Financial Crisis - 2013 - ????

[Ryan Ruck]

New Budget Deal Puts Final Nail in the Tea-Party Coffin

The conventional wisdom among Washington Republicans is that populist conservative voters no longer care about spending or deficits

July 22, 2019

President Trump and congressional leaders are nearing a deal that would raise the discretionary-spending caps by $320 billion over two years and offset less than one-quarter of those costs (and even those offsets would take a decade to materialize). The budget deal would essentially repeal the final two years of the 2011 Budget Control Act and raise the baseline for future discretionary spending by nearly $2 trillion over the decade.

This represents a fitting conclusion of the Budget Control Act — the crown jewel of the 2011 “tea-party Congress.” The decade-long shredding of these hard-fought budget constraints mirrors the shredding of Republican credibility on fiscal responsibility.

The story begins a decade ago, when a budget deficit that had declined to a modest $161 billion by 2007 was hit with the Great Recession. While recessions always automatically raise budget deficits (fewer tax revenues, more unemployment and welfare costs), President Bush, President Obama, and both parties in Congress deepened the red ink with the TARP bailouts, which were initially expected to cost $700 billion, as well as with President Obama’s nearly $1 trillion stimulus law, which failed to rescue the economy even by the White House’s own metrics. By 2009, the deficit had exceeded $1 trillion for the first time, reaching $1.4 trillion. Horrified by Washington spenders, CNBC’s Rick Santelli stood on the floor of the Chicago Mercantile Exchange on February 19, 2009, and called for a “tea party” to end the bailouts, stimulus payments, and red ink. Grassroots tea-party groups formed — further enraged by the later enactment of an expensive new Obamacare entitlement — and helped Republicans capture the House in 2010 with a stunning 63-seat pickup and also pick up seven Senate seats.

The new “tea party” House majority declared an end to deficit politics as usual. The new majority quickly banned pork-barrel earmarks and trimmed the 2011 appropriations bills that had been carried over from the previous year. The House then rallied around a budget produced by House Budget Committee chairman Paul Ryan (R., Wis.) that would gradually eliminate the deficit by converting Medicare to a premium-support model, repealing Obamacare, and cutting other spending. While Senate Democrats blocked these reforms, the need to raise the debt limit over the summer gave House Republicans unique leverage to force policy concessions from President Obama and Senate Democrats. The deficit-obsessed Republicans expressed a willingness to risk defaulting on national-debt interest payments in order to force spending cuts. And after months of intense negotiations, the two parties agreed to the Budget Control Act, which would cap discretionary spending through 2021 at much lower levels than the baseline, saving $2.1 trillion over that period.

Unfortunately, this victory — which seemed like it would be the first of many — proved to be the apex of the tea-party movement. Without the leverage of the debt limit, President Obama and Senate Democrats could easily block House Republican spending reforms. The 2012 reelection of President Obama then cost the tea-party GOP some of the momentum that it acquired two years earlier.

By 2013, even congressional Republicans were beginning to complain about the tight discretionary-spending limits brought on by the Budget Control Act. In particular, defense hawks chafed at the defense caps, and showed a willingness to give Democrats domestic spending hikes in return for defense hikes. The result was a deal negotiated between the House and Senate Budget Committee chairpersons (Ryan and Democratic senator Patty Murray) that would increase the discretionary caps by $63 billion over 2014 and 2015, in return for new user fees and cuts to mandatory programs. The fees and cuts would occur over the following ten years, and some were quite gimmicky.

Once the 2014 and 2015 spending caps were raised, there was no way lawmakers would ratchet spending back down to the cap levels in 2016. So two years later, another “Ryan-Murray” deal raised the 2016 and 2017 spending caps by a combined $80 billion, once again with ten years of somewhat-gimmicky mandatory spending offsets.

During that period, Senate Republicans tried again to use a looming budget deadline to force major budget concessions from President Obama. Led by Senator Ted Cruz (R., Texas), Republicans shut down the government in October 2013 to pressure President Obama into repealing Obamacare before it could be fully implemented. Their wild overreach failed and likely cost the tea-party movement support among increasingly skeptical moderates and independents.

But the election of President Trump — with the tea-party Senator Ted Cruz, among others, defeated in the process — may have finally killed the tea party as a whole. Trump, who called himself the “king of debt,” deemphasized spending restraint and even promised that Social Security, Medicare, and Medicaid, the overwhelming drivers of long-term deficits, would be off limits to reform. His surprising election marked a replacement of the GOP’s free-market conservatism, exemplified by Ryan, with a more populist, big-government conservatism. By 2017, a Pew poll showed that just 15 percent of Republicans supported paring back the escalating costs of Medicare or Social Security to bring down the deficit.

With a president not focused on deficit reduction, and even Republican voters opposing many spending cuts, congressional Republicans largely surrendered on spending and deficit restraint. Instead, they passed a $2 trillion tax cut that represented solid economic policy but did not even attempt to offset the new cost with spending cuts. And in contrast to “starve the beast” rhetoric, these tax cuts led to more — not less — federal spending. Once you’ve cut taxes for corporations, it would be political suicide to turn around and tell seniors that they must now accept cuts to Medicare. Instead, all groups demand their own share of the new benefits.

By early 2018, surrendering Republicans raised the 2018 and 2019 spending caps by a staggering $296 billion, this time with less than $50 billion in offsets over ten years. An effort by conservative House Republicans in 2017 and again in 2018 to trim the growth rate of entitlement spending from 5.9 percent to 5.8 percent per year was rejected by Republican senators for being too radical. Even a rescission bill that would reduce unnecessary spending by a mere $1 billion over ten years — or 0.002 percent of the budget — was defeated in the Republican Senate. Instead, lawmakers renewed billions in new farm subsidies for wealthy farmers and considered bringing back pork-barrel earmarks. Legislation to repeal and replace ObamaCare was defeated in the Republican Senate.

And that brings us to 2019, when the return of trillion-dollar deficits has been met with a collective shrug from Republican leaders. The conventional wisdom among Washington Republicans is that populist conservative voters no longer care about spending or deficits and that Democrats and hostile media would savage any attempts to rein in government. So the debt limit is now regularly suspended, and the final two years of the Budget Control Act, 2020 and 2021, are poised to see a spending-cap increase of $320 billion with only minimal offsets. At one point, Republicans discussed extending the spending caps beyond 2021. Now, they will skip the charade.

The tea party burst into Washington pledging spending restraint, balanced budgets, and accountable government. Even the possibility of defaulting on the national debt was an acceptable price of reform. Roughly a decade later, budget deficits are again reaching $1 trillion, spending is soaring, Obamacare remains on the books, and Republicans are raising the debt limit and eviscerating their lead accomplishment, the Budget Control Act.

With Republicans like these, who needs Democrats?

[Volk]

America is spending itself into oblivion with welfare drones being paid to not burn the cities leading the way with hands out. At some point the tribute money runs out and one side or the other is beaten permanently.

[Ryan Ruck]

Trump Can’t Be Both The President Of Growth And The President Of Debt

July 26, 2019

With the unemployment rate below 4 percent for 16 consecutive months, one would expect economic growth to be soaring. Yet even as we experience the best job market since the late 1960s, this is the first time in modern history that we have not experienced a year of 3 percent GDP growth. What gives?

Earlier today, the Bureau of Economic Analysis announced that the economy had grown just 2.1 percent during the second quarter of this year (ending June 30). It also revised Q4 of 2018 down to just 1.1 percent, which now means that growth during the 12 months ending Q4 of 2018 was only 2.5 percent, not 3 percent as previously thought. This means that the U.S. economy has now gone 14 years without a year-over-year growth of 3 percent. It’s been 19 years since we’ve hit 4 percent, which was during 1997-2000.

While the numbers don’t portend a coming recession, it is highly unusual for us to go for 16 consecutive months with unemployment below 4 percent and 43 months below 5 percent, yet never attain 3 or 4 percent annual GDP growth. In fact, that has never happened before. During the late 1990s, the unemployment rate ranged from 5.3 percent to 3.9 percent – not even as good as today’s 3.7 percent – yet GDP growth was over 4 percent. Ditto for the late 1960s, when we saw years of 6 percent growth. During the mid 1980s, we saw this growth even with higher unemployment rates.

The debt is not just a problem for future generations in terms of a fiscal cost that will be borne by taxpayers. The exclusive focus on the future is what has fostered the Louis XV mentality of “after me, the deluge.” Let’s face it, we are a nation that doesn’t care about the future of our children. What is missing from the discussion is that the debt is permanently weighing down economic growth now.

Let’s peek into the numbers behind today’s topline GDP report. GDP comprises personal consumption expenditures, gross private domestic investment, government spending, and net exports. Seventy percent of the equation is consumption, and the robust 4.3 percent growth in consumption this quarter is a big part of what is keeping us even at 2.1 percent growth. This is not artificial and is good news. Consumption is a sign of a healthy job market, with more people earning money, as well as the tax cuts putting more cash in people’s pockets to spend. No matter whether our economy is fully free market or quasi-socialist, whenever there is more money in people’s pockets, these numbers will go up. We are now in a boom period, and the numbers are good.

But what else is propping up the number? Government spending! Gross government spending, which accounts for about 17.5 percent of the GDP pie, spiked 5 percent. Non-defense spending rose by 15.9 percent!

Thus, without the spending binge, which will be accelerated by the budget betrayal promoted by the president and backed by more Democrats than Republicans in the House, the topline number would have been lower.

But here’s the problem. While government spending juices up the economy in the short run, the debt that we must incur to continue that spending is permanently weighing down the economy in the long run.

Which leads us to the third component – gross private domestic investment. That is the engine of a supply side economy. Those numbers contracted by 5.5 percent this past quarter, the worst showing since 2015. Investment in non-residential structures plummeted by 10.8 percent, highly unusual with such a good job market.

Then, of course, there is the final component: exports. Net exports were down 5.2 percent because of the tariffs.

Here’s the reality: Our economy is nothing like it was in the 1980s or 1990s. We have a huge misallocation of resources, with all sorts of capital going into government-mandated schemes that increase dependency programs or debt, rather than the most efficient investments.

Then the debt itself is hurting us. So much money is now spent on paying off interest. As interest rates are pushed higher, more private money is used to purchase higher-interest Treasury securities rather than invest in capital goods, such as factories and plants. The more government is desperate to service this debt, the more it will drive up interest rates, which in turn will divert and misallocate more investors into Treasury bonds. This further makes interest on the debt even more expensive, constantly reinforcing itself in a vicious cycle of debt and higher rates.

At some point over the past decade, we crossed the Rubicon of irrevocable lethargic growth because of debt. Interest on the debt is the fastest-growing expenditure of government. That is a problem now. So, we can create jobs and wages even in a centrally planned economy, but the debt and market distortions are creating so much inefficiency and waste that they are permanently capping our growth. I don’t believe we will ever achieve protracted 3 percent growth until the debt crisis is solved.

The president has been convinced that we can grow our way out of the debt. The problem is the debt itself is weighing us down from growing!

With two months left until the budget deadline, the president could have spent the entire summer recess building the case for a better debt deal. Instead, he chose to support a bill nearly unanimously supported by House Democrats that will add almost $2 trillion more in debt over the next 10 years.

If Trump wants to be the president of growth, he can’t have it both ways and be the president of debt.

[Ryan Ruck]

Trump Reverses Course, Seeks Negative Rates From Fed 'Boneheads'

September 11, 2019

U.S. President Donald Trump on Wednesday called on the “boneheads” at the Federal Reserve to push interest rates down into negative territory, a move reluctantly used by other world central banks to battle weak economic growth that risks punishing savers and banks’ earnings in the process.

Trump, in a pair of Twitter posts, said negative rates would save the government money on its debt, which including Social Security accounts has reached a record $22 trillion on Trump’s watch. He did not address the risks or financial market tensions that central banks in Europe and Japan have confronted as a result of their negative rate policy, or the larger issue that negative rates have not secured higher growth or higher inflation for those economies.

“The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term,” Trump tweeted. “We have the great currency, power, and balance sheet... The USA should always be paying the ... lowest rate. No Inflation!”

“It is only the naïveté of (Fed Chairman) Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing,” added Trump, who has repeatedly noted that rates are negative in Germany, Europe’s trading powerhouse.

The president’s comments precede a week in which the world’s major central banks, including the Fed, are expected to lower rates or otherwise loosen monetary policy in what is widely seen as a move to protect the global economy against risks partly rising from Trump’s trade war with China.

But the quarter of a percentage point cut expected by the Fed is not likely to satisfy Trump, who has called on Powell and the Fed to quickly and dramatically cut rates as a way to boost slowing U.S. economic growth ahead of his re-election bid next year.

Last month, however, Trump told reporters at the White House that he did not want to see negative rates in the United States, and analysts on Wednesday said the still-growing U.S. economy would be put at risk if the Fed pursued them.

While perhaps appropriate in “recessionary” conditions, zero or negative rates in a growing economy with record-low unemployment “may ultimately create the next financial crisis - people taking on more risk than they would otherwise because money is even cheaper,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

Trump has bragged about his use of debt as a real estate investor. As far as managing the federal government’s affairs, interest on outstanding U.S. Treasury securities will be nearly $400 billion in the current fiscal year and rise to more than $914 billion by 2028, according to the Pew Research Center. ​

Still, interest accounts for about 8.7% of all federal outlays, down sharply from the mid-1990s when it accounted for more than 15% of spending following an era of ultra-high interest rates in the 1970s and 1980s, the Pew data showed.

A White House official who asked to speak on background said in response to the president’s tweets that “the president is looking at every tool available to lower the national debt and we ask Congress to join us in cutting back on wasteful spending.”

“ENEMY” POWELL TO SPEAK NEXT WEEK

Trump handpicked Powell as head of the U.S. central bank, but quickly soured on his by-the-book approach and insistence on Fed independence.

The president last month referred to him as an “enemy” on par with the head of the communist-led Chinese government and kept up his personal line of attack on Powell and the Fed in his tweets on Wednesday: “A once in a lifetime opportunity that we are missing because of ‘Boneheads.’”

On Friday, Powell said the Fed would act appropriately to help maintain the U.S. economic expansion and that political factors played no role in the central bank’s decision-making process.

He will hold a news conference next Wednesday at the end of the Fed’s two-day policy-setting meeting.

The Fed cut interest rates in July for the first time in more than a decade. Financial markets expect the Fed to again lower its benchmark rate, currently at 2.00-2.25%, when it meets Sept. 17-18.

Despite Trump’s name-calling, U.S. Treasury Secretary Steve Mnuchin told reporters at the White House on Monday he expected Powell’s job was safe, despite months of speculation that the president could seek to oust him.

RISKY MOVE

Fed officials have downplayed the idea of setting their target policy rate below zero as politically untenable and not worth the risks. The policy is meant to account for extremely weak economic conditions by, in effect, charging banks to hold reserve deposits at the Fed.

In theory those banks would put the money to more productive uses. But it raises risks.

Banks might pay less to savers as a result, and it can make it more difficult to operate at a profit. In addition, while the Fed’s policy rate influences other borrowing costs, the interest rate on long-term government bonds Trump alluded to in his Tweet are set by larger market forces and depend mightily on perceptions about economic growth.

The yield on 10-year Treasury notes has collapsed by half in recent months to a near record low — a reflection of doubts about the global economy and the impact of Trump’s trade war as much as of Fed policy. Trump has cited the negative yield on Germany’s 10-year bond approvingly, but it is a product of an economy nearing or perhaps in recession.

The Washington Post, citing public filings and financial experts, reported last month that Trump could also personally save millions of dollars a year in interest if the Fed lowers rates, given the outstanding loans on his hotels and resorts.

[Ryan Ruck]

Fed Pumps $75 Billion Into Financial System Again

September 19, 2019

The Federal Reserve Bank of New York once again stepped into the money market to supply additional liquidity on Thursday morning.

The N.Y. Fed injected $75 billion into the market for overnight repurchase agreements, known as repos. The Fed had intervened in the market on Tuesday and Wednesday after interest rates spiked higher at the start of the week.

The repo market is at the center of the U.S. financial system but it is little understood even by most people working in finance.

Big Wall Street banks borrow cash to finance their securities portfolios by selling securities and promising to buy them back the following day. The cash comes from investors with lots of dollars looking to make a little extra interest, such as money-market funds and government-sponsored housing agencies such as Fannie Mae, Freddie Mac, and the Federal Home Loan bank. Typically, the interest rate on repos falls within the Fed’s target range for the fed funds rate, the rate banks pay to borrow reserves from each other.

Here’s how it works. Traders at the big Wall Street firms put in bids to borrow cash overnight and cash investors accept bids, typically striking deals by 10 a.m. The bids are promises to pay an interest rate and a pledge to post securities as collateral. After the market closes at the end of the day, the securities get allocated to the cash investors. The following day, at 8:30 in the morning, the repos get unwound. The cash investors get their cash back and the Wall Street banks get their securities back. Then it starts all over again.

Why do the big Wall Street banks fund themselves this way? It’s really just a more intense version of the basic model of banking: borrow short-term, lend long-term, and make your profit on the difference between the rates. In this case, however, the big banks are borrowing the cash overnight and using it to buy longer-term bonds paying higher rates of interest. If collateralizing a loan with securities that were purchased with the loan sounds strange just remember that this is not really that much different than how a car loan or a mortgage is collateralized.



Usually, the repo process is nearly seamless. Most of the previous day’s trades just get rolled over into the next day’s repos, with a slight tinkering of the rates and slight shifts in the collateral. But this week has been unusual.

At the start of the week, the repo rate unexpectedly jumped higher, indicating that there was a shortage of dollars compared with demand. On Tuesday, the Fed stepped into the market by supplying $53 billion of cash in exchange for securities. On Wednesday, the Fed supplied $75 billion of cash–and said it had bids for an additional $5 billion of repos. On Thursday, the Fed supplied $75 billion again and said this time the facility was oversubscribed by nearly $9 billion.

The cause of the spike in rates is still a mystery. The theory now with the most currency (excuse the pun) on Wall Street is that the Fed, by unwinding its quantitative easing and shrinking its balance sheet, has removed too much liquidity from the financial system. If that is the source of the problem it would be ironic because the Fed has spent a good deal of time over the last few years worrying about how to conduct monetary policy in a world of “ample liquidity.”

No one looking at the repo market this week would characterize it as having ample liquidity.

[Ryan Ruck]

Repo Madness Day 7: Banks Seek $92 Billion Of Repo Funding From NY Fed

September 25, 2019

The New York Fed received $92 billion of bids for its overnight repo facility on Wednesday, far outstripping the $75 billion the bank offered to provide liquidity to the short-term funding market.

The oversubscription is an indication that the stress on the repo market has not lifted despite the central bank’s intervention, now in its seventh day.

The Fed has been intervening in the repo market, which provides short-term funding vital to the largest Wall Street banks, ever since interest rates spiked on at the start of last week. The cause of the interest rate spike remains a matter of speculation. The most popular theory on Wall Street is that the Fed’s earlier balance sheet reduction has left the market with too few dollars relative to Treasuries held by financial institutions.

The repo market is at the center of the U.S. financial system but it is little understood even by most people working in finance.

The word repo is short for repurchase. In a repo, one party sells another a security while promising to buy it back at a later date, often the very next day. The repurchase price is a bit higher than the initial sale, creating a positive return for the cash provider. Although technically structured as sales and repurchases, essentially what’s going on here is the creation of short-term loans collateralized with Treasuries, mortgage-backed securities, and agency debt. The higher repurchase price is equivalent to earning interest on the loan.

Big Wall Street banks borrow cash to finance their trading activity, for themselves and for clients, by selling securities and promising to buy them back the following day. The cash comes from investors with lots of dollars looking to make a little extra interest, such as money-market funds and government-sponsored housing agencies such as Fannie Mae, Freddie Mac, and the Federal Home Loan banks. Typically, the interest rate on repos falls within the Fed’s target range for the fed funds rate, the rate banks pay to borrow reserves from each other.

Here’s how it works. Each morning, traders at the big Wall Street firms put in bids to borrow cash and cash investors accept bids. The bids are promises to pay an interest rate and a pledge to post securities as collateral. Later the day, the securities get allocated to the cash investors. The following day, the repos get unwound in the morning. The cash investors get their cash back and the Wall Street banks get their securities back. Then it starts all over again.

Why do the big Wall Street banks fund themselves this way? It’s really just a more intense version of the basic model of banking: borrow short-term, lend long-term, and make your profit on the difference between the rates.

Usually, the repo process is nearly seamless. Most of the previous day’s trades just get rolled over into the next day’s repos, with a slight tinkering of the rates and slight shifts in the collateral.

But the market started to malfunction last Monday, with the implied interest rate rising far above the Fed Funds target. Ever since, the Fed has intervened to hold the rate down. It now seems increasingly likely that this will become a permanent feature of the market.

[Ryan Ruck]

A $45,000 Loan For A $27,000 Ride: More Borrowers Are Going Underwater On Car Loans

November 10, 2019

via WSJ:

John Schricker took out a loan to buy a car in 2017. Then he took out another. And then another.

In two years, the 40-year-old electrician signed up for four auto loans, each time trading in the previous car and rolling the unpaid balance into the next loan. He recently bought a $27,000 Jeep Cherokee with a $45,000 loan from Ally Financial Inc.

Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis: by piling on debt to such a degree that it often exceeds the car’s value. This phenomenon—referred to as negative equity, or being underwater—can leave car owners trapped.

Some 33% of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity, compared with 28% five years ago and 19% a decade ago, according to car-shopping site Edmunds. Those borrowers owed about $5,000 on average after they traded in their cars, before taking on new loans. Five years ago the average was about $4,000.

Rising car prices have exacerbated an affordability gap that is increasingly getting filled with auto debt. Easy lending standards are perpetuating the cycle, with lenders routinely making car loans with low or no down payments that can last seven years or longer.

Borrowers are responsible for paying their remaining debt even after they get rid of the vehicle tied to it. When subsequently buying another car, they can roll this old debt into a new loan. The lender that originates the new loan typically pays off the old lender, and the consumer then owes the balance from both cars to the new lender. The transactions are often encouraged by dealerships, which now make more money on arranging financing than on selling cars.

Consumer lawyers say borrowers are typically trading in their vehicles because they have to—often because their needs change, or because the vehicles have problems.

“These aren’t Rolls-Royces,” said David Goldsmith, a lawyer who defends consumers in auto cases. “They’re Ford Escapes.”

[vector7]

This also belongs here too...

BRICS Nations Discuss Shared Crypto To Break Away From USD And SWIFT

by Tyler Durden
Zero Hedge
Wednesday 11/27/2019 - 11:25

Authored by Julia Magas via CoinTelegraph.com,

Brazil, Russia, India, China and South Africa, or the BRICS economic bloc, are engaging in discussions to issue cross-national digital money in order to reduce the dependence of their economies on the United States, as reported by Cointelegraph on November 14. What will the new cryptocurrency look like, how does the BRICS group plan to use it and are there any existing projects underway that seek to achieve a similar goal of independence on such a high level?

BRICS and its problems

BRICS is the largest geopolitical block of countries, spanning three continents and wielding substantial economic power in global affairs. As of 2018, the five nations of the BRICS block had a combined nominal gross domestic product of $40 trillion, or about 23.2% of the gross world product.

However, such economic power does not come without competitive penchants from other nations that are vying for the markets that BRICS nations cater to. The greatest competition comes from the European Union and the U.S.

The political experience of recent years has shown that BRICS countries’ diplomacy has arguably failed in alleviating international sanctions, especially in politically sensitive markets such as the arms and the energy carriers markets. However, advances in technology are here to help out where politics cannot, as blockchain and digital assets have the potential to open entirely new horizons for finance.

The idea of a single cryptocurrency as a means of payments and value transmission is not a new one, but it is one that is being actively purported not only in countries like Venezuela with its Petro, but also among BRICS countries. The advantages of a single cryptocurrency as a universal means of settlements among BRICS nations would solve many of the problems they face on the global economic market.

A means of circumventing U.S. sanctions

The BRICS Business Council discussed creating a common cryptocurrency as a potential solution to these problems during the 11th BRICS summit that was held in Brazil on November 13–14, according to reports that cite Kirill Dmitriev, a member of the council. Dmitriev, who is the director-general of the Russian Direct Investment Fund, went on to say that an efficient BRICS payment system could be used to stimulate settlements between the countries while reducing the use of the U.S. dollar for these purposes.

It was also reported that the new system may become an alternative to the international payment mechanism SWIFT to facilitate trade with countries under U.S. sanctions.

Dmitriev also noted that in recent years, the share of U.S. dollars payments made between the BRICS countries has significantly decreased. In Russia, for example, over the past five years, the share of USD in foreign trade transactions fell from 92% to 50%, while those made in the Russian ruble rose from 3% to 14%.

At the same time, the potential for reducing the U.S. dollar’s dominance is still great, according to macroeconomic analyst Oleg Dushin, who told Russian media outlet BFM that such could be the case if Russia and India changed the currency they use to make payments between each other.

Dushin also said that Russia and China have already stopped using U.S. dollars in half of their mutual settlements and that there is currently a general trend of driving the dollar out of the international payments system. This, according to the expert, will help BRICS countries weaken the influence of the dollar in the global monetary system and reduce the risk of payments being frozen by Washington.

Denis Smirnov, a blockchain consultant from Russia, noted to BFM the convenience and reduction of transaction costs as some of the advantages of creating a single cryptocurrency system for the BRICS countries, calling it an alternative to bonds.

Commenting on the possibility of BRICS countries using a single cryptocurrency, Vladimir Rozhankovsky, an expert at the International Financial Center, told BFM:
“If it is possible to reduce currency risks, then it is better to carry out trading payments directly, and not through the purchase of dollars — this is obvious. The vast majority of more or less large global economies are now working on this issue.”

Peg to gold, not the U.S. dollar

While it is still unknown what the BRICS cryptocurrency will look like exactly, experts are discussing what it could potentially be tied to. Commenting on the possible options that the international cryptocurrency may be tied, Elina Sidorenko, the head of the Russian State Duma’s working group on cryptocurrency issues, said that there are several options on the table.

For example, it could be tied to the value of another cryptocurrency, she told Russian media outlet Dp, “but in this case, it’s impossible to avoid either the continuation of the U.S. dollar’s monopoly,” or it can be pegged to the price of a raw material or a good, but then the risk of market manipulation becomes a threat.
She concluded:

“The third option is a link to gold, and taking into account the latest Basel Accords, such a decision seems very convincing and timely."

Olinga Taeed, a council member and expert advisor at the China E-Commerce Blockchain Committee, told Cointelegraph that the Chinese have been researching the possibility of issuing a gold-backed token due to the country’s access to natural mineral reserves in Africa through China’s Belt and Road Initiative. He went on to add:

“More recently frictionless international trade has come to the fore with DLT looked upon as a possible solution for Brexit for example, replacing the usual 5-10 year gestation period. So the thinking is well rehearsed but what is new here is the willingness to enact it and for evidence of this there is absolute clarity. Trump has made transparent the long established use of the financial instrument of the dollar to pressurise Iran, Russia, China, etc for non-financial gain.”

Russia seeks an alternative to SWIFT

Russia has been the target of sanctions since 2014. As a result of multiple economic restrictions, Russian authorities have been considering the possibility of creating alternatives to SWIFT.

One of them — the System for Transfer of Financial Messages, or SFPS — is reportedly being used in 18% of money transfers in the country, and foreign financial organizations began to join SPFS in 2018. However, in April, Russian Finance Minister Anton Siluanov noted that SPFS is not a full-fledged replacement for SWIFT and that it is unlikely to become one in the near future.

Now, the Russian government is considering another alternative: a national cryptocurrency secured by gold. Elvira Nabiullina, head of the Central Bank of Russia, said that such a currency could be used to carry out settlements with other countries for trade transactions. However, Nabiullina is also of the opinion that it is more important to develop international settlements facilitated by national currencies rather than crypto.

The sanctions had blocked at least 20% of Russia’s defense transactions in 2018 due their tether to the U.S. dollar. Though Russian authorities are gradually moving toward settlements in national currencies with BRICS states, the idea of a unified cryptocurrency is being openly discussed as an effective, transparent, untraceable and stable instrument for circumventing U.S. sanctions and decreasing dependence on the U.S. dollar.

BRICS states would be able to disregard any exchange rate differences in settlements in a single cryptocurrency, and Russia would gain solid support for its national currency — the ruble — which suffered a twofold drop in value.

China considering a national crypto to bypass U.S. sanctions

China is the leading nation of the BRICS bloc in terms of GDP and the most open nation when it comes to discussions about blockchain implementation. China is intent on accelerating the development of its own central bank-backed digital currency and is working toward the integration of blockchain technologies into other important financial mainstays of the country, such as Alibaba, Tencent and various banking institutions.

Such hasty development could in part be the result of a heated debates about Facebook’s Libra coin. Chinese analysts fear that the development of a global digital currency by a company, which is regarded to have strong affiliations with the U.S., would threaten the existence of national currencies and weaken their exchange rates. Such a stablecoin backed by the U.S. dollar may increase the power of its penetration into the global economy and thus solidify the political positions of Washington.

Chinese authorities are interested not only in the development of a unified cryptocurrency for settlements with BRICS countries but also in the launch of a national cryptocurrency that would serve as a shield against the economic adversary across the Pacific.

Brazil has a positive stance on using stablecoins

Brazil is demonstrating the highest rate of Bitcoin (BTC) trade in Latin America. Such broad penetration of digital assets in Brazil makes it both fertile ground for the development of a national cryptocurrency and firm ground to support for a unified BRICS cryptocurrency for settlements with member states.

Given the country’s positive stance toward blockchain, Brazilian authorities seem to be open to discussions with stablecoin issuers. One recent example is that of the Mile Unity Foundation, whose representatives met with members of Brazil’s Ministry of Industry, Foreign Trade and Services to discuss the use of the XDR stablecoin for international transfers of funds.

Given that Brazil had an export/import balance of $219 billion to $140 billion in 2017 alone, the potential for using a single cryptocurrency with BRICS member states for increasing such figures is immense.

Although Brazil does not suffer from sanctions, its main trade partners in technology, such as Russia, are subject to them. Using the U.S. dollar for mutual settlements between countries leaves little room to maneuver.

India is fighting with poverty and corruption

The Indian authorities are reportedly discussing the introduction of a national digital currency. There may be significant reasons for such a move, not the least of which being the alleviation of the poverty that many of the country’s 1.3 billion are languishing in.

The Reserve Bank of India is pushing for such a digital currency backed and regulated by the central bank as legal tender. The RBI hopes that blockchain can alleviate the issue with corruption, which is rampant in India, and significantly reduce the dependence of millions of Indians working abroad on financial intermediaries in cross-border transfers.

The Indian authorities are also proponents of a national digital currency for reducing the population’s reliance on other digital currencies. Given India's stance within BRICS as a major buyer of Russian arms and as one of the most important energy trade partners, having mutual settlements in a unified digital currency would open up entirely new prospects for trading.

South Africa is making money transfers accessible for citizens

The possibility of issuing a national digital currency has even been discussed by the South African Reserve Bank, which could allow for its citizens to freely transact without the need for banks.

Given the staggering number of unbanked individuals (estimated to be around 11 million people) and those without any form of official IDs in the country, the availability of a national digital currency would help millions of citizens gain access to financial services and boost economic development. South Africa is just as bound to the U.S. dollar as all the other BRICS members in its settlements with China and Russia, meaning that is also feels the impact of the sanctions regime.

Experts say

According to experts, the idea of creating a digital currency for BRICS may turn out to be highly viable, given the transition of the world from a monopolar political model to a multipolar one and the backdrop of a shift in the economy from traditional financial institutions to trading platforms.

And the main beneficiary so far could be China, which is interested in expanding its sales markets amid a trade war with the U.S. Smirnov told BFM that he believes that over time, such systems will become more widespread:

“For example, for the past two or more years a consortium of several European banks has been testing its own mutual settlement solution that works outside the SWIFT system and allows for interbank settlements.”

The individual national currencies of the BRICS countries have been dropping against the U.S. dollar over the past 10–20 years, but it is unclear whether a unified BRICS payment system would reverse this trend. However, it is possible that the U.S. dollar could be weakened if the share of settlements in dollars significantly decreases around the world.

Among other possible risks that may be associated with the idea of issuing a gold-pegged international digital currency, head of research at investment company Nord Capital Vladimir Rojankovsky noted the deregulation of the market and the possibility of manipulation. He told Russian media outlet Regnum, “Such an implementation of this project does not imply the involvement of any distinguished party, which is a living oversight body.”

Speaking about the further development of the BRICS initiative, Teemo Puutio, an expert in compliance and an adjunct instructor at New York University School of Professional Services, told Cointelegraph:

“Whether the BRICS backed currency would ultimately succeed in gaining traction would largely depend whether it actually facilitates trade instead of adding another layer of technological complexity for the end user. […] BRICS are not alone in this however and it remains unclear whether the dominant digital currency of the future will be public such as the e-Euro or digital yuan or private, like Libra.”

https://www.zerohedge.com/crypto/bri...-usd-and-swift




Serbia Buys Nine Tons of Gold to Heed President’s Crisis Advice

By Gordana Filipovic
Bloomberg
November 14, 2019, 9:11 AM EST

· Country follows big gold purchases by Poland and Hungary
· Gold rises to 10% of Serbia’s total foreign-exchange reserves

Serbia’s central bank bought nine tons of gold in October, raising its reserves of the precious metal on the advice of President Aleksandar Vucic.

The biggest former Yugoslav republic is following Hungary and Poland, where officials boosted gold reserves in 2018 to create a bulwark against crisis. Central Bank Governor Jorgovanka Tabakovic, a member of Vucic’s Progressive Party, said the October 9-11 purchases raised the bank’s gold holdings to 10% of total reserves and made good on a suggestion from the president in May.

“We have completed gold purchase transactions and Serbia is safer today with 30.4 tons of gold worth around 1.3 billion euros ($1.4 billion),” Tabakovic told reporters in Belgrade Thursday. “For now, we have no plans to buy more.”

The acquisition is the latest in a series of moves by Serbia to shore up its financial stability by changing the structure of its foreign debt and increasing the share of dinars and euros, Tabakovic said. The central bank paid 395 million euros ($434.3 million) for the gold, $1,503 an ounce, the governor said.

Tabakovic spoke after the bank upgraded its 2019 economic growth forecast to 3.6% from 3.5%, citing higher domestic demand that’s counterbalancing a slowdown in most of the European Union.

Inflation Target

With some economists speculating that the central bank may alter the parameters of how it charts and controls the money supply, she said it won’t change its inflation target, which remains at 3% plus/minus 1.5 percentage point, through December 2021.

The central bank has both cut interest rates three times this year, but it has also relied on market interventions to smooth developments in the dinar’s exchange rate against the euro.

“There’s no question of a choice between inflation falling within target and exchange rate stability, which is the basis of stability of investments and the predictability of business environment,” Tabakovic said.

The inflation target does matter and the central bank expects the measure to return to the tolerance band by April or May next year, she said.

The consumer price index has fallen below the tolerance band five times in the last three years, with the latest bout of price weakness entirely resulting from cheaper fresh vegetables, according to the central bank’s head of economic research, Savo Jakovljevic.

https://www.bloomberg.com/news/artic...-crisis-advice









Putin Predicting US Dollar Collapse is Serious Warning – Catherine Austin Fitts/Greg Hunter

https://usawatchdog.com/putin-predic...-austin-fitts/

Putin Predicting US Dollar Collapse is Serious Warning – Catherine Austin Fitts
By Greg Hunter On November 27, 2019 In Market Analysis 80 Comments
By Greg Hunter’s USAWatchdog.com

Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts thinks Vladimir Putin saying “the dollar is going to collapse soon” is a flashing warning for the U.S. dollar’s value in the not-so-distant future. Fitts explains, “What Putin is saying is the dollar is going into a steep decline, and what was interesting about his comment is he said ‘soon.’ . . . What is the ability of the U.S. military versus the Russian or Chinese military to defend the dollar’s position? That is intelligence that Putin has, and because Putin has this intelligence, people really stood up and I really stood up and took notice. If Putin has access to that intelligence, and I don’t, which is saying the dollar could go into a deep decline, we need to take a serious look at it. The dollar is clearly under pressure, and if you look at reserves, the central banks are buying gold and selling dollars, including the Russians and Chinese.”

Fitts also points out, “The dollar is holding, and yet, if you look at the price of household goods in America, where I live, it’s approximately 8% to 10% a year in prices of household goods (going up), and you can tell the money printing has been significant. If you look at what the Fed is doing in the repo market, we are really on the next QE. So, we’ve got a problem with currency debasement, and what Putin is saying is it’s going to go faster, a lot faster in 2020, and that is an issue I am looking at. . . . One of the scenarios I am looking at is the dollar declines significantly in 2020. . . . When you have real household inflation at 10% every year for the past five years, the dollar has really already taken a hit as are many fiat currencies around the world. . . . What has really supported the dollar is its huge market share both in trade and traditionally in reserves. . . . You need to withstand a scenario where in 2020, instead of getting 10% inflation, you need to withstand 20% or 25% inflation in real household goods. . . . I have been saying for many, many years the dollar is strong. This is the first time I started to see the potential for a crack in the armor. I think we have to be prepared for the potential for a more serious decline than we’ve been dealing with for the last five years.”

What adds to the uncertainty of the U.S. dollar is the “missing” $21 trillion that was discovered by Dr. Mark Skidmore and analyzed and recognized as a huge problem by Catherin Austin Fitts, publisher of the popular Solari Report. Also, analysis Fitts has done on the government making the “missing money” a “national security issue” with FASAB rule 56 (Federal Accounting Standards Advisory Board) makes the secret money a hidden horror the general public is totally unaware of. Fitts explains, “The dollar is under pressure because we have been talking about the ‘missing money’ and FASAB rule 56, and the dollar is not what it used to be. If you look at the integrity behind the dollar, it’s not there. If you read “The Real Game of Missing Money,” which we did this big article for investors to do due diligence, the arrangements behind the dollar and the Treasury market do not have integrity. The deceleration of the integrity of the dollar is very significant and serious. . . . You’ve got to be more resilient, and it’s not just finances, you’ve got to be more resilient in terms of safety. If we have this kind of breakdown with the rule of law with FASAB rule 56, it’s not going to take long before it breaks into your neighborhood.”

Join Greg Hunter as he goes One-on-One with Catherine Austin Fitts, the publisher of The Solari Report found on Solari.com.

(To Donate to USAWatchdog.com Click Here) (This video was never monetized by YouTube so it must have important information you need to hear!! Enjoy!!)

Catherine Austin Fitts has long advised clients that a “core position is always advisable if possible (in gold and silver).” Now, Fitts is saying, “As to investment – I believe gold and silver are likely to have a good year in 2019 and 2020.”


To help you with your precious metal investments, she is offering free advice by clicking here.

There is free information on Solari.com. You can also become a subscriber to original cutting edge analysis that will and give you a much better understanding of our complicated ever changing world. Click here to subscribe to The Solari Report.

To view all the #212020 posters (about the missing $21 trillion in “missing money”) click here.

Vladimir Putin Sums Up The New World Order In 5 Words

by Tyler Durden
Sun, 11/17/2019 - 09:12

Russian President Vladimir Putin succinctly summarized the shifting tectonic plates of geopolitics.

Vladimir Putin: "The Dollar Enjoyed Great Trust Around The World. But For Some Reason It Is Being Used As A Political Weapon, Imposing Restrictions. Many Countries Are Now Turning Away From The Dollar As A Reserve Currency. US Dollar Will Collapse Soon." pic.twitter.com/03WunqgCDd
— Ben Rickert (@Ben__Rickert) November 15, 2019

First he explained the status quo...

"The Dollar enjoyed great trust around the world. But, for some reason, it is now being used as a political weapon to impose restrictions."

Then Putin explained the consequences...

"Many countries are now turning away from the Dollar as a Reserve Currency."

And ultimately what happens...

"US Dollar will collapse soon."

And just like that, it was gone. Remember "nothing lasts forever"...



As Bloomberg reports, Russia's central bank has been the largest buyer of gold in the past few years.


Source: Bloomberg

Of course, Putin is not the first (and won't be the last) to suggest the end is nigh for the dollar...

NEVER MISS THE NEWS THAT MATTERS MOST

The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.

"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. "The solution to this is to replace the national currency with a global currency."

Warren Buffett once explained that "for 240 years it’s been a terrible mistake to bet against America, and now is no time to start."

We don't mean to rain on his parade too much, but the following charts suggesttime is ticking, as the world transitions from dollars to non-fiat reserves...



Source: Bloomberg

[Ryan Ruck]

Republicans Agree To Massive Spending Bill, Despite Record Deficits

By Daniel Horowitz
December 13, 2019

Wake up, conservatives. Do deficits only matter under Democrats? After record spending that makes Obama look conservative, what are Republicans doing? Cutting a deal with Democrats to pass a bill increasing spending by $320 billion for liberal bureaucracies but not a penny for stepped-up ICE immigration enforcement.

The Congressional Budget Office announced earlier this week that the deficit for the first two months of fiscal year 2020 was $342 billion. That is an astounding number on many levels. It is 12 percent higher than last year, when we were already shocked at how quickly spending had increased under Republicans. Toward the end of Obama’s second term, annual deficits for the full 12 months were only about $500-$700 billion. However, the situation is even more appalling than under Obama.

For the first two months of FY 2010, the first fiscal year of Obama, the deficit was $296 billion. But that was amid the worst recession of a generation, with unemployment at 10 percent and people lining the rolls of unemployment benefits and food stamps. Revenues were also down sharply as a result of the recession and unemployment, buoying the deficits. Yet, here we are with record low 3.5 percent unemployment and record high revenue, yet deficits are even higher. It’s all because both parties won’t stop spending.

Whereas revenue for the first two months of FY 2010 stood at $269 billion, it was $471 billion for the first two months of this year. Yet spending for this year is at $814 billion as compared to $566 billion in FY 2010. What exactly are Republicans conserving?

Yes, it’s true that Medicare and Social Security are increasing on autopilot. Spending on those programs is up 6 percent each over this time last year. But spending on the Department of Education rose 25 percent, and spending on Medicaid rose 9 percent. There is no reason why Republicans couldn’t have dealt with those programs during the first two years of their trifecta control. The problem is Republicans support the Medicaid scam and the Department of Education. Their campaign for limited government was all built on a lie.

Republicans also like to hide behind military spending. Spending on the military rose 7 percent. But what is the point of constantly increasing military spending if we won’t defend our own border, we retain 3.3 million criminal aliens in our country, we invite hundreds of thousands of Chinese students in for China to exploit our intellectual property for espionage, and we bring in millions of migrants and even military students from the Middle East? Perhaps, if we refocused our military to what it can and should deter and implemented proper immigration and homeland security policies, we wouldn’t have to throw more money at the military-industrial complex, but would still have an effective fighting force.

Yet rather than having a budget fight on any of these things this week, Republicans are agreeing to lock in a deal from earlier this year in the spending bill to increase spending to the tune of $320 billion, but not add an extra penny for border security or ICE deportations, at a time when our security depends on it more than ever.

This is the big lie that is being perpetuated in politics. As the parties fight over impeachment and soap operas, they get together and agree on the fundamentals of the republic in the budget bill and defense authorization bill with little dissent. And Trump will sign both bills.

At some point, those who work in conservative politics, policy, media, or communications need to ask themselves if results and outcomes matter or if this entire charade is all about talking points and earning a living. At least conservatives in Great Britain finally rose up and demanded results: “Brexit means Brexit,” was their refrain. We thought electing Trump was our Brexit, but clearly nothing will change so long as those who claim to speak for conservatives remain silent on every important policy issue during the never-ending soap opera. When will MAGA mean MAGA?

[Ryan Ruck]

Federal Spending Explodes At Nearly $300,000 Per Household Since 2010

December 23, 2019

Amid the drama surrounding impeachment, both parties came together on one area of shared support: spending enormous amounts of taxpayer dollars and adding to the $23.1 trillion national debt.

Congress had little time to properly review fiscal 2020 spending bills, which weighed in at more than 2,000 pages of clunky text.

The legislation contained a multitude of flaws, including lobbyist-driven handouts and a private-pension bailout that could open the door for even larger bailouts down the line.

This is a business-as-usual conclusion to an irresponsible decade. The degree to which Washington has been reckless with the nation’s finances is hard to comprehend.

Since 2010, the federal government has spent $293,750 per household.

Federal spending started the decade at an artificially high level due to the 2009 “economic-stimulus” package. There was a slight dip after the stimulus ended, and the tea party wave ushered in a brief period of restraint in Congress. Sadly, this flicker of responsibility was short-lived.

According to the Office of Management and Budget and the Congressional Budget Office, federal spending totaled $37.6 trillion from 2010 through 2019. Spread across 128 million households (per the Census Bureau), that yields $293,750 in spending for every household.

Federal spending in 2019 was equivalent to the combined economies of 16 states.

In fiscal 2019, which ended Sept. 30, the federal government doled out $4.4 trillion. The full scope of that much money is virtually impossible for the human mind to grasp. One way to understand the sheer enormity is by comparing it to the size of state economies.

To match the amount that the federal government spent in fiscal 2019, one would need to add the total economic output of Alabama, Arizona, Connecticut, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Missouri, Nevada, Oklahoma, Oregon, South Carolina, Tennessee, Utah, and Wisconsin.

We should treat the notion that this level of federal activity is too small with deep skepticism.

Spending per household is up 47% since 2000.

The federal government spent $34,700 per household in 2019, which is serious money no matter what part of the country you live in.

Is nearly $35,000 per household too much spending? To put it in context, we can go back to the last time the economy had a surging stock market and unemployment under 4%, the year 2000.

Back then, federal spending was about $2.49 trillion after adjusting for inflation. Divided by the number of households in 2000, the government spent just $23,600 per household in today’s dollars.

That means that the spending increase from 2000 to now is a staggering 47% per household, even after controlling for inflation. In real terms, the federal government is nearly half-again larger than it was less than two decades ago.

The budget would balance today if spending had grown more modestly.

With the federal government growing so quickly, it should come as no surprise that this year’s deficit likely will exceed $1 trillion, even if the economy remains strong.

Some on the left counter that the high deficits are primarily the fault of the Tax Cuts and Jobs Act, signed into law just before Christmas 2017, and that the solution is funneling more taxpayer dollars to Washington. That assertion is incorrect.

Once again, a comparison to 2000 is instructive. Revenue per household, adjusted for inflation, was $26,750 in 2000. Today, it’s roughly $27,000, even after the 2017 tax cut.

If federal spending had grown based only on population and inflation starting in 2000, today’s trillion-dollar deficit would turn into a surplus.

Policymakers should recognize that the federal government has grown far too quickly. Since there is no way to undo the past, they should take some prudent steps to return the country to sound financial footing.

First, Congress should trim excessive spending that has accumulated over the years. The Heritage Foundation’s Blueprint for Balance offers hundreds of policy ideas to save money by eliminating waste, making Social Security and Medicare sustainable, and slashing perks for politically connected industries.

Second, Congress should enact meaningful guardrails that rein in future spending growth. One model for reform comes from Switzerland, where the budget balances over the course of a business cycle.

Closer to home, the “taxpayer bill of rights” approved by Colorado voters in 1992 limits spending based on a combination of revenue, inflation, and population growth.

Such rules would create headaches for Washington by forcing big-spending members of Congress to make tough decisions, rather than all of them getting what they want by abusing the national credit card.

Yet this would merely force legislators to behave the way most families do every day; namely, pay for necessities first, and only add extras if there’s cash to spare.

Congress is ending the decade on a note of fiscal irresponsibility, but next year lawmakers have a fresh chance to do right by America.

[Ryan Ruck]

Stock Market Bubble Is Forming And A 50% Plunge Is Inevitable: Strategist

December 26, 2019

One can’t help but to think the “everything rally” that is engulfing Wall Street right now is a classic asset bubble just waiting to explode sometime in 2020.

“I think so,” AdvisorShares CEO Noah Hamman told Yahoo Finance’s The First Trade, referring to whether we are witnessing a bubble form across asset classes. “It will continue on for a while for as long as we see we have an indication that we could have lower rates ahead possibly though with a pause, but with an increasing Fed balance sheet.”

By “everything rally,” we mean assets of all kinds are in major rally mode almost in unison. It’s as if investors — which are being hyped up on a steady dose of Fed rate cuts in 2019 and the signing of a phase one trade deal between the U.S. and China — are beginning to completely mis-price asset risk amid fear of missing out on rising markets.

Oftentimes that ends up badly for investors.

Let’s take gold, for instance. Gold prices largely traded range-bound from early September to early December as investors dumped the yellow metal in favor of more liquid stocks. But despite the major equities markets melting up into yearend, even boring gold prices have caught a bid in December.

Gold prices have shot up to seven-week highs.

That momentum has spread to the the VanEck Vectors Goldminder ETF, which Renaissance Macro notes has notched a 5% gain in the past two sessions. Meanwhile, silver prices are up about 6% in the last month. Copper has strengthened to the tune of 7% this month.

Rally on.

“With a drop in extreme bullish sentiment and now a breakout above resistance, we think in the early days of 2020, gold and silver are poised to challenge their highs from September. As momentum begins to build in gold and silver, we are comfortable chasing strength and would absolutely be buying dips,” said Renaissance Macro strategist Jay deGraaf.

What seems to be an inflating bubble of course is evident in stock prices, too. Shares of chip player Advanced Micro Devices have skyrocketed 20% in the last month. Not a day has gone by this month where AMD isn’t one of the hottest trending tickers on Yahoo Finance, an indication traders are chasing momentum here rather than scrutinizing the company’s inflation valuation.

Fed ‘Driving Up Prices Everywhere’

Apple (AAPL) and Tesla (TSLA) could be tossed into the bubble camp as well. Apple’s stock is up roughly 10% in December, bringing its year-to-date gain to 83%. Tesla’s stock is hovering around a record after tacking on a cool 32% this month.

At a $77 billion market cap, Tesla is worth almost two times that of Ford (F)...even though its profit outlook remains highly questionable.

Hamman thinks the Fed’s actions are “driving up prices everywhere.” He does caution that if the Fed signals a change in interest rate policy by mid-2020, the bubble could explode.

“It could be a huge bubble, and we could see huge declines — 50% and 60% declines that happen quickly before you have a chance to react to them.”

Until then, Hamman recommends staying long the market.

[Ryan Ruck]

How The 2010s Became The Decade Of Debt

January 8, 2020

At the end of 2009, the total federal debt was $12.3 trillion—a staggering amount of money.


Now, it stands at an astonishing $23.1 trillion. That’s roughly $180,500 of debt for every U.S. household.


It is important for Americans to understand how we got here, and what lawmakers can do to bring back fiscal sanity.


Poor Handling of the Financial Crisis


The federal government entered the 2010s with sky-high annual deficits. This had two primary causes.

First, the Great Recession reduced incomes and profits, which meant a sharp decrease in tax revenue. A slow economic recovery kept tax revenue relatively low for several years.

Second, legislators used the recession as an excuse to massively increase the amount of federal spending. The 2009 stimulus package in particular led to record-setting spending levels.

President Barack Obama largely sold this additional spending as a way to jump-start the economy. But the structure of the stimulus package told another story. The politically motivated design of the package meant that it was ineffective at growing the economy.

What it did do effectively was grow the national debt. Low tax revenue and high spending combined to generate federal deficits of over $1 trillion per year starting in 2009.

Between the big-government stimulus and bank bailouts, millions of Americans were fed up with how both parties responded to the financial crisis. The tea party movement was born out of this backlash, and the 2010 election put dozens of believers in limited government in the House and the Senate.

Deficit Reduction Efforts Fell Short

Two events in 2011 showed both the promise and the limits of the tea party’s political muscle. On the positive side, the practice of “earmarking” spending for narrow political purposes came to an end.

The public’s concern over deficits led to the Budget Control Act of 2011, which raised the debt limit in exchange for rules meant to reduce the deficit in future years. The law had serious flaws, and tea party members roundly opposed it.

Although the law did serve to restrain spending for a few years, its flaws ultimately proved fatal.

First, the Budget Control Act created an ill-fated Committee on Deficit Reduction, which failed in producing follow-up legislation to reduce future deficits. This failure resulted in spending reductions through the annual “discretionary” spending process, known as sequestration.

Here, the Budget Control Act’s primary flaw came to bear: It didn’t create a single spending limit to cover everything, but instead created separate defense and nondefense categories, both of which were cut. This meant that sequestration did not distinguish between the vital work of national defense and the secondary activities, such as politically-driven business subsidies.

Defense-focused members of Congress constantly chafed at the spending limits. This gave leverage to members who desired ever-more domestic spending. As a result, Congress passed a series of bills to increase spending limits for both categories.

At first, these increases were somewhat modest and partially paid for to avoid growing the deficit. However, they established a precedent that would have devastating fiscal consequences.

The 2018 and 2019 spending deals were massive and undid much of the Budget Control Act’s deficit reduction. Rather than doing the hard work of prioritizing what areas to spend taxpayer dollars on, the McConnell-Schumer and Mnuchin-Pelosi deals threw away any pretense of federal self-control.

At the same time, Congress has also allowed “mandatory” programs such as Social Security, Medicare, and Medicaid to balloon. Each of these programs is growing at an unsustainable rate, and combined they threaten to crowd outcore priorities such as national defense.

This brings us to a terrifying prospect: The deficit for 2020 is expected to exceed $1 trillion once more. Worse, the deficit is projected to stay above $1 trillion for the rest of the coming decade.

What makes this situation especially unconscionable is the strength of the economy. A time of low unemployment and no major wars is usually an occasion for low deficits and even balanced budgets. Instead, Washington is abandoning its responsibilities

But it’s not too late for that to change.

A Path to Serious Reform

The Heritage Foundation’s “Blueprint for Balance” provides a comprehensive guide for responsible policymakers to bring the federal debt under control.

This includes making pro-growth tax reform permanent and expanding on good tax policy; strengthening budget rules to impose fiscal discipline and legislative accountability; reforming Social Security and federal health care programs to target benefits toward the most vulnerable while reducing costs; and eliminating wasteful and inappropriate spending on federal agencies and programs that fail to deliver on national priorities.

Taking this path would preserve individual liberty, strengthen the economy, and enable civil society to flourish. It would also restore fairness for younger and future generations that would bear the burden of the $23.1 trillion (and growing) national debt.

The 2010s were a decade of debt. The 2020s must be the decade of balance.

[Ryan Ruck]

'Who The Hell Cares About The Budget?': Trump Tears Into Critics Of Mounting Federal Spending And Debt Under His Watch

January 21, 2020

President Trump ripped into critics of rising federal spending under his watch, according to leaked audio files of a lavish fundraiser held at Mar-a-Lago on Friday.

"Who the hell cares about the budget? We're going to have a country," Trump said, according to The Washington Post, which published the remarks over the weekend.

The Post reported that he bragged about increasing the defense budget by at least $2.5 trillion, a sum that could be attained after adding several years' of government defense spending. The Pentagon's budget for the 2020 fiscal year totals $738 billion.

He also spoke about the dramatic events surrounding the killing of Iranian Gen. Qassem Soleimani earlier this month and ridiculed environmental concerns, the report said.

The freewheeling comments offer remarkable insights into the president's approach on federal spending and the debt, which barreled past $23 trillion late last year.

Trump campaigned in 2016 on eliminating the federal debt in eight years and reining in the deficit, a key concern of Republicans throughout President Obama's two terms in office. They often accused Democrats of being excessive spenders, which racked up the deficit.

However, Trump veered the opposite direction as president, and Republicans tempered their previous criticism.

The 2017 tax cuts blew up the federal deficit, which neared $1 trillion in fiscal year 2019 - a 26% jump from the year before as it steadily increased every year in office.

The Tax Cuts and Jobs Act will cost $1.9 trillion over the next decade, according to the Congressional Budget Office. Trump also signed a $1.4 trillion budget in December that boosted defense spending.

The Committee for a Responsible Federal Budget, a nonpartisan budget watchdog, estimated earlier this month that Trump's spending priorities will pile an additional $4.7 trillion onto the debt through 2029.

I'm so old I remember when hating the debt was cool! I mean talk about ancient history!

[Ryan Ruck]

[vector7]

Markets rocked for second straight day, Dow down 1,900 points total (7:47)

https://youtu.be/GbG0dDDk5aw

[Ryan Ruck]

Wrapping up the worst week for the market since 2008.

And to think, we haven't even really seen serious COVID induced supply chain disruptions hitting yet.

If we end up with serious economic instability an election year, bad things will happen.

[vector7]

Wrapping up the worst week for the market since 2008.

And to think, we haven't even really seen serious COVID induced supply chain disruptions hitting yet.

If we end up with serious economic instability an election year, bad things will happen.

Right?!

After the Russia hoax and circus impeachment it is apparent there are no rules for Democrats.

Just skim though the last few pages of 2016 election thread.

[Ryan Ruck]

What Happened to Balancing the Federal Budget in 10 Years?

February 12, 2020

At a time of trillion-dollar annual deficits as the economy soars, [url=https://www.heritage.org/budget-and-spending/commentary/trump-budget-cuts-size-federal-government-bolder-reforms-needed]President Trump’s budget proposal for fiscal year 2021[/ moves in the right direction—and yet it leaves much to be desired. Moving toward budget balance in 15 years is better than growing deficits indefinitely, but it still falls short of where the GOP was just a few years ago.

The last time the United States experienced deficits this high was in 2012, as the country was slowly climbing out of the Great Recession. We have no such excuse today.

Notably, public pressure and congressional fiscal hawks convinced then-Speaker of the House John Boehner, a Republican, to adopt a 10-year target to reach balance in the GOP budget proposal. Then-House Budget Committee Chairman Paul Ryan delivered said ambitious budget in April 2014, an election year, to rally conservatives around a powerful goal of stopping the bleeding.

That Ryan budget was never enacted, but the goal of balancing the budget in 10 years became the gold standard for budget proposals for many years. It lasted right up until Trump abandoned the goal in his second budget proposal.

What happened?

For one, spending is higher now than it was back in 2014, and it is projected to grow higher still. Trump’s budget deals with Democrats to trade higher defense spending for higher domestic spending have made the fiscal situation yet worse.

And despite revenues growing even after the 2017 Tax Cuts and Job Act was adopted, spending growth continues unabated. According to the Congressional Budget Office, a 4% revenue increase was chasing an 8% spending increase, from 2018 to 2019. This can’t go on forever.

Without spending restraint, low taxes are in immediate danger of being reversed. High deficits and debt also threaten economic progress, dragging down growth and putting the country at risk of a future fiscal crisis during which interest rates would rise, and the federal government would find it difficult to fund even core constitutional functions, such as providing for our nation’s defense.

Moreover, profligacy today also means less fiscal space when the next recession hits. Now is the time to build up reserves.

Balancing the budget in 10 years has undoubtedly become harder to do, but abandoning this goal is the wrong approach.

Trump’s budget moves in the right direction by eliminating and cutting federal programs that perform functions that should be left to the people, states, and localities. It also makes progress toward reducing the growth in mandatory spending with good governance reforms and a zero-tolerance policy for waste, fraud, and abuse.

In addition, the president’s regulatory agenda helps the budget by growing the economy and saving taxpayer dollars with better policies.

Yet much more is needed to drain the swamp and limit Washington’s spending addiction truly. Returning to the goal of balancing the budget in 10 years or fewer should be high on the agenda.

[Ryan Ruck]

With The Fed Expected To Ease, Doubts Arise Over Whether Rate Cuts Will Help

March 2, 2020

Financial markets and the White House are demanding interest rate cuts from the Federal Reserve that may not work and may not even be necessary.

As traders ramp up their bets for central bank easing, there’s an ongoing debate about whether the Fed should accede to the pressure with as much as a full percentage point cut this year, or wait to see whether the jangling nerves over the coronavirus subside.

The market’s expectation now is for either 50 or 75 basis points to be sliced off short-term borrowing rates by April. Ultimately, if the market and President Donald Trump prevail, rates will drop close to where they were during the financial crisis that ended 11 years ago.

“There’s no need for that. Rates have already fallen. How much lower do you want the 10-year note to go?” said former investment banker Christopher Whalen, founder of Whalen Global Advisors. “The market’s like a 2-month-old child. Every time it cries, it wants to be picked up. Sometimes you’ve got to leave the baby in the crib.”

Rate cut calls intensified late last week and into Monday as the Dow Jones Industrial Average lost 12% — $3.8 trillion in market value — and government bond yields hit a dizzying succession of new lows. Even amid Monday’s violent market rally, expectations remained high that the Fed would come through with an ambitious policy response.

Goldman Sachs, for one, said the Fed likely would cut 50 basis points this month and may not even wait for its March 17-18 meeting to do so.

That view was backed up around Wall Street; Bill Nelson, chief economist at the Bank Policy Institute, a nonpartisan think tank, said he thinks the Fed and other global central banks will make a joint announcement Wednesday morning at either 7 a.m. or 8 a.m. Nelson based that call in that it would be consistent with the coordinated moves done during the financial crisis, and he sees the potential for a 75 basis point cut.

“When the Committee eases policy it judges the effectiveness by the market reaction. (By contrast, when the Committee tightens policy, it wants to avoid surprises),” Nelson wrote in a blog post. “The only way to get a positive market reaction is to deliver more than expected.”

‘Fed has no role’

While the question seems settled that the Fed is poised to deliver a strong move in monetary policy, it’s less clear how effective or even necessary it is now.

After all, as Fed officials have pointed out, the longer-term impact of a virus-induced slowdown is difficult to gauge. Even as Wall Street melted down last week, the economic data was largely positive as the Citi Economic Surprise Index was tracking around a two-year high of how reports were holding up against expectations.

That raised some doubts as to whether the Fed needs to conduct an intervention.

“The Fed has no role to play here,” Komal Sri Kumar, president of Sri-Kumar Global Strategies, told CNBC’s “Squawk Box.” “So to the extent that it reacts at all, it is irrelevant. It shouldn’t be happening.”



Fed rate cuts are generally tailored to demand shocks that cause a slowdown in consumer and business activity. Thus far, though, the coronavirus scare has been most felt on the supply side, with worries rising over whether China, the world’s leading exporter, can get its goods out from beyond its shores as factories close and shipping lanes see less traffic.

Should the supply contraction intensify, it could, however, bleed over to the demand side.

‘The Fed can’t fix this problem’

To address the dual threat, the Fed should act in concert not only with its peers but also fiscal authorities, said economist Paul McCulley, formerly of Pimco and now a senior fellow at Cornell Law School.

“This is unambiguously a real shock to the economy. This is not like 2008, which was a made-on-Wall Street shock,” McCulley also said on “Squawk Box.”

“The important thing to understand,” he added, “is that the Fed can’t fix this problem. It has to be part of a mosaic of policy responses. I think the Fed will want to be bold, but part of a consortium of actions, because the Fed doesn’t want to get into a foot race to zero by itself.”

Indeed, the market is leaving open the possibility that the Fed could step beyond the expected 100 basis points of cuts, which would take its benchmark down to a target range of 0.5% to 0.75%, and cut all the way to zero as it did during the 2008 crisis.

Trump even has spoken fondly of the negative rates that prevail in parts of Europe and Japan, though Fed officials also have said they don’t see that happening in the U.S.

“The board ought to stand pat,” Whalen said. “The board needs to realize that these short-term fluctuations, as gruesome as they seem, are going to fade. A month from now, two months from now, this whole thing is going to be seen as something serious, but something that we managed.”

[Ryan Ruck]

Stock Futures Fell Fast Enough to Trigger a Halt

March 8, 2020

The S&P 500 has three circuit-breaker levels that halt trading in an indiscriminate selloff. The first is down 7%.

Futures on the S&P 500 were halted Sunday night after they declined 5%. So-called circuit-breaker levels are the thresholds at which exchanges halt or close marketwide trading due to extreme declines. These levels are calculated daily, based on the previous day’s close in the S&P 500.

As the wild swings on Wall Street continue, here are the levels to watch for further trading curbs when U.S. markets open Monday.

Level One Breach

A 7% decline in the S&P 500 from the prior day’s close would trigger a level one breach, where trading is halted for 15 minutes.

That level for regular trading on Monday is 2764.30, a 208 point drop from Friday’s close of 2972.37.

If that level is reached at or after 3:25 p.m. ET, it would not halt marketwide trading.

Sunday night, futures on the S&P 500 tumbled as low as 2818.75, triggering a trading curb because the threshold for premarket and after-hours trading is lower than during the regular session.

Level Two

The next threshold is 13%. A decline in the S&P 500 by that much would similarly result in a 15-minute halt.

To trigger a level-two circuit breaker Monday, the index would have to drop 386 points to 2585.96. Trading wouldn’t be interrupted if the drop came at or after 3:25 p.m.

Level Three

It takes a 20% drop in the S&P 500 to trigger a level-three circuit breaker. If this happens at any point in the trading day, marketwide trading is halted for the remainder of the day.

To hit level three on Monday, the S&P 500 would need to fall 594 points to 2,377.90.

Single Stocks

A different rule covers single stocks, for which the Securities and Exchange Commission has price bands set by tier (Tier One covers members of the S&P 500, Russell 1000 and some exchange-traded products, while Tier Two covers other securities) and by price. Those levels can be found here.