fed

Don’t worry. Nothing to see here!

That was pretty much the message Federal Reserve Chairman Jerome Powell delivered in a speech he gave at the Atlanta Federal Reserve bank conference on May 20.

Powell talked about the high levels of corporate debt. In fact, corporate leverage is at a record level of around 35% of corporate assets. But the Fed chair said it’s not really too big a cause for concern.

Although Powell acknowledged, “Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect,” he said comparisons between the current corporate debt level and mortgage debt in the years leading up to the financial crisis are “not fully convincing.”

Of course, the pundits and financial experts were all saying that skyrocketing levels of mortgage debt in 2006 and 2007 were no problem too. And they weren’t — until they were.  So, perhaps we should take the current reassurances with a grain or two – or maybe a spoonful – of salt.

The Federal Reserve is crashing the debt & real estate bubble it created worldwide.

Powell said the levels of corporate debt were in line with economic growth. He emphasized that debt service costs remain low. And he said the financial system is better able to absorb losses.

See, nothing to worry about!

“As of now, business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm,” Powell said.

The Fed chair did take a cautious tone at times. He said that the lack of transparency about funding sources and who ultimately holds all of the corporate debt was concerning, and he warned that an economic downturn could worsen if indebted companies began to fail.

Ya think?

But hey, the economy is strong! No need worrying ourselves about a downturn, right?

Of course, everybody is trying to read the tea leaves and figure out what the Fed might do based on Powell’s remarks. Reuters noted that the Fed may be reluctant to cut interest rates again because the Fed chair said another sharp increase in corporate debt “could increase vulnerabilities appreciably.” Cutting rates could encourage even more borrowing.

But what about the flip side of that coin? Rising rates would jack up the cost of servicing all of this debt. And since the economy is built on all of the borrowing the central bank encouraged over the last decade, how can the boom keep going without more borrowing?

Basically, the Fed is stuck between a concrete wall and a hard place of its own making.

(Photo by AgnosticPreachersKid / Wiki)

Despite all of the mainstream reassurances, Jim Rickards thinks there might just be something to see here. As he explained in a recent post on the Daily Reckoning, the Fed has created a vicious cycle that it probably won’t be able to extricate itself from.

“We all know the outlines of how the Fed and other central banks responded to the financial crisis in 2008. First, the Fed cut interest rates to zero and held them there for seven years. This extravaganza of zero rates, quantitative easing (QE) and money printing worked to ease the panic and prop up the financial system.”

This is precisely why the growth in business debt has outpaced GDP growth for the last decade.

“But it did nothing to restore growth to its long-term trend or to improve personal income at a pace that usually occurs in an economic expansion. Now, after a 10-year expansion, policymakers are considering the implications of a new recession. There’s only one problem: Central banks have not removed the supports they put in place during the last recession.”

In other words, the economy is still hooked to the central bank life support system after more than 10 years. When the next crash comes, what is the Fed going to do? You can’t put the economy on more life support. Rickards sums it up:

“In short, the Fed (and other central banks) have only partly normalized and are far from being able to cure a new recession or panic if one were to arise tomorrow. It will take years for the Fed to get interest rates and its balance sheet back to ‘normal.’ Until they do, the next recession may be impossible to get out of. The odds of avoiding a recession until the Fed normalizes are low. The problem with any kind of market manipulation (what central bankers call ‘policy’) is that there’s no way to end it without unintended and usually negative consequences. Once you start down the path of manipulation, it requires more and more manipulation to keep the game going. Finally it no longer becomes possible to turn back without crashing the system.”

But hey, Powell says there’s nothing to see here. So…

Modern society resembles the Biblical warning in which the government controls what you buy and what you say. Alex explains how this slave system became so attractive and what the future may hold should humanity continue to surrender their God-given rights to privacy.

Source: InfoWars

Don’t worry. Nothing to see here!

That was pretty much the message Federal Reserve Chairman Jerome Powell delivered in a speech he gave at the Atlanta Federal Reserve bank conference on May 20.

Powell talked about the high levels of corporate debt. In fact, corporate leverage is at a record level of around 35% of corporate assets. But the Fed chair said it’s not really too big a cause for concern.

Although Powell acknowledged, “Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect,” he said comparisons between the current corporate debt level and mortgage debt in the years leading up to the financial crisis are “not fully convincing.”

Of course, the pundits and financial experts were all saying that skyrocketing levels of mortgage debt in 2006 and 2007 were no problem too. And they weren’t — until they were.  So, perhaps we should take the current reassurances with a grain or two – or maybe a spoonful – of salt.

The Federal Reserve is crashing the debt & real estate bubble it created worldwide.

Powell said the levels of corporate debt were in line with economic growth. He emphasized that debt service costs remain low. And he said the financial system is better able to absorb losses.

See, nothing to worry about!

“As of now, business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm,” Powell said.

The Fed chair did take a cautious tone at times. He said that the lack of transparency about funding sources and who ultimately holds all of the corporate debt was concerning, and he warned that an economic downturn could worsen if indebted companies began to fail.

Ya think?

But hey, the economy is strong! No need worrying ourselves about a downturn, right?

Of course, everybody is trying to read the tea leaves and figure out what the Fed might do based on Powell’s remarks. Reuters noted that the Fed may be reluctant to cut interest rates again because the Fed chair said another sharp increase in corporate debt “could increase vulnerabilities appreciably.” Cutting rates could encourage even more borrowing.

But what about the flip side of that coin? Rising rates would jack up the cost of servicing all of this debt. And since the economy is built on all of the borrowing the central bank encouraged over the last decade, how can the boom keep going without more borrowing?

Basically, the Fed is stuck between a concrete wall and a hard place of its own making.

(Photo by AgnosticPreachersKid / Wiki)

Despite all of the mainstream reassurances, Jim Rickards thinks there might just be something to see here. As he explained in a recent post on the Daily Reckoning, the Fed has created a vicious cycle that it probably won’t be able to extricate itself from.

“We all know the outlines of how the Fed and other central banks responded to the financial crisis in 2008. First, the Fed cut interest rates to zero and held them there for seven years. This extravaganza of zero rates, quantitative easing (QE) and money printing worked to ease the panic and prop up the financial system.”

This is precisely why the growth in business debt has outpaced GDP growth for the last decade.

“But it did nothing to restore growth to its long-term trend or to improve personal income at a pace that usually occurs in an economic expansion. Now, after a 10-year expansion, policymakers are considering the implications of a new recession. There’s only one problem: Central banks have not removed the supports they put in place during the last recession.”

In other words, the economy is still hooked to the central bank life support system after more than 10 years. When the next crash comes, what is the Fed going to do? You can’t put the economy on more life support. Rickards sums it up:

“In short, the Fed (and other central banks) have only partly normalized and are far from being able to cure a new recession or panic if one were to arise tomorrow. It will take years for the Fed to get interest rates and its balance sheet back to ‘normal.’ Until they do, the next recession may be impossible to get out of. The odds of avoiding a recession until the Fed normalizes are low. The problem with any kind of market manipulation (what central bankers call ‘policy’) is that there’s no way to end it without unintended and usually negative consequences. Once you start down the path of manipulation, it requires more and more manipulation to keep the game going. Finally it no longer becomes possible to turn back without crashing the system.”

But hey, Powell says there’s nothing to see here. So…

Modern society resembles the Biblical warning in which the government controls what you buy and what you say. Alex explains how this slave system became so attractive and what the future may hold should humanity continue to surrender their God-given rights to privacy.

Source: InfoWars

Don’t worry. Nothing to see here!

That was pretty much the message Federal Reserve Chairman Jerome Powell delivered in a speech he gave at the Atlanta Federal Reserve bank conference on May 20.

Powell talked about the high levels of corporate debt. In fact, corporate leverage is at a record level of around 35% of corporate assets. But the Fed chair said it’s not really too big a cause for concern.

Although Powell acknowledged, “Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect,” he said comparisons between the current corporate debt level and mortgage debt in the years leading up to the financial crisis are “not fully convincing.”

Of course, the pundits and financial experts were all saying that skyrocketing levels of mortgage debt in 2006 and 2007 were no problem too. And they weren’t — until they were.  So, perhaps we should take the current reassurances with a grain or two – or maybe a spoonful – of salt.

The Federal Reserve is crashing the debt & real estate bubble it created worldwide.

Powell said the levels of corporate debt were in line with economic growth. He emphasized that debt service costs remain low. And he said the financial system is better able to absorb losses.

See, nothing to worry about!

“As of now, business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm,” Powell said.

The Fed chair did take a cautious tone at times. He said that the lack of transparency about funding sources and who ultimately holds all of the corporate debt was concerning, and he warned that an economic downturn could worsen if indebted companies began to fail.

Ya think?

But hey, the economy is strong! No need worrying ourselves about a downturn, right?

Of course, everybody is trying to read the tea leaves and figure out what the Fed might do based on Powell’s remarks. Reuters noted that the Fed may be reluctant to cut interest rates again because the Fed chair said another sharp increase in corporate debt “could increase vulnerabilities appreciably.” Cutting rates could encourage even more borrowing.

But what about the flip side of that coin? Rising rates would jack up the cost of servicing all of this debt. And since the economy is built on all of the borrowing the central bank encouraged over the last decade, how can the boom keep going without more borrowing?

Basically, the Fed is stuck between a concrete wall and a hard place of its own making.

(Photo by AgnosticPreachersKid / Wiki)

Despite all of the mainstream reassurances, Jim Rickards thinks there might just be something to see here. As he explained in a recent post on the Daily Reckoning, the Fed has created a vicious cycle that it probably won’t be able to extricate itself from.

“We all know the outlines of how the Fed and other central banks responded to the financial crisis in 2008. First, the Fed cut interest rates to zero and held them there for seven years. This extravaganza of zero rates, quantitative easing (QE) and money printing worked to ease the panic and prop up the financial system.”

This is precisely why the growth in business debt has outpaced GDP growth for the last decade.

“But it did nothing to restore growth to its long-term trend or to improve personal income at a pace that usually occurs in an economic expansion. Now, after a 10-year expansion, policymakers are considering the implications of a new recession. There’s only one problem: Central banks have not removed the supports they put in place during the last recession.”

In other words, the economy is still hooked to the central bank life support system after more than 10 years. When the next crash comes, what is the Fed going to do? You can’t put the economy on more life support. Rickards sums it up:

“In short, the Fed (and other central banks) have only partly normalized and are far from being able to cure a new recession or panic if one were to arise tomorrow. It will take years for the Fed to get interest rates and its balance sheet back to ‘normal.’ Until they do, the next recession may be impossible to get out of. The odds of avoiding a recession until the Fed normalizes are low. The problem with any kind of market manipulation (what central bankers call ‘policy’) is that there’s no way to end it without unintended and usually negative consequences. Once you start down the path of manipulation, it requires more and more manipulation to keep the game going. Finally it no longer becomes possible to turn back without crashing the system.”

But hey, Powell says there’s nothing to see here. So…

Modern society resembles the Biblical warning in which the government controls what you buy and what you say. Alex explains how this slave system became so attractive and what the future may hold should humanity continue to surrender their God-given rights to privacy.

Source: InfoWars

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Source: InfoWars

Uber launched its IPO on Friday. It was less than ideal.

Meanwhile, the Federal Reserve is talking about how it wants to tweak its quantitative easing program when the next recession rolls around.

Peter Schiff talked about how these things relate — and the “writing on the wall” for the economy in his latest podcast.

Instead of buying some fixed amount of Treasurys and mortgage-backed securities, the central bankers have floated the idea of pegging a yield during the next economic downturn. For example, it would try to hold the interest rate on a one-year bond at, say, 1%.  As Peter pointed out, this is essentially price-fixing.

“They’re saying, ‘We don’t want the interest rate that is being determined in the market. We want to interfere in the market so that the interest rate is lower than the market would set.’”

The central bankers are basically admitting that this is not capitalism. They don’t want the free market discovering a rate because they don’t like the rate the market would choose. When you interfere with the market-clearing price – and an interest rate is simply the price of money – then you create surpluses or shortages. This is a basic supply and demand function.

As Peter said, this constant Federal Reserve suppression of rates is the source of our problems.

“The reason the Fed constantly feels that it has to artificially suppress interest rates is because we have so much debt as a result of the artificial suppression of interest rates in the past.”

That’s the irony of the Fed suddenly running around warning about high levels of corporate debt. It’s a problem it created!

“What they’re saying now is, well, if there’s another recession, we’re going to do the same thing. We’re going to keep interest rates artificially low to encourage over-leveraged companies to go even deeper into debt.”

As Peter pointed out, rising interest rates serve as a market-mechanism for correcting the debt problem. Rising rates discourage borrowing and bring down levels of debt. It also encourages saving, which creates a pool of funds for investing.

“What the Fed is saying is we’re going to short-circuit capitalism. We’re going to dismantle the safeguards because we don’t want the recession. The recession is part of the cleansing process in order to reset the economy, to clean out all the malinvestments and mistakes that are made and now you can have real economic growth. But the Fed doesn’t want any of that. The Fed says we are going to suppress interest rates and we’re going to pick a number that we think is right. We don’t care what number the market wants. We just want to pick a number out of the hat because we think we know better.”

(Photo by Wiki)

This might delay some of the pain by kicking the can down the road, but ultimately it’s going to compound the problems and the ultimate pain.

Peter goes on to explain how the Fed’s yield-targeting scheme could easily spin out of control.

“As it increases inflation to artificially suppress interest rates, the real rates of interest have to go up to compensate lenders for the increased inflation that the Fed has to create in order to artificially suppress rates. And this is going to lead to a spiral. This is going to lead to a currency crisis, a dollar crisis. As I said, the writing is here; it is on the wall for everybody to see. Unfortunately, for most people, it might as well be written in Greek because people are not able to read the language.”

Peter Schiff also talked about the Uber IPO on Friday, calling it a disaster. The market price never even got back to the IPO price and closed down 7.6% on the day. This is a real-world example of what the Fed’s tinkering with interest rates does.

“Normally, in a real environment where we had normal interest rates, where the Fed wasn’t artificially suppressing them, I don’t think money-losing companies like this would be able to come public. I would think that a company would have to prove that it had a viable business model and was able to generate a profit before it would go public before it would be an acceptable investment for mom and pops to put in their IRAs … you would at least have to be buying into a business that has proven that it makes sense – at least that it made sense in the past.”

Basically, we are in a situation where not only can you not predict the future, you can’t even get an accurate picture of the past.

“These are highly, highly speculative stocks, yet Wall Street is putting lipstick on these pigs as if they’re acceptable to the public and the only reason that they’re able to do that is of the Fed — because of this artificial suppression of interest rates that leads to all these bad decisions, all of this misallocation of capital. It is all a result of the Fed and their manipulation of interest rates. And ironically, that’s what the Fed is saying they’re going to do. The next time we’re in a recession, which will be a consequence of the mistakes the Fed made in the past, the Fed is going to repeat those very mistakes as a supposed solution to the problem that it created.”

Big Tech has become so deeply involved in everyday life that when they censor Christians, conservatives, and patriots they are actually attacking American’s God given rights enshrined in the constitution.

Source: InfoWars

The Federal Reserve has issued another warning about corporate debt.

But the Fed’s concerns seem a bit ironic considering its own easy-money policies have made all of this borrowing possible.

Last fall, the Fed warned about the rising tide of risky corporate debt. According to the Federal Reserve’s most recent Financial Stability Report, things have only gotten worse.

“Borrowing by businesses is historically high relative to gross domestic product (GDP), with the most rapid increases in debt concentrated among the riskiest firms amid signs of deteriorating credit standards.”

According to the Fed, the growth in business debt has outpaced GDP growth for the last decade.

“Although debt-financing costs are low, the elevated level of debt could leave the business sector vulnerable to a downturn in economic activity or a tightening in financial conditions.”

Note that “tightening financial conditions” means rising interest rates. Economies built on debt don’t do well when interest rates rise, which is one of the main reasons the Fed suddenly turned dovish at the first sign of shakiness in the markets last fall. It’s also one of the main reasons Peter Schiff has been saying the “Powell Pause” won’t be enough and the central bank will eventually cut rates and launch another round of QE.

Total business debt has risen to $15.2 trillion. Of even greater concern is the nearly $1.1 trillion in outstanding leveraged loans. These are loans made to firms already deeply in debt. Think subprime loans for corporations.

Mike Adams exposes the agenda of the private Fed as a war against the prosperity of Americans that simply want to make America great.

According to the Fed report, the amount of outstanding leveraged loans grew by 20.1% in 2018 alone. According to the S&P/LSTA Leveraged Loan Index, the total leveraged loan market has doubled since 2008. According to the Federal Reserve, the share of newly issued large loans to corporations with high leverage increased in the second half of last year and the first quarter of this year and now exceeds previous peak levels observed in 2007 and 2014.

In simple terms, these are companies that are already deeply in debt taking on even more debt. They are staying afloat on credit. This is only possible because interest rates are so low.

Thank you Federal Reserve.

So far, the default rate on these risky loans remains at nominal levels, but what happens if interest rates rise, or if the economy starts to tank?

Last fall, analysts were already worrying about all of this risky debt. The concern is that the high level of corporate indebtedness could make the next economic downturn “difficult to manage.” While few think it could cause the same kind of cascading meltdown we saw with the subprime mortgage market in ’08, it does “risk handcuffing companies and lenders trying to react to a downturn, possibly making it more painful,” according to a Reuters report last November.

“In a worst-case scenario that would faintly echo the financial crisis a decade ago, the defaults could worsen any downturn by destabilizing big non-bank lenders, such as private equity firms and hedge funds, and hitting employment across US industries. Leveraged loans are typically made to already indebted firms with low credit ratings, and the concern is that the loans would be difficult to either collect or resell in a downturn, putting both the borrower and lender at risk.”

(Photo by AgnosticPreachersKid / Wiki)

The release of the most recent Financial Security Report highlights the problem, but it doesn’t offer any solutions. As Bloomberg put it, “The Fed also left a question unanswered: Is it going to do anything about it?

A lot of pundits in the mainstream want the Fed to “do something.” This is ironic since that Fed is a big part of the problem in the first place. The November Reuters article even acknowledged this.

“The central bank itself may have contributed to the ballooning $1.12-trillion US leveraged loan market by holding interest rates near zero for seven years in the wake of the recession to encourage lending and investment.”

The Fed isn’t going to “fix” this problem. As Peter Schiff summed up succinctly last fall, we basically have a repeat of the years leading up to 2008.

“They kept interest rates at 1%, which at that time was the lowest they’d ever been. They left them there for an entire year, and then it took two or three years to normalize back to 5%. But we took on a lot of debt when interest rates were artificially low. A lot of it was mortgage debt. And the bubble popped. But this time, the Federal Reserve injected far more monetary heroin into the economy. They kept interest rates at zero for six years. They’ve been raising them for three years, and they’re just now back at 2%. So, you have nine years so far of extremely artificially low-interest rates, which have caused a much bigger credit bubble than the one that popped in 2008.”

Subprime corporate debt is just one of the many market distortions caused by the Fed’s monetary policy. Along with piles of corporate, government and household debt, we have massive asset bubbles. The Fed seems to have bought the economy a little more time with the Powell Pause, but at some point a pin pricks one of these bubbles.

As Big Tech continues to censor Christians, conservatives, and patriots worldwide, Attorney Robert Barnes joins Alex in studio to reveal how important it is for ordinary people to take a stand.

Source: InfoWars

The Federal Reserve Open Market Committee meeting wrapped up yesterday with Fed policy still in neutral.

As expected, the FOMC left interest rates unchanged and seemed to indicated it doesn’t plan to do anything at all in the near-term. Jerome Powell’s comments dampened expectations that the central bank might move to cut rates in the coming months.

“The committee is comfortable with current policy stance. Don’t see a strong case for a rate move either way.”

Most took Powell’s comments to be less dovish than expected, but Peter Schiff said he thinks the Fed is a lot more dovish than it admits.

A lot of the focus was on inflation. CPI remains slightly below the Fed’s 2% target. Powell said the  Fed suspects that “transitory factors are at play,” and that the central bank projects inflation will return to 2% over time.

As Peter pointed out, this is still 180 degrees away from where the Fed was before the market collapsed in the fourth quarter of last year. He also emphasized that while the markest seem to be getting nervous that we might not get rate cuts, we are going to get rate cuts.

“It’s just a matter of time. There is no way the Fed is going to raise interest rates. It is going to cut interest rates.”

Peter said Powell is right about one thing – the low inflation numbers are transitory.

“The official inflation numbers are not going to remain below 2%. They are going to go above 2% — by a lot! But none of that matters because initially, the Fed is not going to do anything about rising inflation. It is already now basically preparing the markets for inflation above 2%, because every time Powell talk, he talks about symmetrical inflation. He’s only saying that because he knows he’s going to allow inflation to be over 2% so he can claim its still symmetrical.”

This is the proverbial elephant in the room. The Fed can’t raise interest rates without popping all of the bubbles and collapsing the economy. The economy is built on piles of debt. You can’t sustain it with rising interest rates. So regardless of what it says publicly, the Fed has to remain on a dovish track. It really has no choice.

(Photo by TBIT/Pixabay)

Peter also touched on this myth that the Fed was maintaining “stable prices” by targeting 2% inflation.

“That’s like George Orwell. I mean, how do you define stability by going up 2% every year? If prices are rising 2% per year, you don’t have any stability at all. You have rising prices. Stable prices mean they stay the same. They don’t change over time.”

Consider what the Fed is actually trying to do. It wants to devalue the dollar by 2% every year. This is undermining your purchasing power.

Pundits tell us that we need inflation to protect us from deflation. They claim a long stretch of falling prices would mean a prolonged depression. But Peter pointed out an interesting historical fact. Consumer prices dropped by half between 1800 and 1900. That wasn’t exactly a century of depression.

“Think about all this economic growth we had in the 19th century in the United States, and prices went down … Falling prices are a good thing because that means your standard of living goes up. That means you can buy more stuff with less money.”

Who really needs inflation?

The government.

The US government is the world’s biggest debtor and inflation helps debtors eradicate debt.

“So, the government needs inflation so it can screw its creditors by repaying them in debased money.”

And why else do we need inflation? To sustain asset prices.

“They don’t want prices to come down for financial assets so they to keep creating more and more inflation to sustain the bubbles. But why do we have the bubbles? Because the Federal Reserve inflated the bubbles. So now because they inflated the bubbles, everybody else has to suffer a diminished standard of living, a falling standard to living, in order to prevent the music from stopping.”

There’s that elephant in the room. And that’s why the Fed is ultimately far more dovish than it will admit.

Peter also talked about bitcoin vs. gold in this podcast.

Tucker Carlson takes on the White House correspondents dinner and defends free speech. Don’t miss this epic display of truth!

Source: InfoWars

It looks like the Federal Reserve is about to get back into the bond business and help the US government deal with its massive debt.

The Treasury Department announced yesterday that it will not have to borrow as much money in the third quarter of fiscal 2019 as originally anticipated. But this is not because of a slowdown in government spending. According to a Treasury official cited by Reuters, the reason for the lower borrowing estimate is due to an anticipated increase in Fed Treasury holdings as the central bank ends its balance sheet reduction program.

In a statement, the Treasury Department said it will borrow a mere $30 billion during the April-June period. It was originally planning on selling an estimated $83 billion in bonds. According to the statement, the lower estimate was due to changes in “fiscal activity.”

So, what exactly does “fiscal activity” mean?

According to the unnamed Treasury official interviewed by Reuters, “The fiscal change related to the Fed’s plans to stabilize its massive portfolio of bonds relative to the size of the US economy.”

This is all related to the end of the Fed’s short-lived quantitative tightening program.

Mike Adams exposes the agenda of the private Fed as a war against the prosperity of Americans who simply want to make America great.

In February, Federal Reserve Chairman Jerome Powell confirmed that the central bank will end its balance sheet reduction program this year. According to the Fed chair, the balance sheet will remain at about 16 to 17% of GDP. That would mean the new normal for the Federal Reserve balance sheet would come in at between $3.2 trillion and $3.4 trillion.

The Fed began the QT balance sheet roll-off in October 2017. At that point, it had grown to $4.5 trillion after three rounds of quantitative easing in response to the Great Recession. You’ll recall that as late as September 2018, tightening was on “autopilot.”

Within a month of announcing the end of quantitative tightening, the Fed started talking about increasing its balance sheet again. According to a paper released by the Kansas City Fed, the central bank may need to hold a higher level of bank reserves “to properly implement monetary policy.”

Bank Reserves make up a big chunk of the Fed’s balance sheet and they have been shrinking rapidly with quantitative tightening. Over the last 12 months, the Fed has shed about $250 billion in US Treasurys from its balance sheet. That has increased the number of bonds the Treasury has had to sell on the open market. It borrowed about $374 billion through credit markets in the January-March quarter, according to Reuters.

(Photo by Tyler Merbler / Flickr)

In a nutshell, here’s how the balance sheet reduction worked.

When the Fed began its tightening program, it let some of its maturing bonds fall off the books instead of rolling them over. This required the Treasury Department to give cash to the central bank in order to pay off the bonds and to find new buyers for Treasurys on the open market. The US government doesn’t have money to pay off its debt, so it has to borrow more whenever current debt matures. With balance sheet reduction coming to an end, the Treasury will be able to significantly decrease the amount of money it will need to borrow on the open market because the Fed will once again begin rolling over the bonds it holds. In other words, it will allow the Treasury to pay off maturing bonds with new debt. As Reuters put it:

“In March, the Fed said it would soon begin ending a program to trim its holdings of U.S. securities. That effectively will make the US central bank a bigger buyer of US Treasury securities relative to recent months.”

In simple terms, the Fed plans to once again begin monetizing the federal government’s massive debt — something Ben Bernanke once promised wouldn’t happen.

When Bernanke launched QE, he insisted the Fed was not monetizing debt. He said the difference between debt monetization and the Fed’s policy was that the central bank was not providing a permanent source of financing. He said the Treasurys would only remain on the Fed’s balance sheet temporarily. He assured Congress that once the crisis was over, the Federal Reserve would sell the bonds it bought during the emergency. And yet, once QT ends, almost all of the mortgages and Treasurys that the Fed purchased at part of its three rounds of quantitative easing during the Great Recession will remain on its balance sheet.

So much for promises.

Islamicists are now pretending to be Christians online while spreading hate towards the Jewish community.

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Month after month, the Trump administration runs multi-billion dollar deficits. The national debt has ballooned to over $22 trillion. According to the most recent Treasury Report, the US has a net worth of negative $21.5 trillion. And this understates the problem.

As Wolf Richter of WolfStreet puts it, the US government has “debt out the wazoo.”

Is this sustainable?

In a recent WolfStreet report, Wolf analyzes the debt, who is buying it and why.

Wolf points out that few countries are in worse fiscal shape than the US. America is in the same situation as countries like Japan, Greece and Italy.

The US and Japan have one advantage over Greece, Italy and some other nations because they control their own currency. That means their central banks can simply print money to buy government debt.

The Bank of Japan continues to monetize its government’s debt, but over the last year, the Federal Reserve has not been buying US Treasurys. This may change soon with the end of the Fed’s balance sheet reduction program, but currently, the central bank is not propping up America’s spending binge. So, who is buying all of this debt?

And why?

Foreign investors hold $6.4 trillion in US Treasury debt. China and Japan rank as the largest foreign holders.

The Fed holds about $2.1 trillion in US debt.

US investors and institutions hold about 7.7 trillion – by far the largest category.

US government entities, such as pension funds and the Social Security Trust Fund hold nearly $6 trillion in Treasurys. Some argue this is money “we owe ourselves” so it cancels out. Wolf called this baloney.

“This money is owed to those beneficiaries and it doesn’t cancel out. It is a real debt that the US government owes and it has to pay.”

China’s holdings of US Treasurys are down about $46 billion from a year ago. In total, China and Japan’s combined hold about 10% of US debt. That’s down from a little over 11% in 2017.

Over the last 12 months, foreign investors added about $164 billion in US debt as the Federal Reserve shed around $250 billion. US government entities added $160 billion in Treasury holdings. That totals a net increase of $45 billion.

That means that US investors have taken on the bulk of US government debt – in the neighborhood of $1.2 trillion over the last 12 months.

Wolf points out that banks are aggressively trying to attract depositors and are competing with the federal government which has to fund its deficits. With interest rates so low, US bonds are actually an attractive place to stash cash.

“Two-point-four percent 20 years ago would have been a ludicrously low amount of interest to be attractive, but these days are not normal and 2.4% is a fairly attractive number.”

(Photo by Tyler Merbler / Flickr)

On top of that, there is a great deal of dividend risk in the stock market with so many companies overvalued. Wolf points to GE as one example of a company that has slashed dividends to close to zero.

Wolf says that the trillions of dollars of additional Treasurys the US government is throwing on the market just doesn’t seem to matter to US investors – at least at this moment.

The $64,000 question is how long can this last?

It doesn’t seem like a sustainable scenario. Right now, things appear pretty rosy. It’s a primrose path of debt, that while perhaps troubling on a theoretical level, isn’t really having any actual impact on the economy. But it seems likely at some point the oversupply of Treasurys will begin to swamp demand. When that happens, the US government will have a real problem.

Who will take up the slack?

If you look at who owns US debt, there is really only one viable option – the Federal Reserve. Practically speaking, this means more quantitative easing.

If demand for Treasurys starts to fall, that will push interest rates higher. This is a simple supply and demand function. The Fed will then face two choices.

  1. Intervene with interest rates cuts and more QE. In other words more inflation.
  2. Do nothing and let interest rates spike.

No. 2 would not bode well for an economy built on debt. The Sovereign Man summed up the implications.

“Make no mistake: higher interest rates will have an enormous impact on just about EVERYTHING. Many major asset prices tend to fall when interest rates rise. Rising rates mean that it costs more money for companies to borrow, reducing their leverage and overall profitability. So stock prices typically fall. It’s also important to note that, over the last several years when interest rates were basically ZERO, companies borrowed vast sums of money at almost no cost to buy back their own stock. They were essentially using record low-interest rates to artificially inflate their share prices. Those days are rapidly coming to an end.”

The bottom line is that the US federal government is on an unsustainable path.

Patrick Casey, head of the American Identity Movement, joins Owen Shroyer live via Skype to discuss how his team planned and executed their infiltration into a drag queen story time event.

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During the New Orleans Investment Conference, Peter Schiff participated in a panel discussion with Ben Hunt and Mike Larson. They talked about bubbles, booms and busts.

Hunt called it the “bubble of everything.” But he said the “gravitational force” created by all of the assets central banks have purchased over the last year have changed the “bubble-popping process.” That makes it hard to predict when things will actually start to deflate. He said it will take something the undermines the market confidence that central banks can bail us out. Hunt said inflation was possibly the pin that could prick the bubble.

Larson called it the “uber-bubble,” and he said he already sees some of the background concerns that have been simmering for  a long time are starting to “bubble over.” (Pun intended.) He said the last two bubbles were high in amplitude, but limited to certain parts of the economy (dot-coms and housing). The current bubble isn’t as high in amplitude, but it’s broader-based. We see bubbles in stocks, high-yield bonds, housing (again), and commercial real estate, along with a lot of other assets you don’t hear as much about – such as art and comic books.

“I think the process of unwinding this is already beginning.”

Peter focused in on the cause of the bubbles.

“When you see rampant, wide-scale bad decisions, generally a central banker is behind it, and they have made a bad decision to create too much money and to artificially manipulate interest rates down.”

This creates distortions in the economy because interest rates are really nothing more than price signals.

“And like all prices, they need to be determined by the free market.”

Whenever the government – and central banks are really an extension of governments – price fixes something, it creates big distortions and malinvestments.

“We have had artificially low-interest rates for an unprecedented number of years at an unprecedented low rate. So, the mistakes that have been made during this time period dwarf the mistakes that have ever been made in any bubble in the past because the bubble is so much bigger.”

When a bubble finally bursts, it’s really just the free market trying to clean up the mess created by the intervention. The bigger the boom, the bigger the bust.

“The problem now is that the boom is so big that the bust will be catastrophic. And what’s going to make this bust different is that there is no bailout. There is no stimulus. It is impossible to reflate this bubble, because, as has been said, this is a bubble of everything. They can’t make a bubble go someplace else. It already is everyplace.”

(Photo by Wikimedia Commons)

Peter said the only place there isn’t a bubble is in gold. That means there is also a bubble in complacency and optimism.

“People are so drunk on all this cheap money, they think nothing can go wrong.”

As far as what pin will prick the bubble, Peter said there are all kinds of pins out there. The problem is that when you’re in a bubble, you can’t see the pins.

The panel goes on to discuss some of the specific manifestations of the bubbles and where they see trouble spots.

And Peter makes a pitch for gold, saying his 24 karat gold cufflinks will outperform the S&P 500 over the next five years. He pointed out that when they started popping the dot-com bubble, gold was under $300. It got as high as $1,900 in 2011.

“This game is not over. The fat lady hasn’t sung yet. When this final bubble pops, gold is going through the roof –I do think that by the time this bubble has run its course, you’ll be able to buy the Dow Jones for an ounce of gold.”

Owen Shroyer delivers an epic rant on how U.S. soldiers were disrespected at the southern border by the Mexican Army.

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