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Richard Sylla: This Is An Inherently Dangerous Moment In History

Low interest rates are causing distortions & mis-allocations
Monday, August 7, 2017, 2:42 PM

"The rates we’ve had in recent years, including right now, are the lowest in history. The book that I co-authored on the history of interest rates traces back to the code of Hammurabi, Babylonian civilization, Greek and Roman civilization, the Middle Ages, the Renaissance, and early modern history right up to the present. And I can assure our listeners that the rates that they’re experiencing right now are the lowest in human history."

So says Richard Sylla, Professor Emeritus of Economics and the Former Henry Kaufman Professor of the History of Financial Institutions and Markets at New York University's Stern School of Business. He is also co-author of the book A History Of Interest Rates

We invited Professor Sylla onto the podcast after hearing his work favorably referenced by the panel convened at the recent hearing held by the US Congress titled: “The Federal Reserve’s Impact on Main Street, Retirees and Savings.”

Based on his deep study across the scope of millennia of human history, Sylla warns we are at a dangerous moment in time. » Read more

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Steve St. Angelo: Prepare For Asset Price Declines Of 50-75%

When the debt bubble pops, it's taking everything with it
Monday, July 3, 2017, 4:00 PM

Any sense of prosperity in today's economy is based on a falsehood, claims Steve St. Angelo, proprietor of the SRSrocco Report website.

Like we here at PeakProsperity.com, Steve is a student of energy. He shares our worldview that net energy per capita has been in steady decline, and a result, future growth will be limited. Also like us, he notes that the "growth" seen over the past several decades hasn't been due to surplus net energy (which makes being able to do more possible). Instead, it has been fueled by debt  -- which essentially steals prosperity from the future and consumes it today.

Any third-grader with a crayon can quickly tell you that kind of scam can't last forever. And it can't. Once the can can't be kicked any further and the next economic and/or financial crisis is upon us, Steve sees today's over-inflated asset prices quickly dropping by a gut-wrenching 50-75%. » Read more

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Steen Jakobsen: 60% Probability Of Recession In The Next 18 Months

The world economic engine is slowing to a standstill
Sunday, June 11, 2017, 6:46 PM

Steen Jakobsen back on, Chief Investment Officer of Saxo Bank, returns to the podcast this week to share with us the warning signs of slowing economic growth he's seeing in major markets all over the world.

In his view, the world economy is sputtering badly. So badly, that he's confident predicting a global recession by 2018 -- or sooner. » Read more

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Why The Markets Are Overdue For A Gigantic Bust

It's just not possible to print our way to prosperity
Friday, June 9, 2017, 7:38 PM

As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy.

It's just too clear to me that doing so presents plenty of dangers, due what we might call 'economic gravity': What goes up, must also come down. » Read more

Insider

Understanding The Fed's Endgame Is Key To Protecting Your Wealth

When all this breaks, the carnage will be astounding
Friday, May 26, 2017, 11:52 PM

Executive Summary

  • Why the Fed's rate hikes are not actual "hikes"
  • The new debt issuance directly or indirectly enabled by the Fed is staggeringly large
  • Why the Fed's intervention in the financial markets is creating worrisome instability
  • As the risks mount, what should the concerned investor do?

If you have not yet read Part 1: The Federal Reserve Is Destroying America available free to all readers, please click here to read it first.

When Is A Rate Hike Not A Rate Hike?

The Fed keeps talking about raising interest rates, but they really aren’t doing any such thing.  In fact they are doing the opposite.

I know that’s a controversial statement, so let me explain.  The point of a ‘rate hike’ is not to make the cost of money (interest rates) go up, but to drain excess money from the system.  That’s why a rate hike cycle is called a ‘tightening’ cycle; because it is making the amount of money available for lending to shrink, or for conditions to become tighter.  The same as if you don’t have quite enough money at the end of the month, things are tight. 

This means that the interest rate is the derivative, and the amount of money is the main driver.  You don’t set interest rates, you control the amount of money in the system, and the interest rates follow along.  They are the result, not the cause.

Or at least that’s how it used to be.  But not any longer.

In the past, when the Fed ‘hiked rates’ what it actually did was drain money from the system.   Money out = interest rates up.

Now when the Fed hikes rates it removes zero money in the system, and this is why a rate hike is not actually a rate hike at all, but the opposite because it leaves 100% of the money in the system but raises the amount that banks and other financial institutions can charge you for new loans and outstanding credit.

How did we get to this ‘upside down world’ where a rate hike increases money? 

To understand let’s be sure we are clear on... » Read more

Insider

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Prepare For The Great Global Contraction

How hard will we hit the ground?
Friday, May 19, 2017, 8:01 PM

Executive Summary

  • The repercussions of the Fed's Free Money Machine
  • Why debt-funded state control stagnates productivity
  • The importance of the 8-year cycle
  • What should guide investors' focus and decisions

If you have not yet read Part 1: How Long Can The Great Global Reflation Continue? available free to all readers, please click here to read it first.

In Part 1, we asked these questions: can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

In the near-term, we asked: is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?

Let’s start by looking at the mechanism that funds the government’s deficit spending, i.e. its ability to borrow and spend enormous sums of money year after year.

The Free Money Machine

The state can afford to continue or increase fiscal stimulus (deficit spending) because the central bank (the Federal Reserve) has created what amounts to a free money machine. Here’s how the machine works.

The federal government issues $1 trillion in new bonds to fund another $1 trillion in deficit spending. The central bank (Federal Reserve) creates $1 trillion with a few keystrokes, and buys the $1 trillion in bonds with newly created money.

The Federal Reserve earns interest on the $1 trillion in bonds it now owns, but it returns this income to the Treasury, minus the Federal Reserve’s relatively modest expenses of operation. Let’s say the bonds carry an interest rate of 2.5%.  The government pays the Federal Reserve $25 billion in annual interest, and the Federal Reserve returns $20 billion annually, so the net cost of borrowing and spending $1 trillion is an insignificant $5 billion.

If this isn’t entirely free money, it’s extremely close to free money.

So in ten years, the Federal Reserve owns $10 trillion more in federal bonds (assuming the bonds are long-term and didn’t mature).

It's no wonder that some economist propose... » Read more

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How Long Can The Great Global Reflation Continue?

And what will happen when it ends?
Friday, May 19, 2017, 8:01 PM

Given the extraordinary failure of both Keynesian stimulus and private-sector credit growth to create a self-sustaining cycle of expansion whose benefits flow to the entire workforce rather than to the top few percent, what can we expect going forward? Can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

In the near-term, is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely? » Read more

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The Mother Of All Financial Bubbles

Will be unimaginably destructive when it bursts
Wednesday, February 22, 2017, 11:45 PM

The main lesson from Oroville -- or Fukushima, or Katrina --  is that governments do a poor job of relating accurate information to their citizens when big threats are involved. Part of that is likely due to a desire to avoid stoking fear. Part probably due to politics and bureaucracy. And part probably due to plain old incompetence.

Regardless of the cause, it means that the public -- even the vigilant ones -- suffer information deficits when it matters most. Simply put, the authorities do not share all the facts necessary for making informed decisions.

Which brings us to one of the truly great risks we're facing today. One with much more destructive potential than a single failed dam but, like Oroville, one the authorities are desperate to keep us in the dark about. » Read more

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Hell To Pay

The final condition for a market crash is falling into place
Friday, September 23, 2016, 5:23 PM

Those familiar with my writing know I put the word “markets” in quotes because we no longer have a financial system where legitimate price discovery is a regular -- or even recognizable -- feature.

It's destined to fail. What more can be said about such a flawed system?

Well, a lot as it turns out. 

And failure to pay attention at this stage of economic and ecological history will prove to be exceptionally painful. » Read more

Insider

Hoping For A Market Crash

If we inflate much higher, the fall is likely to kill us
Thursday, July 28, 2016, 1:32 AM

We desperately need to have new national and global conversations about everything from how we’ll feed everyone in 2050, to developing a coherent sustainable energy policy, to the fact that each year is hotter than the year before, to the idea that we’re living with a soul crushing sense of scarcity in a world of abundance.

There’s lots that needs addressing, and the process should begin with letting go of the old narrative so that we can make space for assembling the new one. » Read more