explaining the 'magic' handling of money by the Federal Reserve and its henchmen

Abra Cadabra

Abra Cadabra

One of the best Kunstler publications  explaining the 'magic' handling of money by the Federal Reserve and its henchmen  . Certainly all the modern financial world is a "virtual house of cards" doomed to fall. But meanwhile, it is better to invest in physical assets, including those that directly support life. Priorities, priorities!

James Howard Kunstler

December 11, 2917

And so, as they say in the movies horror  begins ...  ! Unwinding balance sheet of the Federal Reserve. Such esoteric concept! Is there one in ten thousand of the millions of people who sit at desks all day from sea to shining sea have a clue how this works? Or what is your relationship to the real world? 

I confess, my understanding of it is incomplete and schematic at best, in the way that my understanding of a magic act in Las Vegas could be. All the flash and dazzle hidden magician misdirection. The magician is a terrifying supernatural being or a great fraud. Anyway, the audience "out there" for the magical act of the Federal Reserve: x millions of people concerned about the future, their cars are crumbling, charging $ 53,000 for your child to college or bill of $ 6,000 they just received for attending the emergency room with a cut finger - not give a good damn, even if they knew the magic show the Fed was on.

So the Fed has called this balance, which is actually a computer file, filled with entries denoting the values it has. These securities, mostly government bonds the US. UU. Various categories and mortgage packages assembled by the mysterious entity called government - sponsored Freddie Mac, represent about $ 4.5 trillion in debt. They are allegedly notes pay interest for a certain number of years.  When that period expires years, the Fed recover the money lent, called capital. Ahhhh, here's the neat part!

You see, the money the Fed lent the US government. UU. (In exchange for bonus) he was never there in the first place. The Fed presidigió it from an alternate universe. They gave the money to a bank "primary dealer" in exchange for the guarantee, the bank abracadabraed  for the Treasury of the United States. Well not really. In fact, the Fed just scored in the account "reserve" the bank money alternate universe appeared there. Somehow that money was sent through a virtual pneumatic tube to the US Treasury. UU. , Where it was used to pay drones to fly Yemeni weddings parties, and the Secret Service visit dance bars when the president traveled to foreign lands.

Here's the fun part. The Fed announces that it will throw this nasty debt, about $ 10 billion a month since last October. Its stated objective is toachieve a rate of final settlement of $ 50 billion a month (laughter track reference). If ever (laugh track) get there, it would take 20 years tocomplete the process. The possibility of that happening is almost the same as the possibility that Janet Yellen down your chimney on  Dec. 24 with a sack full of chocolate Bitcoins. But no matter the long view for now.

One way they plan to accomplish this feat is to "dismantle" the links. That is, when the bonds mature, ie reach the end of its mandate, will cease to exist. Fagot! Wait a minute! When a bond matures, the issuer must return the principal to the lender. After all, the Fed lent to the Treasury of the United States X-trillion, the Treasury of the United States paid interest on the loan for X years and now have to spend the full value of the loan (hopefully dollar magically they have inflated over the years and is now worth less than when they were delivered - another magic trick!). But that does not happen.

Instead, when the leading theorist is returned to the Federal Reserve, the Fed money disappears, like the girl in a bikini on stage entering the sacred box wizard and disappears. Now you see her , not now. The explanation, of course, could be that, first, the money was never really there, so it makes sense back to the alternate universe from which it comes.  Well I guess ...

The trick is that for a time he was here on earth and people were doing things with it, like drone attacks mentioned above and pole dancers. Not only that, but the banks "primary dealers" were allowed to pay ten times the  book  Minimum denoted in their accounts of the Fed to participate in the scheme.  Who would they paid all that money? Apparently, much of it to corporations that borrowed at rates of ultralow interest in order to repurchase its own shares, paying much higher than the interest rate calling borrowed to buy those things dividends are allocated, and also they drove the share value of the shares, which also made the corporate executives became more rich in terms of their stock options and bonuses(granted to increase the value of the shares).

And so,  Shazzam  : I give you one percent! And a bankruptcy of the United States of America. 

And do not even ask for all these packages mortgages Freddie Mac that were taken away from the Fed.  The reason I did first was because those mortgages were not being paid, and banks and insurance companies that they had were dying rein. So they parked in a space below the Eccles Building Fed in Washington, hoping only resorted to compost. And guess what: there are more valuable now than they were then. File that one underNecrophilia  . 

http://kunstler.com/  clusterfuck-nation /  abracadabra / 

Markets are not prepared for a government shutdown / December 13

Date:  December 6, 2017Author:  kenzocaspi

BY JAMES RICKARDS

AWARE

December 5, 2017

***************************

Do the Republicans and Democrats agree on a budget and avoid a government shutdown after midnight Friday?

I'd say the odds are 50/50. Actually, I put the odds of closing about 55%. Certainly there is enough substance here to be cautious.

The government could shut down due to disagreements over defense spending, funds for the wall Trump with Mexico ,  deporting illegal immigrants brought to the United States as children  (the "Dreamer Law" also known as "DACA"),  funds for Planned Parenthood ,  funding for Obamacare  (called "SCHIP"),  disaster relief and more.

There is not much middle ground between Democrats and Republicans in many of these hot topics.

How would a closure plans the Fed to raise rates on  day 13 ?

If you can not reach an agreement and the government shuts down, it is very difficult to imagine that the Federal Reserve will continue with its planned hike interest rates on December 13.

Meanwhile, markets are almost certain that the Fed will raise rates. They are already "baked cake."

The euro, the yen, gold and Treasury notes have a full price to raise rates. If it happens, these instruments will not change much because the event is priced.

But we could see a backlash on the market if Janet Yellen stays and does not raise rates.

If the Fed does not raise rates, gold could skyrocket as the Fed approves their best chance to raise rates and the markets perceive that the easy money is here to stay. Euro, yen and Treasury notes also skyrocket.

Of course, say that the government could shut down is different from saying that the government will close.  Again, I give it a 55% probability at this point.

And there are many ways for things to go wrong.

At the end of last week, the Commerce Department released data PCE core inflation of October. This is important because that is the number that the Fed observed. There are many other readings of inflation (CPI, PPI, core, non-core, trimmed mean, etc.), but year after year Core PCE is used by the Fed to compare their performance in terms of its inflation target. .

The goal of the Fed PCE Core is 2%. October reading was 1.4%. For weeks I've been saying that a reading of 1.3% would put the rate hike on hold, and a reading of 1.6% would make the rate hike was a fact. Then, the actual reading of 1.4% was in the soft easy medium range forecast.

Interestingly, the previous month was also 1.4%, so the new number has not changed since September. That's not what the Fed wants. They want to see progress towards its target of 2%.

On the other hand, 1.4% of September was a revised. It was previously reported 1.3% (the same number as in August).

You can read this in two ways. If you see the 1.3% August at least, then we can say that the readings of 1.4% for September and October were a step towards the target of 2% of the Federal Reserve. It is a thin tongue, but Yellen could use this to justify their view that the weakness of a year in Core PCE is "temporary".

On the other hand, these movements 0.1% month are really statistical noise and may even be due to rounding. The bigger picture is that PCE Core is weak and is not close to the target of the Federal Reserve. Another rate hike in December could be a big mistake if the economy slows down even more and leads to further weakness in PCE Core.

In short, the number of Core PCE probably enough (just) to justify an increase in the rate. I increased the likelihood of a rate hike in December 30% to just over 50% - 55%. That's what analysts should do; forecasts updated continuously based on new data. You can not be stubborn with your analysis.

I'm not trying to be "consensus" or "out of consensus." I just want to do well, and that means sometimes be in consensus. Other times, I will not be.

But you must forget how the market is valuing the outcome. The futures market funds the Federal Reserve has been turned off by orders of magnitude before. In mid-February 2017, the futures markets given the possibility of a rate hike in March to 30%.

He was giving 80% chance.

Within three trading days in late February, the odds of the market changed from 30% to 80% before converging at 100% for the March meeting.

That does not mean I did it right this time. But it illustrates that the futures market does not always have this right, not even close.

And the markets are gearing up for a fall.

Bull markets in stocks seem unstoppable until the moment they stop. Then comes a rapid phase of shock and burns.

Are there ever any warning that a collapse is going to happen?

Of course there Analysts warn him all the time and provide mountains of data and historical evidence to support its analysis.  The problem is that all ignored.

You can talk about  the dangers represented by CAPE ratios, margin levels, computerized trading, persistent low volatility and complacency all you want, but nothing seems to slow this bull market.

However, there is one thing that can stop a bull market on its way, and that corporate profits are.

The simplest form of stock valuation is projected profits, implement a multiple and, voila, you have an assessment. Multiples are already near record levels, so there is not much room for expansion there.

The only variable that remains are projected profits and that is where Wall Street analysts are having a field day increasing stock prices. Earnings grew significantly in 2017 on a year-over-year basis, but that is mainly because profits were weak in 2016, so the annual growth was relatively easy.

Now comes the hard part.

How profits expand again in 2018 when 2017 was such a strong year?  Wall Street just use a simple extrapolation and says that next year will be like this year, we just better!  But there are many reasons to doubt that extrapolation.

Earnings likely not meet expectations,  which can lead to a correction. Once that happens, multiples can also be reduced. Soon you will be in a bear market on a large scale with stock prices down 20% or more.

Without considering that a war with North Korea and all the dangers that others have mentioned.  This may be your last clear chance to lighten the exposure to listed shares before it explodes the bubble.

Markets are creatures manipulated by changes in Fed policy,  statements, guidance and other forward sleight of modern central banks . That's what you get after 10 years of ZIRP, QE, tuning, QT, orientation forward, currency wars and reflections on NIRP.

Off or off, the Fed has cornered with no way to escape the room.

That is the greatest to consider as we approach the Dec. 13 history.

Tune the current sideshow and keep that in mind.

Regards,

Jim Rickards 
for The Daily Reckoning

Global emergency: Dollar fall today, financial collapse in sight

The US military power is weakening and the consequences of this process are quite remarkable. In a world full of conflicts caused by Washington, the economic and financial evolution of many countries is an expected and predictable development of the situation, says the daily VestiFinance. 

The important role of the dollar in the world economy is due to three main factors: the petrodollar, the dollar as a world reserve currency and Nixon's decision in 1971 not to convert the dollar into gold.

Dollar-petrodollar-gold

The greatest geoeconomic changes in the last fifty years occurred in 1973 after the conclusion of the agreement between OPEC, Saudi Arabia and the US on the sale of oil exclusively in dollars. Billions of dollars were transferred in US Treasury bonds and other financial resources. In return, Saudi Arabia and other OPEC countries received US military protection. 

The second factor, perhaps even more important for the world economy, according to the  average, is that the dollar became the world reserve currency. The role of the dollar, obviously associated with the petrodollar trade, has almost always had its dominant share of more than 40% of the basket of SDRs - special drawing rights -, while the euro has maintained a stable share of 29-37 % since 2001. To understand the current economic changes, it is enough to remember that the  yuan  is being used more and more in the global trade of SDRs with an initial quota of 10%. 

A few years ago, almost all countries used the US dollar to trade with each other, even though they were countries opposed to the US and their imperialist policies, since the payment method required the use of dollars, the paper recalls.

"This continued use of the dollar had a devastating impact on the planet, and the US got the opportunity to print sheets of paper without the support of the gold value, and then exchange them for real goods," he adds. 

According to the media, the destabilizing factor for the world economy is Washington's ability to accumulate huge public debts without worrying about the consequences for international markets. 

"The United States created the conditions for a new financial bubble that could ruin the entire global economy when it explodes," the paper warns. 

Dollars and war: the end of the era? 

The decisive factor, which has changed the focus of countries such as China and  Russia, was the financial crisis of 2008, as well as the increase of the US aggression in Yugoslavia in 1999, says the media. The Iraq war, along with other factors, prevented Saddam Hussein from starting to market the oil in euros, which threatened the financial hegemony of the dollar in the Middle East. 

A few decades ago, any idea of ​​moving away from petrodollars was perceived as a direct threat to the US world hegemony that required a military response. In 2017, given the decline in confidence in the United States as a result of multiple failed attempts to subjugate, undermine and control other small countries, the general decline of the dollar system began, the author points out.

In recent years, many countries, which oppose Washington, have realized that the only way to adequately restrict the consequences of the fall of the US empire is to gradually abandon the dollar. This serves to limit Washington's capabilities for military spending by creating alternative tools in the economic and financial spheres that would help end Washington's domination. What is also important for the Russian-Chinese-Iranian strategy of uniting Eurasia and, therefore, reducing the US role.

"The US shot up in the foot to accelerate this process with the exclusion of Iran from the SWIFT system and open the way for the Chinese alternative CIPS, as well as by applying sanctions against Russia, Iran and Venezuela, which also boosted the extraction and acquisition of gold on the part of China and Russia ", analyzes the medium. 

De-dollarization

Beijing began to exert strong pressure on Riyadh in order to force it to accept payments for oil in yuan instead of dollars. Saudi Arabia  is in a difficult situation associated with the maintenance of the US dollar linked to oil, although its main ally, the United States, has implemented a controversial strategy in the Middle East. 

China became Saudi Arabia's biggest customer, and given the agreements with Nigeria and Russia, Beijing can quietly stop buying Riyadh oil if it continues to insist on payments exclusively in dollars. This would severely damage the petrodollar, a vicious system, harmful to China and Russia, the paper said.

"De-dollarization has become a strategic priority for Beijing, Moscow and Tehran, and eliminating the unlimited influence of the Fed and the US economy means limiting the expansion of the US imperialists and reducing global destabilization," the article stresses. 

More and more countries are beginning to see the advantages of a decentralized system, in contrast to the US dollar system. 

Iran and India, as well as Iran and Russia, often sell hydrocarbons in exchange for raw material products, thus avoiding US sanctions. 

In addition, China's economic strength allowed it to allocate a 10 billion euro loan to Iran, which allowed it to dodge the recent sanctions, the paper recalls.

Venezuela, which has the largest oil reserves in the world, has just started a historic movement towards a   total refusal to sell oil in dollars. 

Beijing plans to buy gas and oil from Russia by paying with yuan, and Moscow will immediately convert the yuan into gold on Shanghai's international energy exchange. 

"This 'gas-yuan-gold' mechanism represents revolutionary economic changes due to the gradual abandonment of the dollar in trade," the article concludes.

https://mundo.sputniknews.com/economia/201710061072951344-economia-dolar-china-iran-rusia-estrategia/

"USN vs USD"

Issue #13  October 14, 2017

What are the differences between United States Notes (USN) ​

and Federal Reserve Notes (USD)​? 

United States Notes (characterized by a red seal and serial number) were the first national currency, authorized by the Legal Tender Act of 1862 and began circulating during the Civil War. 

The Treasury Department issued these notes directly into circulation, and they are obligations of the United States Government. 

The issuance of United States Notes is subject to limitations established by Congress. 

It established a statutory limitation of $300 million on the amount of United States Notes authorized to be outstanding and in circulation. 

While this was a significant figure in Civil War days, it is now a very small fraction of the total currency in circulation in the United States. 

Both United States Notes and Federal Reserve Notes are parts of our national currency and both are legal tender. 

They circulate as money in the same way. However, the issuing authority for them comes from different statutes. 

United States Notes were redeemable in gold until 1933, when the United States abandoned the gold standard. 

Since then, both currencies have served essentially the same purpose, and have had the same value. 

Because United States Notes serve no function that is not already adequately served by Federal Reserve Notes, their issuance was discontinued, and none have been placed in to circulation since January 21, 1971. 

The Federal Reserve Act of 1913 authorized the production and circulation of Federal Reserve notes. 

Although the Bureau of Engraving and Printing (BEP) prints these notes, they move into circulation through the Federal Reserve System. 

They are obligations of both the Federal Reserve System and the United States Government. On Federal Reserve notes, the seals and serial numbers appear in green.

United States notes serve no function that is not already adequately served by Federal Reserve notes. As a result, the Treasury Department stopped issuing United States notes, and none have been placed into circulation since January 21, 1971.

Until October 1, 2017.  And why the UST is now burning ALL​ Federal Reserve Notes with green seals.  

Wings Out Human Angels!

God is with us