Excess Reserves on the Move, Down 11% in Two Weeks!

Has the great migration of excess reserves out of the Federal Reserve and into the economy finally begun? It could be. Total reserves fell dramatically from $2.53 trillion to $2.28 in the last two weeks. I don’t know where they went or how the Fed sucked them out of the system. It must have something to do with the rise in interest rates but I’m not sure what.

The weekly money supply total is steady from two weeks ago, so the missing reserves so far don’t seem to be showing up in the money supply. However, the H3 release, which shows total reserves, measures until January 6 and the H6 release only through December 28. So it could be that when the H6 catches up, we will see the ripples of that $250 billion drop in total reserves starting to show up in the money supply.

The 1-week average should be carefully monitored over the next 2 weeks especially, to see if it moves up as total reserves move down. If it does, we are in for a monetary flood. If it doesn’t, then the Fed has figured out a way to drain excess reserves without affecting the money supply. If that’s true, the Fed must be selling assets in return for cash that it is retiring.

Any Fed experts out there who have a clue as to what is going on here?


Anti Fed Economics Goes Mainstream as Jared Blikre Does it Again

Something amazing is happening at Yahoo Finance. It’s a tool I use almost daily for stock research, but the articles and commentary are generally blah mainstream Keynesian Fed cheerleading nonsense.

Not anymore.

I reported on Jared Blikre last week, who actually made mention of the excess reserves problem at the Federal Reserve. This is an enormous financial elephant in the room that will eventually (and soon) destroy the dollar. I suspected he may have Austrian leanings. That is now confirmed.

Blikre is a friend of Bob Wenzel, and Austrian economist and publisher of EconomicPolicyJournal and TargetLiberty. I emailed Blikre’s last article to Bob and it turns out he had already linked to the very article I sent him 5 days before I even found it on the Yahoo front page. That means it was floating as the feature Yahoo Finance article for 5 whole days, though there are probably IP based permutations and algorithms governing who sees that article as the feature and who doesn’t.

So yes, we have someone high up at Yahoo Finance reporting on actual relevant financial news out of the Fed. On December 31, Blikre struck again, detailing some strange goings on in the Fed funds rate and humongous overnight treasury auctions that signal something’s up. It reads like a slightly toned-down version of a Zerohedge piece, but Blikre clearly has a deep understanding of the mechanisms of Fed operations and money creation that even I am unfamiliar with.

Read Blikre’s piece in full. It’s real financial journalism.


The Excess Reserves Problem Actually Makes it Into Yahoo Finance Front Page!

I’ve been railing about this problem for 3 years. There are currently over $2.5 trillion in excess reserves sitting at the Fed. Here’s the graph.

Eventually those reserves are going to come out into the banking system and absolutely flood the entire world with a tsunami of dollars. The effect on price inflation will be extreme.

What surprised me, even shocked me to a degree, was that this story was actually featured on the Yahoo Finance front page today. My mouth was hanging open, because I have never seen a mainstream report on this. The author even uses the term “price inflation” to differentiate it from “inflation”. The former, inflation, means an increase in the unbacked money supply. The latter, price inflation, means a rise in prices as a result of inflation of the money supply.

Only Austrian economists differentiate the terms, because only Austrians are logical about economics. Everyone else is practicing voodoo. I have to think there is an Austrian, or an Austrian-leaning journalist at Yahoo. The guy’s name is Jared Blikre. I’ll be doing more research on him to see if there’s a mole from our side at the MSM, or if this is just a fluke.

In a world where money is debt and debt is garbage

Here’s a shout out to Bill Still, a strange guy (who isn’t strange these days?) I debated once when some monetary reform group headed by Crackpot Israeli Academic Chicagoan Friedmanite Monetary Totalitarian Socialists invited him to Israel to speak with Moshe Feiglin, and he had me take up the liberty side.

Still is obsessed with an accidental feature of the monetary system, a problematic one but an accidental one nonetheless – that money comes into existence through debt. This is true. It means that the creators of money buy bonds with the money they create, and whoever they give the new money to (always government) always owes the money back to the Fed.

Every dollar in existence is owed back to the Fed because it represents a government bond that was purchased. The government will get the money to repay the bond by taxing us. Therefore, every dollar that exists, that you have, will be paid back to the Fed at interest.

This sounds bad, and it is. But it is not a necessary part of the current fiat monetary system. Why not? Because the Fed does not have to buy bonds with the money it creates. It could buy anything it wants. It could buy my old dilapidated desk chair, or the desk I’m working on right now that I found abandoned on the street before Pesach.

If it bought real assets instead of debt, then no one would have to pay the money back. It could circulate indefinitely. It wouldn’t represent debt. It would just be value stolen from taxpayers that was used to buy my desk.

The real evil is not that money is debt. That is just an added layer of evil on top of the main sickness, which is that printed money – ANY printed money that must be used by law to pay taxes, whether it is printed initially to buy debt or a desk I found in the garbage, is theft of value from the previous holders of that money.

So Bill Still wants to change printed money from money used to buy debt, to money that is just injected into the economy used to buy nothing. Just distributed. For free. And he thinks this would solve everything. The guy is nuts, and his followers are obsessed with a purely accidental feature of the monetary system.

But my shout out to Mr. Still is that insofar as money is debt these days, however accidentally, and debt is garbage, then money is garbage. When the debt loses all nominal value because it simply cannot be repaid anymore, then the money goes with it.

And debt is losing value fast now in Europe.

G20 Sets the Stage for a Global Bail-in, OR: The Protocols of the Elders of Global Finance

Today we’re going to pick apart some Newspeak. Here’s the relevant paragraph, from an article in Reuters about the leaders of the most powerful financial institutions all coming together and conspiring about how to rob the entire human race of all its savings and transfer them all to governments, all in one shot.

Government leaders are expected to agree in November that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.

The bonds, known as “gone concern loss absorption capacity” or GLAC, are seen by regulators as essential to stopping the world’s 29 biggest lenders from being “too big to fail”.

Here’s the translation into English:

There’s this problem with banks that have gotten so big, thanks to government coddling and favors, that to let them fail would endanger the government itself. Therefore, up until now, every time they almost fail, which happens repeatedly because they are all fractional reserve banks that lend out demand deposits, the government bails them out by raising taxes and printing, and giving the money to the banks in what is called, colloquially, a bail out. In 2008 it was $700 billion in taxes (remember the TARP act?) and $16 trillion in printing, 22x the taxes spent on the banks.

The problem is, relying on taxpayers to back banks is politically unpopular, so instead of having to rely on the government to transfer tax money to banks through direct taxes and inflation, governments are enabling the banks to steal from depositors directly without using the government as its thieving middleman.

GLAC bonds will be backed by none other than demand deposits, in other words the money you deposit in your checking account. You can’t just invent capital out of nothing if you are not a central bank and do not have the ability to steal through inflation. So in the event of serious financial stress, these GLAC bonds will be on the balance sheets of banks listed as assets to pay off creditors.

Got that? Thanks to G20 governments, the biggest banks now have the ability to pay off their creditors with the money you deposit in your checking and savings accounts by calling that money a “GLAC Bond” and declaring it an asset.

Now taxpayers do not have to be robbed by government in order to pay off bankster debts. Now they can be robbed directly by the banks themselves through GLAC bonds. Remember Cyprus in 2013? When the Cypriot government took a percentage of everyone’s deposits to pay off its debt?

It just went global.

The Protocols of the Elders of Global Finance

The trillion dollar coin approach to middle east peace

There have been rumors and shmumors about America’s intention of minting a “trillion dollar coin” and sticking it in the Federal Reserve in order to bypass the so-called debt ceiling, which is more of a debt elevator. I couldn’t help but think of the Simpsons episode where the government prints a trillion dollar bill and Mr. Burns and Homer escape with it and somehow it ends up in the hands of Fidel Castro and the country survives on the wealth of the trillion dollar bill.

It is rare that I am dumbfounded, but this time I really am. I don’t know what to say. The mere possibility of the minting of a trillion dollar coin is so despicably absurd that I’m overloaded with a litany of potential sarcastic remarks that none of them can fit through the door of my mouth as they’re all crowding together simultaneously and are now jammed in the back of my throat and I can hardly breathe. Jon Stewart did a pristine job I must say.

Let me just start by saying that the source of this problem is that some primordial government, when it came in and seized the local mints and splayed the king’s face over all the coins, decided to give the monetary unit a proper name instead of a weight. For example, “dinars” instead of “ounces”. Then the Alice-in-Wonderland concept of “face value” was born, which doesn’t really exist. If instead of “dollars” the term for money was “grams” then money would be tied to weight instead of fancy shmancy names like “dollar” and the possibility of printing a gram of money or a “trillion gram coin” would be a lot more difficult for the government to do. So they had to rename the monetary unit to some imaginary term.

Two obvious questions are these, reductio ad absurdums, but it’s hard to engage in those when the premise you are attacking is itself so intensely absurd on its own:

  1. If you’re going to mint a trillion dollar coin, why not mint 16 of them and pay off the national debt?
  2. Why make it out of platinum? Why not elephant dung?

Better yet, you want mideast peace, right? And you love foreign aid and meddling. Then by God go all out! Why use it for such a petty thing as raising the “debt ceiling”? I say give the trillion dollar elephant dung to Israel, and then we can buy all of Syria, Jordan, Lebanon and Egypt and every single Arab in the country, pay them outrageous salaries to tap dance for us, and give them each their own personal trained pet chimpanzee to give them manicures and shiatsu massages and build them all gold-plated ivory mansions so they’ll be happy and won’t have to do anything after the daily tap dance for the Jews? Everyone over here will be rich, obviously, and therefore at peace. And the chimpanzee population will have a big boon.

There’s only one problem. How are we doing to break a trillion to get all this done? The local Five and Dime? Or the Five and Trillion?

And you want to use it to get around your stupid debt ceiling?

My Lord the world has lost its mind.

And don’t forget, there is nothing qualitatively different between a trillion dollar coin, and a one dollar bill.

The Fed OD’s on QE3 and bonds go down, the real crash is beginning

The Fed today announced it would print money until the economy recovers. Ergo, it will print money forever, because printing money prevents economic recovery.

Gold and silver went berzerk today. But bonds did not. They went down. You’d expect, after an announcement that the guys who print money are going to be buying bonds with it, that the value of bonds would go up. If a company is bought out by a bigger company, then the stock goes up, because said bigger company is buying a bunch of stock of the smaller company being bought out. This is what happens in normal markets.

Unless…unless nobody wants any of the shares of the smaller company to begin with and they all think the big company is insane to buy up the smaller company because all they sell is solar powered flashlights, so everyone sells all their shares to the bigger company and the stock actually goes down even though the big company is buying it up because EVERYONE ELSE is selling their shares to the bigger company too.

This is what happened today. The government is selling pieces of paper that promise to pay you dollars in the future. They are selling “stock” in dollars. But dollars in the future are worth a lot less than dollars in the present. Nobody wants dollars in the future. They’re like solar powered flashlights. So they’re all selling them to the fed. And bonds went down, even though the biggest buyer just stepped in and said we will buy bonds forever.

This is it folks. The real crash is starting right now. If bonds are going down today of all days, interest rates are on their way up That means the interest on the national debt is about to go through the roof. Every bailed out bank is going to fail. Again. And this time there won’t be any more bailouts.

Why the bond bubble will be the final bubble

When I was a kid, maybe 6 years old, my mom got me these giant balloons. I mean huge…huge balloons. It took me maybe 30 minutes to blow the biggest one up. I remember I was sitting in the living room and the balloon was on my legs which were up on the coffee table. I was sitting on a blue couch with flowers in Kendall, Florida. All the sudden I heard the loudest balloon explosion of my life to this day. It reverberated in my ears, and my balloon was gone. I was too stunned by the noise to react.

On March 10, 2000, the Nasdaq bubble popped at 5132.52. That was the highest it ever got, and it’s never even gotten near coming back. The cause of the Nasdaq bubble was the Federal Reserve under Alan Greenspan.

The Fed fueled the Nasdaq bubble by buying government debt for cash it invented out of nothing. That cash was stored in big banks like Goldman Sachs, which then used that cash to buy tech stocks.

Sometime in December 2007, the housing bubble popped. The cause of the housing bubble was the Federal Reserve under Ben Bernanke.

The Fed fueled the Housing bubble by buying government debt for cash it invented out of nothing. That cash was used to subsidize mortgage loans for people who could not afford them. These people used that cash to buy mortgages, which then crashed when these same people defaulted on said mortgages.

Sometime in 2012 or 2013, the debt bubble will burst. The debt bubble was the cause, the actual fuel used for both the Nasdaq bubble and the housing bubble. Without the Fed’s ability to buy government debt with money they invented, neither of those bubbles would have happened.

But each time the bubbles popped, government used its own debt to reinflate the economy. Stimulus, subsidies, what have you. Treasury yields are the lowest in history. The price of bonds is the highest in history. This bubble is not just one bubble – it is a combination of every single bubble since the Fed was born in 1913. It is the bubble that has caused every other bubble we’ve ever had, the bubble that engulfs other bubbles and gets bigger every time a smaller bubble pops.

When this blows, the world’s eardrums will shatter. And this time they won’t be able to use debt to reinflate it.

Austrian Keynesian parting of the ways: Jim Rogers and George Soros

It’s fascinating to see two financial giants have such spectacular success but have such differing views on economics, morality, and goals. George Soros and Jim Rogers are like two sides of the same coin. One is a radical leftist Keynesian, the other a free market Austrian. Both worked together in the 70’s on the Quantum Fund, a hedge fund that made both men spectacularly rich. After that, one retired to a quiet life of motorcycling around the planet and seeing the world. The other started doing mischief.

George Soros is known to many as a scary manipulator and radical leftist who has his hand up the world’s shirt, playing the Globe like a puppet master. He is said to have “broken the bank of England” though I have little idea what that actually means. The man believes in globalization, central planning, inflation, bailouts, and State control. He loves Obama and the Federal Reserve.

Jim Rogers is known to many as an affable guy who likes the Orient. He lives quietly and gets interviewed by this and that financial network about what investments to make. He talks about morality a lot, the immorality of bailouts, believes in sound money, gold, believes the Fed should be abolished, and loves Ron Paul.

The question is, how is it that these two men actually worked together on the Quantum Fund, split apart and developed such different ideas about macroeconomics and politics?

The answer, I believe is that they don’t actually have different beliefs. They have different goals. Soros wants to control as much as he can. This is why he is a Keynesian. Not because he believes it’s good for the people, but because once you’re on the top, inflation, government control, and centralization can only benefit you. Jim Rogers and George Soros both know that the free market is the only thing that works, and is the only thing that is moral. It’s just that George Soros would rather keep all the power for himself and fool people.

The point is this. Those at the top, in the Fed, at the helm, in the treasury, the ones actually in charge of the central plan that is killing us, all know very well that the whole thing is rotten. They just don’t care.

The battle between Keynesianism and free markets is not a battle between economic ideologies. It is a battle between freedom and slavery, good and evil.

How the Federal Reserve will lose control of inflation

Over at Economicpolicyjournal, Robert Wenzel is reporting that the Fed is seriously considering another round of quantitative  easing (QE). The reason they’re considering it is that their gauge of inflation, a formula which changes on a whim depending on whether they like the result of their calculations or not, is still low, so there is room to print more money without affecting prices too much.

The reason inflation is low is that in times of economic slowdown, debt becomes liquidated. Debt that once represented dollars becomes nothing. So let’s say Jay owes Mike $10,000 that Mike lent to Jay to start a business in a time of economic boom, say in 2007. Jay got his business off the ground just before the 2008 crash. Mike owns $10,000 worth of Jay’s debt, and as long as the economy is going, that debt is still worth $10,000 because the debt will be paid back. So that $10,000 still exists in the economy in the form of Jay’s debt.

Now the crash happens. Jay’s business fails. He can’t pay back the $10,000. So the value of his debt goes to zero. $10,000 is erased from the economy. The amount of money in the economy goes down, the value of the dollar goes up. Prices go down, so printing money will keep the prices stable.

Problem is, when there is less money in the economy because the Jays in the world can’t pay their debts, the Mikes of the world have less money, so keeping prices stable while people lose money is equivalent to raising prices while people have the same amount of money. Either way they can’t afford to buy as much with the money they have.

The economy naturally wants to deflate now because people cannot pay their debts. And the Fed keeps pulling it the other way and trying to inflate it. What you have here is a massive tug of war, and someone is going to win. That someone is the Fed, because as much as debt can be liquidated and money erased from the economy, the Fed can always, always just print more.

What will happen? After some round of QE or another, probably after the Euro collapses, gold and silver will suddenly become the only preserver of value that exists anymore. Dollars will be erased from the economy, which should push the value of the dollar up, but the Fed will have printed so many of them that it can no longer increase in value. With no Euro, everyone will pour into gold and silver simultaneously.

That’s when those who own gold and silver will escape with their wealth, and those holding paper will be in serious, serious trouble.