YELLENOMICS 101

They say that getting to the summit is only half the journey; you hafta’ make it back down again, too. It’s getting to be a pretty big drop.

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How long do you think it’s gonna’ rain? Forever?

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And what do you think will happen when it stops?

Dow Jones Industrial Average, 1900 - August 17, 2007.
 

Dow Jones Industrial Average, 1900 - 1940.

The greatest economic mind in America (supposedly) thinks she can keep the ball rolling indefinitely. Some, including Al Bartlett (1:13:53), would disagree.

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Change…

…pocket change that is, is changing.

One dollar coins (Loonies) were popular as a forgotten novelty; two-dollar coins (Toonies) were not. I remember working in the service industry back in those days. Everyone complained about the amount of change they would have to carry around in those money belts. The money belts grew more robust. Waiters today are in for a surprise.

The nickel and the quarter will be eliminated in favour of a twenty cent piece, called a “Twenny.” (I don’t know that for sure, in fact, I just coined the phrase. Nevertheless, I think it sounds catchy. In France they are called “des pièces de vingt centimes” but then everything takes more words to say in French… maybe that’s what makes it romantic.)

This move, on it’s own, will likely lighten waiters’  loads (and necessitate another re-design of the money belt,) but there’s more.

The five dollar bill will be replaced by a coin. $5 bills represent just under 2% of the Canadian money supply. [It won’t be long now for the tens.] A two-hundred dollar bill will also be introduced. And all this for 2017. What ever happened to banning the ‘C’-note? In the cancellation of a bill, is a demand for it not being created? As they cancel more and more bills, and create new ones, won’t they be feeding the monster they wish to slay? Getting people to hoard cash is not good for banks. The Bank of Canada eliminated the thousand-dollar bill in 2000 for this purpose, and put the blame squarely on drug-runners and money-launderers. Movement of physical cash is closely watched at the borders and at all points of entry. Are they developing cover for a digital monetary system? Are they really going to ban cash? These recent actions lead us to believe that they will not, but sometimes an event must be manufactured with nothing but ‘good intent’ behind it acting as a catalyst to ensure it’s quick demise. Kissinger might find it easier to pop the balloon rather than let it deflate on its own. That would require intervention. Intervention always incurs cost.

Either this brings us closer towards the European system, or the people at the Mint are preparing for inflation. You don’t think of the economy in the same way if it costs a million of something to buy a loaf of bread. Being a millionaire is easy in some places. Debasing currency (by lowering the cost of production,) even fiat, always leads to inflation. The central banks have been struggling to find a way to increase inflation to keep this sham system afloat, and it looks like this turned out to be their best-worst option. Will this replace the need for ‘helicopter money‘ or is it just an addition? Perhaps it’s all been scripted in order to introduce a global [?digital?] currency. Either way, UNPA member Justin Trudeau is paving the way for his ascension through the UN. [Read the “Welcome” message in the UNPA link.]

Portugal had to wreck its economy for the former Prime Minister (1995-2002) António Manuel de Oliveira Guterres (a notable socialist, ECFR, and Club of Madrid member – not to mention his long list of distinctions) to be elected Secretary General of the UN. That’s quite a cover charge for entry to the big boys’ club. I wonder if it was on a dare or a bet, or if it was just an initiation, of sorts. With that against him, his loyalty would be assured. Amongst other positions, he had previously served as the UN’s High Commissioner for Refugees.

Is Canada next? The Asian money doesn’t seem to think so, but the Canadian government’s recent action in the Vancouver housing market was a clear signal for Asian markets to ‘keep away.’ The manipulation practiced by Wells-Fargo, Shkreli, Volkswagen, and the gold market pale by comparison. Where’s RICO when you need him?

It looks like the Lone Ranger is gonna’ need some more silver bullets, and gold ones; or maybe Dorothy could just click her heels… rubies and sapphires might have some value, but emeralds are not a good investment.

The Legend of the Oogy-Mi-Booli Tribe

Before glaciers covered all the lands, there lived a tribe of rather primitive people, the Oogy-Mi-Booli. They occupied the forested region bordering the mountain steppes of what is now Lower Slobbovia. The village was on the only river in the area.

Sure, they could write and add and irrigate and such, but they were primitive in their thinking, in their predominantly short-term thinking. However, they thought themselves sophisticated because their economy was so complex. More on that later.

One evening, to everyone’s astonishment, a group of hunters had brought home with them a gargantu-nocerus, alive! Despite dispatching many of it’s kin, they had spared this one from the kill. Apparently, the gargantu-nocerus had spoken to one of them, the shaman. It wanted to make a deal. The animal was a young mother (after experiencing child-birth, gargantu-nocerususes lactate for life) who had just lost her only offspring to an even more gianter beast.

[Gargantu-nocerus milk was extremely nourishing; it was what sustained the hunters and allowed them to haul back such massive quantities of meat for the women and children of the tribe. Unfortunately, it didn’t keep. During a hunt, it was customary for the fastest runner to bring back as much milk as he could carry so that all the children in the village could have a taste before it went sour. Animals would chase him. Often-times, when the hunt was far, or the weather was hot, he would return with nothing but rancid butter.]

Upon arrival at their village (called Kshepaw-Oozju-Rendoo, where everybody lived in the same lodge-house,) the shaman called out all the villagers (which they found troubling, given the late hour – they had been tending to their pagan rituals) and instructed them on what needed to be done.

The animal in question, in a bargain for it’s life, was to be revered, made sacred, and placed in what was to remain, for all time, the most prominent spot in the village… on the roof of the communal house. It would be pampered, and cleaned, and fed, and attended to, and most of all, it would be protected from it’s other natural enemy, the enormo-saurusus (which stayed far afield of the human village on account of the smell.) The animal would be their de-facto emperor. In exchange, it would provide them with all the fresh gargantu-nocerus milk they could drink.

So the villagers got to work. A throne needed to be built, scaffolding had to be erected to reinforce the roof, and stairs needed to be constructed for the scores of volunteers attending to the behemoth which slept above their beds. Their prayers to the new emperor overhead would mostly be about structural failure, design flaws, and engineering specifications, or a desired lack, thereof, and sometimes, during the dry season, about getting more rain. Being mostly carnivorous – they ate some fish and insects, too – they didn’t need the rain for crops. They just enjoyed playing outside in it. The only thing better than rain showers, in the eyes of the people, was being ‘blessed from above’ by the animal’s showers of excrement. What an honour that would be, to be shat upon by the emperor! But first, they had to get the beast up there. Once they did, they could harvest the super-nutritious milk.

Needless to say, the task was a monumental one, but little by little, the throne was fashioned, the scaffolding and the stairs were built, and it didn’t all come crashing down onto the villagers’ heads. With this new supplement to their diet, gargantu-nocerus milk, the children grew up healthy, and strong, and with the belief that this lifestyle had to be protected, for the sake of the next generation. Stronger hunters make for bigger hunts. Bigger hunts make for more people to go on bigger and bigger hunts. Can you say ‘exponential growth curve’ or ‘doubling function’?

Every year, the gargantu-nocerodes’ genitals would be rubbed down and its musk would imbibe the rags. These rags would then be used to lure other gargantu-nocerodes during the hunt, making it less time-consuming, hence, more beasts could be felled.

One year, the emperor’s health began to fail, and another had to be captured in order to take its place. This tradition grew with time as did the need to expand the lodge-house. The hunts had never been so successful, and gargantu-nocerus meat could be smelled cooking for miles around, all day long. Boom-times !!

Well, with all the additions to the lodge-house, and with all the fires used to cook the Oogy-Mi-Booli’s meat, the forest in which they lived began looking more and more like the adjacent steppes, where the gargantu-nocerus roamed, treeless. The tribe’s economists (who were necessary now that the economy was booming) started developing insurance schemes, derivatives contracts, and other tools to mitigate the losses should anything really bad ever happen (of course, ‘really bad’ had only one result: doomsday. Nevertheless it re-assured the people that the smart ones, the bankers and businessmen, really did know what they were talking about.) It had gotten so bad, that the trek to get wood was now even longer than the trek to the hunting grounds. A generation later, there was no wood to be found anywhere, not even up-river, where the bankers lived.

The emperor’s excrement was gathered with nets (it was fibrous enough, given her vegetarian diet) and was used to stoke some of the fires (so much for manna showers – austerity became a noble goal,) but it was not enough. Eventually, people started to use wood from the lodge-house to cook their plentiful meat. When all the walls and the roof had been consumed they had reverted back to covering those surfaces with gargantu-nocerus skins. After the floorboards had been used, the scaffolding was next.

Life became like a game of ‘shortest straw’, nobody knowing when the shavings of wood they salvaged from the structural members of the scaffold would weaken it enough to initiate its collapse. The architects and the engineers (all the chief’s men) were called in by the shaman to reassure the people that “…at the present rate, the structure could withstand this whittling for decades to come, long enough, surely, to find a more permanent solution to this most pressing, but not by any means urgent situation. Everything’s fine; nothing to see here. No need to panic.” But ‘present rates’ tend not to stay ‘present’ for long; they grow.

One morning, while everyone else slept, the emperor’s head attendant peeled off some splinters of wood from the creaking structure to boil a pot of water for the emperor’s morning tea. Before anyone knew what had happened, they were all crushed by the weight of their utopic dream. All but the bankers, that is, but they all starved to death within a month.

Growth kills.

The Most IMPORTANT Video You’ll Ever See (part 1 of 8)  (9:17)

Yellen: Make It Rain

Switzerland just said no (with 78%) to a guaranteed income (helicopter money) for all its citizens.

With an unemployment rate of about 3 1/2%, they didn’t really need it. The fear was that it would encourage immigration. That seemed to be enough of an argument for Swiss adults to decide they did not want an extra 2500 CHF (625 CHF per child) per month. The system was to replace welfare.

The practice remains more or less untested. It was first posited by economist Milton Friedman in 1969. The basic principle is that if a central bank wants to raise inflation and output in an economy that is running substantially below potential, one of the most effective tools would be simply to give everyone direct money transfers.

Canada tried it in limited amounts and found that it did decrease poverty, but at what price? Some had trouble dealing with it and feared it would push the country further towards socialism. The Canadian program is set to launch in 2016. Canada’s unemployment rate is twice that of Switzerland which means it might have more popular support.

Finland is set to begin in 2017. France, United Kingdom, and parts of the Netherlands are set to implement similar programs soon. Will the US be next?

Helicopter money indeed, but for whom? Cui bono?

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image: ©laphotoshoppe [at] gmail [dot] com

Eh You (Au)

If someone is vehement about not wanting you to buy something, it’s probably because they want it for themselves.

Additionally, if they vehemently want you to sell them that same thing, this can only serve to reinforce the impression that gold really is the only thing worth having.

“Awww, forget about gold, it’s so ‘passé.’ What you want are these financial instruments – ‘paper gold’. They’re more modern, and sexier, easier to trade, and no storage fees; not to mention that there are 400 times as many of these as gold! By the way, if you want to sell me some of your gold, I have a few of these choice opportunities for you. Besides, would you prefer carrying a briefcase, or a trunk? C’mon let’s go have a drink and talk it over.”

“Yeah I could really use one or two of those, what with work, mortgage, loans, an education for the kids, and don’t get me started about my…”

If you can’t spot the sucker, the sucker is you.

Lift-off, or Splash-down?

Today is the day the Fed decides whether it will raise interest rates or not. Nobody at all is talking about this but, heck, they might even go negative. From a nominal 0.10%, if the rate is dropped 0.25%, that would turn (near) ZIRP into (full-on) NIRP.

Maybe there will be a bomb scare and the meeting will be called off. That way ISIS can be blamed, guns can be confiscated, Christmas spending won’t be affected, the Fed won’t be scrutinized, and the hike can happen in January when it won’t matter so much, if at all. Everybody will be broke by then anyway.

We will have to wait and see. In the meantime, watch for falling… uh… objects.

*Update*

No bomb scare, no NIRP (yet,) no good sense from the Fed. Today’s hike caused already over-priced markets everywhere (even Brazil) to climb even higher. Is this a good thing, or did the Fed screw up once again?

If hikes are no good, and Nirp is no good (punishes responsible savers,) what options are left? When all markets are manipulated (to paraphrase Carney,) how does this bode for the entrepreneurs who are supposed to lift us out of recession? How are they supposed to make projections? How can they justify risking investments and hiring their workforce?

Defenestration did not appear to be a significant problem.

In the end, the Fed did not surprise, and raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be “gradual” and in line with previous projections. The Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.”

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© laphotoshoppe

China Secures SDR

While the world was busy watching the aftermath of the Paris attacks, the IMF just gave its recommendation to place China’s Renminbi in the global Special Drawing Rights (SDR) basket of funds.

In an ironic twist, while the IMF has historically delayed the moment of acceptance, it caved just months after China officially devalued its currency for the first time in decades to stimulate its exports, and has unleashed an unprecedented campaign (using overt and covert means) to stabilize the Yuan as capital outflows in the past several months have soared. ”

This puts pressure on the faith in the US dollar and its world reserve currency status and has many international consequences, as well.

*Update*

Today is the day. Is the beginning of the end nigh for the US dollar?

“In 2009, amid the West’s scramble for signs of recovery, Zhou Xiaochuan, the governor of the Peoples Bank of China, called for a new financial order with a global reserve currency replacing the U.S. dollar. The Financial Times noted, “If, as expected, the imf this month approves the inclusion of China’s renminbi as a reserve currency, it will mark a small step for Mr. Zhou’s 2009 vision but a big move for the renminbi.” ”

“The US Dollar might have reached the top of its strength and could see a downward correction in the next few weeks.”

With the Fed expected to raise interest rates in December, more outflows from the US dollar to the Yuan (renminbi) and some downward pressure on the dollar can be expected in the short term. Long term, the dollar still looks strong, but the renminbi is set to catch up.

It’s official, the yuan will be part of the SDR basket starting Oct. 1, 2016 with a weighting of 10.92%. Could this be a catalyst for portfolio re-allocation? If it is, and if new buyers of yuan stem the outflow of capital from China, the yuan may soar undoing all the devaluations to date and, ironically, hurt the already faultering Chinese economy. Could China’s hard landing turn into a crash?