Art Cashin - We Are At Risk Of A Frightening Hyperinflation

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/10/12_Art_Cashin_-_We_Are_At_Risk_Of_A_Frightening_Hyperinflation.html

It's Only Monetizing Debt if it's Done Permanently

Amazing, absolutely amazing.  I'll let Ben speak for himself:

"By buying securities, are you "monetizing the debt"--printing money for the government to use--and will that inevitably lead to higher inflation? No, that's not what is happening, and that will not happen. Monetizing the debt means using money creation as a permanent source of financing for government spending. In contrast, we are acquiring Treasury securities on the open market and only on a temporary basis, with the goal of supporting the economic recovery through lower interest rates. At the appropriate time, the Federal Reserve will gradually sell these securities or let them mature, as needed, to return its balance sheet to a more normal size."

Full text:  http://www.federalreserve.gov/newsevents/speech/bernanke20121001a.htm

As a follow up question, perhaps we should ask if this will work the same way with the nearly 1T in MBS purchases.

http://www.federalreserve.gov/releases/h41/Current/

Pottersville

http://www.pimco.com/EN/Insights/Pages/Pottersville.aspx

Federal Reserve: 10 Things Every American Should Know

http://billtotten.wordpress.com/2012/10/02/ten-things-that-every-american-should-know-about-the-federal-reserve/

Is Silver Money?

http://seekingalpha.com/article/898151-is-silver-money

Curiouser and Curiouser

http://www.zerohedge.com/news/2012-10-02/ecb-eur22-trillion-missing

Bond Bubble

It seems there is a lot of speculation on this subject, I would offer a conjecture.  There is not in a bubble at present, but if inflation begins to rise a bubble could be imminent.  Therefore, I'd suggest watching CPI closely and make buddies with your local recycling center owner.

http://online.wsj.com/article/SB10000872396390443884104577645470279806022.html

Don't Piss Off the US Government

Or they will shut you down....there seems to be a pattern.

http://www.bloomberg.com/news/2012-09-30/sec-sues-the-one-rating-firm-not-on-wall-street-s-take.html

Spain is Fixed (part 4 gazillion)

http://mobile.bloomberg.com/news/2012-09-29/spain-plans-267-billion-of-debt-amid-rescue-pressure-correct-

Protection Money

Our Government is protecting us again, now don't you feel safer?

http://www.bloomberg.com/news/2012-09-11/u-s-said-set-to-target-first-non-bank-firms-for-scrutiny.html

And It's Pretty

http://www.bloomberg.com/news/2012-09-26/hedge-funds-bullish-on-silver-as-hoard-nears-record-commodities.html

In Defense of Supply Side Economics

Lack of aggregate demand is often sited as a problem leading to recessions, and thus the government must compensate for demand losses with stimulus (deficit) spending in order to maintain the status quo until such time as demand recovers.

I demand a Saturn cruise, a cable bill that is only $1.00, and free tacos on Tuesdays.  It's called supply and demand, not demand, and not supply;  however, one can have all the demand in the world...but that doesn't mean the product will ever exist.  Hell, I'd really like a personal robot to iron my clothes.

Supply Comes First. (PERIOD)

I argue that if the government would allow for free unfettered capitalism, we would pull out of our current mess without the monetary and fiscal spending.  Let innovators do what they do, get the EPA, IRS, and OSHA off there backs.  It would encourage jobs which lead to higher wages which lead to increases in aggregate demand via the wealth effect.

This really doesn't seem difficult, perhaps you just need a lack of education to figure it out.

(and for liverals that read this and want to argue the use of the word "unfettered" may I just take a moment to say limitations based on libertarian principles is my definition, but you really need to stop being so nit picky on wording)

New Jobs in Demolition

Chinese company ordered to divest itself from energy sector.
http://www.businessinsider.com/obama-demands-china-divest-from-windfarm-and-rip-up-everything-theyve-already-built-2012-9

Cheap rent...for a bit

http://www.foxnews.com/us/2012/02/06/16-house-dallas-area-man-evicted-after-squatting/

More Pain in Spain

As a footnote, this sort of thing doesn't happen in the Western world, not in civilized countries, AND CERTAINLY NOT IN THE UNITED STATES OF AMERICA.


http://www.dailymail.co.uk/news/article-105333/Demonstrators-riot-Spain.html

Silver is cheaper than gold

Multiple conclusions can be drawn in regards to the price of silver vs gold, and whether one is cheaper relative to the other.

The quick math:

Today
1 oz of silver will purchase 28 candy bars (34.64 per oz/1.25 per bar)
1 oz of gold will purchase 1,422 candy bars (1,778 per oz/1.25 per bar)

1960
1 oz of silver would purchase 19 candy bars (.914 per oz/.05 per bar)
1 oz of gold would purchase 705 candy bars (35.27 per oz/.05 per bar)



Conclusions:

Silver purchasing power is closer to it's value in years past.

If gold is priced correctly, then silver is undervalued.

If silver is over valued, gold is way overvalued.

If silver is adequately valued, this is mute.

If silver is overvalued, then the price will decline.

I'll leave you to draw your own conclusion on monetary policy.




Notice this is not an article on whether or not prices were suppressed in the past, or if they are today.  This
is purely about relative comparisons.


As a side note, a strong case could be make that relative to wages, both silver and gold are expensive and this should be weighted when considering the need for more than 5% of net worth in precious medals.
((average hourly wage/gold)*40)



However, since they are insurance...perhpas one should own 5-10% of net worth in these medals.

Evidently Greece was not fixed by the 3rd bailout.

(corrected)
http://www.guardian.co.uk/world/2012/sep/19/debt-ridden-greece-firesale?newsfeed=true

Now this is scary

http://www.presstv.ir/usdetail/260976.html

Remember, the Chinese are our friends.

Spain does NOT need a bailout

4/12/12Mariano Rajoy insists Spain does not need a bailout.

http://www.lamoncloa.gob.es/IDIOMAS/9/Presidente/News/2012/20120412_SpanishPolishHLM.htm


Perhaps he should have finished that sentence with, "today:"


http://www.guardian.co.uk/world/2012/sep/21/spain-bailout-pension-cuts


I realize this is old news, but it's worth noting that false advertising from government officials is rampant.

Why You Should NOT Save Money

     Every time I hear a news story about the personal savings rate in the United States being low I put hand to forehead.

(Saving Rate)

















       
     Trying to explain why money is NOT something to be saved but to be used to create wealth is not an easy task, and may seem counter intuitive.  Notice the distinction between money and wealth, they are NOT the same thing.  Money may have been a store of wealth in the past, and it could be again in the future, but it is not today.

     To start, take a dollar out of your wallet or purse and take a long look at what you are holding.  For most of us, we look at the dollar and say this is money.  We notice it's paper with ink on it, yet it doesn't look like it used to, the pictures are bigger, colors other than green, and a ton of security features.  Now flip it front side up and read the words printed at the top.  Do you read "FEDERAL RESERVE NOTE"?  Note?  Note? Note?

bank note

 

noun

a promissory note, payable on demand, issued by an authorized bank and intended to circulate as money.

promissory note

 

noun

a written promise to pay a specified sum of money to a designated person or to his or her order, or to the bearer of the note, at a fixed time or on demand.

     Generally speaking what we refer to as money is actually debt.  Let me rephrase that:

 "All Federal Reserve Notes are Debt"

     Money is not a store of value.  The word money refers only to a medium of exchange....that's it, pure and simple.  In the good old days, money was gold and silver.  Gold and silver obviously are a store of wealth and so they serve both functions when they circulate as money.  To demonstrate the distinction I ask the reader to name the price of a soda and a candy bar.

Today's price at the convenience store, $2.24:

Soda = $1.25

Candy bar = $.99

Price in 1949 (pick this because of my mother's stories), $.10

Soda = $.05

Candy bar = $.05

The point of interest here???

1 silver dime roughly = $2.50

The point is that the soda and candy bar did not change in value, they are the exact same price today as they were 50 years ago.
(though it would appear that the soda had a better return than the candy bar, that's the price of 20oz vs the old 12oz bottles)

    "The Federal Reserve guarantees you to loose wealth if you choose to hold money" 

Think about that.  What is the target inflation rate of the Fed? Supposedly it's been 2%, however Ben just threw that out the window with QE infinite.  So, if you are a saver at best you can expect to have 98% purchasing power after 12 months and 90.5% after only 5 years. This is guaranteed by the Fed, at this point we could open a discussion of why this is the case, but for now it's best to just understand this point.

"The Federal Reserve openly states they will steal 2% of your purchasing power, your WEALTH every year that you hold money"

     Don't believe it...visit the link below to see it in their own statement. 

http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm

Quote from article above:

"The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate."

     This information leads to the conclusion:  Currently savers are losers, and debtors are winners.

Straight Shooting

Though I have in the past found it odd that the Federal 
Government would need so many bullets

....

http://www.infowars.com/dhs-purchases-200-million-more-rounds-of-ammunition/

perhaps the answer is in the article below

http://www.foxnews.com/us/2012/08/24/multiple-people-shot-near-empire-state-building-in-manhattan-police-say/

U.S. Debt is Really Down

FAST FACTS

Despite all the news hype about the debt hitting 16 trillion, it would seem that the amount we owe is down...if you calculate the debt in ounces of gold.

(Government Debt/Ounce of Gold)


(Please do not laugh at the fact that we owe 9 billion ounces of gold.)

Seriously?

"The only alternative to this nightmare is for debts to be written down to what can be paid back in a democratic mixed economy, geared to a more equitable distribution of wealth and income."

Or we could just change from a debt based monetary system to one based on a yellow metal that worked just fine as money for ohhhh say...............2000 YEARS

http://www.athensnews.gr/issue/13512/58168

A Little Bit of Stimulus

"To keep the frog from jumping out of the pot, you have to turn the heat up slowly"

1.  The Fed announced last week it would purchase $40 billion of mortgage-backed bonds every month until it saw a substantial improvement in the outlook for the labor market.....(see prior post)

2.  In June Operation Twist was extended to the tune of $44.5 billion per month...(see below $267 divided by the remaining 6 months of 2012)

3.  All debt principal to be used to buy MBS

http://www.newyorkfed.org/markets/opolicy/operating_policy_120620.html

Statement Regarding Continuation of the Maturity Extension Program

June 20, 2012	Printer version

On June 20, 2012, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to continue through the end of the year its program to extend the average maturity of the Federal Reserve’s holdings of Treasury securities.  Specifically, the Desk was directed to purchase Treasury securities with remaining maturities of 6 years to 30 years and to sell or redeem an equal par value of Treasury securities with remaining maturities of approximately 3 years or less.  The continuation of the maturity extension program will proceed at the current pace and result in the purchase, as well as the sale and redemption, of about $267 billion in Treasury securities by the end of 2012. The FOMC also directed the Desk to continue reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities (MBS) in agency MBS, and to suspend, for the duration of the maturity extension program, rolling over maturing Treasury securities into new issues at auction. Purchases of Treasury securities for the maturity extension program will be distributed across five sectors using the same approximate weights that have been used in the purchases to date: Nominal Coupon Securities by Remaining Maturity* TIPS** 6 – 8 Years 8 – 10 Years 10 – 20 Years 20 – 30 Years 6 – 30 Years 32% 32% 4% 29% 3% *The on-the-run 10-year note will be considered part of the 8- to 10-year sector. **TIPS weights are based on unadjusted par amounts. This distribution could be altered if market conditions warrant. A combination of sales and redemptions of Treasury securities will be conducted to match the amount of purchases over the program.  Sales of Treasury securities will take place in securities maturing between January 2013 and January 2016.  Securities maturing in the second half of 2012 will be redeemed—that is, allowed to mature without reinvestment—since redeeming maturing Treasury securities has a nearly identical effect on the portfolio as selling securities that are approaching maturity.  Once the maturity extension program is completed, the Federal Reserve will hold almost no securities maturing through January 2016. The Desk will continue to publish a tentative schedule of operations for the following calendar month on or around the last business day of each month. The schedule will include the anticipated amount of redemptions, purchases and sales to be conducted, operation dates, settlement dates, security types (nominal coupons or TIPS) to be purchased or sold, the maturity date range of eligible issues, and an expected range for the size of each operation. The next schedule of operations will be released on Friday, June 29. All other program details remain the same at this time.  Additional information on the program’s structure can be found in the revised Frequently Asked Questions for the Maturity Extension Program.

4. The Fed purchases 61% of Federal debt

http://www.moneynews.com/Headline/fed-debt-Treasury/2012/03/28/id/434106

And people wonder why they should buy land?

How about, the fed is paying it down for you right now....smile it's only paper.

Fiat Lite

If fiat is the way of the future....Bullard is spot on


http://www.reuters.com/article/2012/09/18/us-usa-fed-bullard-idUSBRE88H17N20120918

Speculative Update on Oil Flash Crash

One big order, thousands of small ones, seen behind oil tumble

http://www.reuters.com/article/2012/09/18/oil-crash-idUSL1E8KIB5J20120918?type=marketsNews

No Laughing

How to break the news?

http://dealbreaker.com/2012/09/reader-poll-what-is-the-appropriate-way-to-close-a-letter-informing-your-employer-youve-lost-it-a-couple-billion-dollars/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+dealbreaker+%28Dealbreaker%29

Sun vs Bear

Would the Chinese really dump Japanese bonds on the open market?

http://www.zerohedge.com/news/bond-wars-chinese-advisor-calls-japanese-bond-dump

8.1% Unemployment My Hinny

Another perfectly honest chart from a wonderful, all caring government is once again telling us the unemployment rate is getting better, if only that were true.  


(Civilian Unemployment Rate)



Of course, this chart is is also showing a decline.
(if you need a refresher: http://en.wikipedia.org/wiki/Employment-to-population_ratio)

(Civilian Employment-Population Ratio-10yrs)



And as a historical perspective...

(Civilian Employment-Population Ratio-50+yrs)


Amazingly one can notice women entering the workforce, the recessions of the 70's impact on workers, and the fact that people are not going back to work presently.  Virtually every time they BLS reports a decline in the unemployment rate (at least lately) the EPR (Employment-Population Ratio) drops also (which is bassackwards of how it should be).  I made a little chart postulating that 62.7 EPR correlates to 5% unemployment, this seems to be the present interpretation of full employment.  Funny enough, when unemployment was 5%, 4% was still considered full employment and so I don't squabble much with the powers that be on this point.

(62.7/EPR+5%)-1 compared to the unemployment rate/100



Conclusion:  I calculate the unemployment rate to be 12% based on the norms of the past 35 years, the BLS obviously does not agree.

Do the math yourself, if I'm wrong I'd love to know why....

Another WTF Moment: Brought to you by?????

Oil Drops $4 bucks in last minutes of trading.

http://af.reuters.com/article/energyOilNews/idAFnL1E8KHF420120918

Real Wages

Wages in Gold:  Short-Term Implications

Gold is dear relative to wages.


((Average hourly wage/Gold per ounce)*40)

     Gold prices are at 30 year highs relative to wages.  In the past twelve years the average 40 hour a week worker's wage has fallen from over 2 ounces a week to half of an ounce a week.  With the introduction of QE3 and the continuation of Twist, not to mention the Fed putting excess MBS profits into more purchases of MBS (insert other circle operations here) folks seem to think gold is going higher.  It is very difficult to argue against that point in the long-term.  However, in the short-term velocity of money is at depression era levels, and so until money begins circulating at a normal pace, one should think gold will remain relatively stable*.


(GDP/Monetary Base)

However, should velocity increase to 12x then $3,400 is could be expected.  Sadly at this point it should be noted that an average work week would garner a quarter ounce of gold and it is my belief this scenario is highly likely.

One great thing about a system based on credit, you have to have credit to keep things going, thus lending will return.......the fed can only print so much.

Interesting reading:

Gold, Fiat Money and Price Stability
http://research.stlouisfed.org/wp/2003/2003-014.pdf


 *I realize the gold is always stable since it is the original currency, and that it is truly other fiats that are volatile, but we live in a fraction reserve fiat system and it is the most common medium of exchange.


As an interesting side note (pun intended), below is an inverted chart of gold (essentially purchasing power of our lovely Federal Reserve Notes)


(Gold per Ounce/-1)