QE – praag.org

The Swiss gold referendum: What it really means

In a few days the Swiss people will go to the polls to decide whether the Swiss central bank is to be required to hold 20% of its reserves in the form of gold

Polls show that the gold requirement is favored by the less well off and opposed by wealthy Swiss invested in stocks. These poll results provide new insight into the real reason for Quantitative Easing by the Federal Reserve and European Central Bank.

First, let’s examine the reasons for these class-based poll results. The view in Switzerland is that a gold backed Swiss franc would be more valuable, and a more valuable franc would increase the purchasing power of wage earners, thus reducing their living costs. For the wealthy stock owners, a stronger franc would reduce Swiss exports, and less exports would reduce stock prices and the wealth of the wealthy.

The vote is clearly a vote about income shares between the rich and the poor. The Swiss establishment opposes the gold-backed franc, as does Washington.

A few years ago the Swiss government, after experiencing a strong rise in the exchange value of the Swiss franc as a result of dollar and euro inflows seeking safety in the Swiss franc, decided to expand the Swiss money supply in line with the foreign currency inflows in order to stop the rise of the franc. The liquidity supplied by the central bank creating new francs has stopped the rise of the franc and supports exports and stock prices. As a vote in favor of a gold backed franc is not in the interest of the elite, it is unclear that the vote will be honest.

What does this tell us about the Federal Reserve’s policy of Quantitative Easing, which is an euphemism for printing an enormous amount of new dollars?

The official reason for QE is the Keynesian Phillips Curve claim that economic growth requires mild inflation of 2-3%. This false theory was put to death by the supply-side policy of the Reagan administration, but the misrepresentation of the Reagan administration’s policy by the Establishment has kept the bogus Phillips curve theory alive.

The claim based in disproven Phillips Curve theory that the Fed’s policy is directed at helping the overall economy is another example of the deception practiced by US authorities. The real purpose of QE is to drive up the wealth and income of the one percent by providing the liquidity that flows into financial asset prices such as stocks and bonds.

Since the 2008 US recession, skeptics of the Fed’s explanation of QE as support for the US economy have stressed instead that the purpose of US economic policy has been to support the federal deficit at low interest rate costs and to support the balance sheets of the troubled banks by pushing up the prices of debt-related derivatives on the banks balance sheets.

These have been important purposes, but it now appears that the main purpose has been to make the rich richer. This is why we have a stock market whose high values are not based in fundamentals but, instead, are based on the outpouring of liquidity by the Federal Reserve. As the economic policy of the US is entirely in the hands of the rich, it is not surprising that the rich use it to enrich themselves at the expense of everyone else. The Fed’s monetary policy that enriches the rich by driving up the prices of stocks and bonds also has robbed retirees of hundreds of billions of dollars, perhaps trillions, in lost interest income on their savings.

As I recently explained, QE is not over. The Fed is rolling over its interest and principal payments on its $4.5 trillion bond inventory into new bond purchases, and the banks now infused with $2.6 trillion in cash from the Fed are purchasing the bonds in place of the Fed’s QE purchases.

According to the latest news reports, Mario Draghi, the head of the European Central Bank will print all the money necessary to support financial asset prices. Draghi, like the Federal Reserve, masks his policy of enriching the rich in Phillips curve terms of driving up inflation in order to support economic growth. Of course, the real purpose is to drive up stock prices.

Like the Fed, the ECB pretends that the money it prints flows into the economy. But given the poor condition of the banks and potential borrowers loan volume is low. Instead the money created by central banks flows into paper financial asset prices. Thus, the monetary policy of the Western world is directed toward supporting the wealth of the rich and worsening the inequality in the distribution of income and wealth.

The rich are far from finished with their pillage. In exchange for campaign donations, state governors are turning over state pension funds to the management of high-fee, high-risk private pension fund managers who do a better job of maximizing their fee income than protecting the nest eggs of retirees.

Throughout the Western world economic policy is run for the sole benefit of the one percent and at the cost of everyone else. The greed and stupidity of the rich are creating ideal conditions for violent revolution. Karl Marx might yet triumph.

Denmark’s central bank to stop printing money

With more and more people paying with credit cards and their smartphones, Denmark’s central bank Nationalbanken says it no longer pays to print banknotes or mint coins.

By the end of 2016, Nationalbanken plans to outsource all of its printing and minting services to an external supplier.

“Although the amount of cash circulating in Denmark continues to be high, society’s demand for new banknotes and coins has been falling for years, and Nationalbanken has no expectations that the trend will be reversed,” the bank wrote in a press release.

In addition to the rise in alternative paying options, the central bank also said that today’s banknotes and coins are better recirculated into the economy and made of a better quality that ensures a longer shelf life. When viewed as a whole, the bank has determined that note and coin production is no a longer financially sound option.

The bank said that the move to an external supplier will result in a total savings of 100 million kroner ($17.2 million) through 2020.

In its statement, the bank stressed that having notes and coins produced externally would not affect the bank’s central role.

“Nationalbanken will continue to be the issuing authority for banknotes and coins and will maintain its expertise in the area of notes and coins. It is only the internal production of the notes and coins that will henceforth by done by external suppliers,” it wrote.

Source: The Local

Central Banks should hand people cash

A very unusual article appeared in the “Foreign Affairs” publication of the influential and policy-setting Council of Foreign Relations, titled “Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People.”

To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

Distinctions between monetary and fiscal policies are a function of what governments ask their central banks to do. In other words, cash transfers would become a tool of monetary policy as soon as the banks began using them.

Critics warn that such helicopter drops of cash could cause inflation.

By depositing the funds directly into millions of individual accounts – spurring spending immediately – central bankers wouldn’t need to print quantities of money equivalent to 20 percent of GDP.

Source: Foreign Affairs

Panama staring at empty grocery shelves

Less than four weeks after starting his new job, Panama’s President Juan Carlos Varela already has a serious challenge to deal with: empty grocery shelves.

Over the last five years, in fact, food prices have risen more than 24%.

Inflation isn’t a particularly unusual phenomenon in Central America, or in developing countries in general.

But what sets Panama apart is that the country is dollarized.

In its entire 111-year history as a sovereign nation, in fact, Panama has never issued its own currency.

This means that the country is subject to US monetary policy; when the Fed prints money, negative effects are quickly exported to Panama.

Of the jobs that the Fed claims they have created by printing $3.7 trillion over the last few years, zero of those have ended up in Panama.

Not to mention, the Panamanian government doesn’t have an endless supply of foreigners lining up to buy its debt.

Source: Sovereign Man

Oil price hikes are manufactured

Today’s double dose of codswallop is the oil price.

Turmoil in Iraq is the predictable last chapter of the fiasco that began with a pack of lies about atomic bicycles from Dubya and Blair. Same old same old: US goes on silly half-baked venture, UK crawls up its backside, West gets bored, Islamists sit quietly waiting for laurel-resting….and then move back in.

But it’s the idea that crude oil prices have been “boosted” by the unsettled Iraqi situation that strikes me as complete poppycock. While Iraq has probably the world’s largest untapped oil reserves, it still has eleven producers ahead of it – and with the world careering towards recession aka slump, 9% of total output isn’t any kind of game changer….even if disruption were to be 100%…um, as it was when the Blair-Dubya Grand Alliance gave us all Schlockanawe.

No, the price has gone up because (1) Bourses overreact to everything – or ignore everything – depending on whether we’re talking QE or oil; and (2) the smart aka crooked money got in there first and directionalised the saps.

Remember, dark pool, algorithmic and/or speed-of-light trading (they overlap) is estimated to account for around 2 in 5 trades on the NYSE today. Or using another dimension of market concentration, just six firms on Wall Street account for 33% of all trades:

Markets are no longer there to raise money for dynamic businesses, they exist to make money for banking firms and their vaguely defined ‘clients’.

All these firms know the numbers. Their job is to suggest danger to the nervous, get them to buy, wait for the truth to dawn…and then buy back at a price lower than where they sold.

The practice contributes nothing to the real economy, but quite a lot to the unreal bonus.

If you want to see some really significant moves on this front, then look at Venezuela and Ukraine.

It’s another reason why Bourse-obsessed capitalism is on the skids.

http://investmentwatchblog.com/

The Fed is the Great Deceiver

By Paul Craig Roberts and Dave Kranzler.

Is the Fed “tapering”? Did the Fed really cut its bond purchases during the three month period November 2013 through January 2014? Apparently not if foreign holders of Treasuries are unloading them.

From November 2013 through January 2014 Belgium with a GDP of $480 billion purchased $141.2 billion of US Treasury bonds. Somehow Belgium came up with enough money to allocate during a 3-month period 29 percent of its annual GDP to the purchase of US Treasury bonds.

Certainly Belgium did not have a budget surplus of $141.2 billion. Was Belgium running a trade surplus during a 3-month period equal to 29 percent of Belgium GDP?

No, Belgium’s trade and current accounts are in deficit.

Did Belgium’s central bank print $141.2 billion worth of euros in order to make the purchase?

No, Belgium is a member of the euro system, and its central bank cannot increase the money supply.
So where did the $141.2 billion come from?

There is only one source. The money came from the US Federal Reserve, and the purchase was laundered through Belgium in order to hide the fact that actual Federal Reserve bond purchases during November 2013 through January 2014 were $112 billion per month.

In other words, during those 3 months there was a sharp rise in bond purchases by the Fed. The Fed’s actual bond purchases for those three months are $27 billion per month above the original $85 billion monthly purchase and $47 billion above the official $65 billion monthly purchase at that time. (In March 2014, official QE was tapered to $55 billion per month and to $45 billion for May.)

Why did the Federal Reserve have to purchase so many bonds above the announced amounts and why did the Fed have to launder and hide the purchase?

Some country or countries, unknown at this time, for reasons we do not know dumped $104 billion in Treasuries in one week.

Another curious aspect of the sale and purchase laundered through Belgium is that the sale was not executed and cleared via the Fed’s own National Book-Entry System (NBES), which was designed to facilitate the sale and ownership transfer of securities for Fed custodial customers. Instead, The foreign owner(s) of the Treasuries removed them from the Federal Reserve’s custodial holdings and sold them through the Euroclear securities clearing system, which is based in Brussels, Belgium.

We do not know why or who. We know that there was a withdrawal, a sale, a drop in the Federal Reserve’s “Securities held in Custody for Foreign Official and International Accounts,” an inexplicable rise in Belgium’s holdings, and then the bonds reappear in the Federal Reserve’s custodial accounts.

What are the reasons for this deception by the Federal Reserve?

The Fed realized that its policy of Quantitative Easing initiated in order to support the balance sheets of “banks too big to fail” and to lower the Treasury’s borrowing cost was putting pressure on the US dollar’s value. Tapering was a way of reassuring holders of dollars and dollar-denominated financial instruments that the Fed was going to reduce and eventually end the printing of new dollars with which to support financial markets.The image of foreign governments bailing out of Treasuries could unsettle the markets that the Fed was attempting to sooth by tapering.

A hundred billion dollar sale of US Treasuries is a big sale. If the seller was a big holder of Treasuries, the sale could signal the bond market that a big holder might be selling Treasuries in large chunks. The Fed would want to keep the fact and identity of such a seller secret in order to avoid a stampede out of Treasuries. Such a stampede would raise interest rates, collapse US financial markets, and raise the cost of financing the US debt. To avoid the rise in interest rates, the Fed would have to accept the risk to the dollar of purchasing all the bonds. This would be a no-win situation for the Fed, because a large increase in QE would unsettle the market for US dollars.

Washington’s power ultimately rests on the dollar as world reserve currency. This privilege, attained at Bretton Woods following World War 2, allows the US to pay its bills by issuing debt. The world currency role also gives the US the power to cut countries out of the international payments system and to impose sanctions.

As impelled as the Fed is to protect the large banks that sit on the board of directors of the NY Fed, the Fed has to protect the dollar. That the Fed believed that it could not buy the bonds outright but needed to disguise its purchase by laundering it through Belgium suggests that the Fed is concerned that the world is losing confidence in the dollar.

If the world loses confidence in the dollar, the cost of living in the US would rise sharply as the dollar drops in value. Economic hardship and poverty would worsen. Political instability would rise.

If the dollar lost substantial value, the dollar would lose its reserve currency status. Washington would not be able to issue new debt or new dollars in order to pay its bills.

Its wars and hundreds of overseas military bases could not be financed.

The withdrawal from unsustainable empire would begin. The rest of the world would see this as the silver lining in the collapse of the international monetary system brought on by the hubris and arrogance of Washington.

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.