interest rates

Gold Prices Will Rise Because …

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financialGary Christenson – Gold Prices will rise because …

A)  War in Syria, Ukraine, Middle East, South China Sea and other places seems more likely each month. History shows that wars are inflationary, commodities increase in price, and governments finance wars with debt and fiat currency.  We want higher gold prices and no war, but the “powers-that-be” will do what is necessary to increase their power and wealth, and if that requires war, then expect more war.

When armies invaded other countries throughout history, were they more interested in confiscating gold or paper currencies?  Who wants fiat currency when it is circling the drain on its way toward zero?  In troubled times the preferred asset is gold, not devaluing paper currencies issued by insolvent countries and central banks.

B)  Central banks will lose control over interest rates and that will pose a huge risk to the global financial system. Expect much higher gold prices as rising interest rates force insolvent governments to more aggressively monetize debt and devalue their currencies.

Unless you believe that central banks can hold interest rates low for decades, regardless of what markets, investors, and individuals believe is appropriate, there is significant risk of rising interest rates.

C)  A derivative disaster as a consequence of rising interest rates – is a bomb waiting to explode. The fuse is probably burning at this moment… Continue reading →

Policy Extremes Maintain Illusion of Stability

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smithGreg Hunter – Financial writer and book author Charles Hugh Smith thinks the big unfolding trend is a global economy that is not being allowed to correct.  Smith contends, “Interest rates should rise, and what we are seeing is financial repression.  Instead of letting the market decide what the price of risk should be, central banks have pushed it to zero. . . . It doesn’t seem to be working.  It’s not fixing what is broken, and that is the unfolding trend.  All these things that central banks and authorities are doing are creating more problems.”  Smith goes on to say, “There are so many vested interests in sustaining the illusion of stability. . . . The trend we are really describing here is the extremes of policy that are being done to maintain the surface illusion of stability are guaranteeing it is going to blow. . . . Once you have extremes, the risk and volatility rise and explode.  That’s just the way systems work.  That’s just what history shows us.”

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The illusion is fading, and according to Smith, “As a result of this, people are losing faith in the system.  They may not be able to put their finger on it, but they are feeling a rise in financial insecurity.  Even people who work for state and local government whose pensions seem rock solid, even they’re worried.  They understand they may not get their full pension because if this thing falls apart, all guarantees are off the table and the rules will change. . . . Look at recent history in Cyprus.  The government will take whatever money you have in the bank to save the bank.  In other words, it’s not really your money.  It’s the banks’ money.  The idea that it’s your money is another surface illusion.” Continue reading →

The Inevitable Failure Of Mechanistic Monetary Policy

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Charles Hugh Smith – We are living in the Cargo Cult Era of Central Bankers. The era began in earnest on December 5, 1996, when Federal Reserve chairman Alan Greenspan cautiously wondered aloud if the stock market was exhibiting “irrational exuberance.”

centralThe stock market promptly tanked. In this era, the utterances of central bankers exert more influence over markets than fundamentals.

This simplistic faith in the Cargo Cult magic of central banks is based on the absurd notion that two levers–interest rates and buying debt–can control and guide an immensely complex economy. Central bankers are well-versed in arcane incantations such as Operation Twist and aggregate demand, but if we strip away the mumbo-jumbo we find only two levers: interest rates and the purchase of debt.

Documentary film maker Adam Curtis explored the inherent limits of mechanistic monetary models in Episode 3 of his 6-part series, Pandora’s Box (1992).

The wizards of monetary policy make the implicit assumption that monetary policy is the most important factor in an economy’s expansion or contraction. But an economy is far more than interest rates, inflation and the purchase of bonds and other assets.

An economy is also the education or mis-education of the next generation of workers, the creative destruction wrought by technologies, the cultural appetite for risk and what I call the infrastructure of opportunity–the complex mix of attributes that either encourage social mobility or preclude it. Continue reading →

Fed Will Be Forced Not to Raise Interest Rates [Video]

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greeceGreg Hunter – Financial expert and trader Reggie Middleton says the Fed is “going to be forced not to raise interest rates.”  Middleton explains, “If they do raise rates, money is going to fly into the dollar.  The dollar is going to become even stronger relative the euro and Asian currencies.  Then you are also going to have a lot of pressure on U.S. corporates because any international business is going to take a significant hit.”

Middleton goes on to say, “If the economy gets better, they can raise rates, but why would the economy get better now when it didn’t get better last year or the year before that?  In order for the economy to get better, you need to flush that garbage out of the system.  They refuse to do that.  Instead, they made a bunch of rules.  They papered over it.  They still have no mark to market accounting.  Nobody knows what’s on the banks’ balance sheets.  Nobody knows what it’s worth, and they literally made it legal for the banks to say we won’t tell you what it is worth.”

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Continue reading →

The Top 1/10th Of 1% Loves A Guaranteed Minimum Income: With One Caveat

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“Why wouldn’t the top 1/10th of 1% love a central bank-funded guaranteed minimum income?” – C H Smith

CharlesHughSmithIt is widely assumed that the super-wealthy top 1/10th of 1% are against a guaranteed minimum income (GMI) (also known as guaranteed basic income or basic income guarantee) because this would somehow limit their wealth and power.

On the contrary–the top 1/10th of 1% are fine with a guaranteed minimum income for households, with one tiny caveat: as long as they don’t have to pay for it. But wait, you say: that’s the entire idea: tax the rich and redistribute the money to those below.

Ah, but you’re forgetting the magical power of central banks and treasuries of the world to create money out of thin air. As the top 1/10th of 1% understand, the GMI could be paid with freshly issued money–a method of funding that leaves the top 1/10th of 1% untouched beyond the taxes they already pay (substantial in many cases).

But wait, you say: printing and distributing helicopter money is highly inflationary. (Helicopter money refers to former Fed chairman Ben Bernanke’s famous claim that deflation could be reversed by dropping money from helicopters.)

Not only is printing money inflationary, it soon burdens the nation with crushing debts. So goes the conventional line of thinking: printing money is inflationary and borrowing money by selling bonds leads to crushing interest payments on the ever-rising debt.

But what if the conventional thinking is wrong? Consider the following thought experiment: Continue reading →