four million men and send half of them to France. We had to help finance our Allies in war, and, above all, to finance shipment of goods to them from the United States and from a good many neutral countries.
Anderson explains that credit rationing served to hold down bank credit expansion. Nonessential industries needing funding were turned down. Then as now, banks know where their bread is buttered. Besides, loaning to the government is safer than lending to the widget maker down the street, especially in a time of war.
Construction and other ordinary activities were crowded out as bank credit was steered to wartime needs. After the war, restraint ended, and the boom expanded. Yet, Anderson writes that “money and bank credit was not the dominating factor in the postwar boom…”
However, the growth in bank deposits and the size of the Fed during the war years is undeniable. Plus, bank loans and investments grew another 25 percent from the spring of 1919 to April 1920. Federal debt had exploded because of wartime expenditures.
By war’s end annual consumer price inflation rates had jumped well over 20 percent. In response, the New York Fed ratcheted up its rate (and the other Fed banks followed). Rates moved from 4.75 percent in November 1919, to 6 percent in January 1920, and to 7 percent in June of that year.
Following the war, the government slashed spending from $18.5 billion to $6.4 billion–a 65 percent reduction. The result was a crash in wholesale and retail prices and a moderate decline in wages. Unemployment soared.
You’ve likely never heard of America’s 1920-21 depression because it came and went so quickly. Anderson explains, “we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again.”
The current Federal Reserve is emulating its wartime expansion of 1915 to 1918. The federal government is copying FDR’s New Deal of the 1930′s. It is showing the same results: a broken banking system, a stagnant economy, high unemployment, but also price restraint.
We’re five years and counting of Ben Bernanke’s fight to the death with deflation. There’s nothing new or path breaking about it. Experience tells us this modern version of a stupid policy will create many more years of stagnation.
When will the inflation arrive? Maybe later, but maybe never. The point of the monetary policy was to keep overextended banks from going bust. But that comes with other results that are different from what many people might have expected. We’ll pay the price but not in the same way as Zimbabwe and Weimar Germany. Our coming chaos will likely take a different form.