• Tag Archives Money
  • Yes, governments CAN go bankrupt. And no, it’s NOT impossible…

    [Editor’s Note: As we’re coming up on the end of the year, we thought it would be appropriate to republish some of our most popular articles. Today’s was originally published on March 13, 2017]
    In the year 1517, one of the most important innovations in financial history was invented in Amsterdam: the government bond.
    It was a pretty revolutionary concept.
    Governments had been borrowing money for thousands of years… quite often at the point of a sword.
    Italian city-states like Venice and Florence had been famously demanding ‘forced loans’ from their wealthy citizens for centuries.

    This post was published at Sovereign Man on December 26, 2017.


  • The Yield Curve Accordion Theory

    The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.
    ***
    Yield curves flatten out when investors believe a recession is looming. This results from the demand for long-term bonds rising as investor confidence wanes. As demand shifts out along upward sloping supply, long-term bond prices rise and yields fall. On the other end of the yield curve, short-term bond rates rise. This is a result of investors demanding fewer short-term securities and more long-term securities. In response, suppliers of short-term securities lower prices to attract investors. The black dots along the red line in the above figure gives the 2007 yield curve. It is flat because the Great Recession of 2008 and 2009 was just around the bend.

    This post was published at Ludwig von Mises Institute on December 26, 2017.


  • Man Who Delivered Gift-Wrapped Horseshit To Steven Mnuchin Compares Himself to Jesus

    An LA County psychologist who thinks President Trump’s tax bill stinks to high heaven, compared himself to Jesus after admitting he delivered a gift-wrapped box of horseshit as a Christmas present to Treasury Secretary Steve Mnuchin. Robby Strong told AL.com he dropped off the box of horse manure at Mnuchin’s house as an ‘act of political theater’ to hammer home the point that ‘Republicans have done nothing for the American worker.’
    Boldly taking the Christ-analogy to a place it has never gone before, Strong told SoCal radio station 89.3 KPCC that “what I did, I would like to compare to what Jesus did when he went into the temple and overturned the tables of the money-changers, who were exploiting the people financially in the name of religion.”
    ‘In the long run, if we don’t do stuff like this, what are we going to have left?’ Robby told KPCC. ‘I feel like that’s what the GOP has done to the American people,’ added the man who, bizarrely, is a psychologist with the LA Department of Mental Health.
    Things start to make much more sense, however, once we learn that Strong claims he was an organizer for the Occupy LA movement; predictably he sides with critics of the $1.5 trillion tax overhaul who say it favors corporations and the wealthy, CBS Los Angeles reported.

    This post was published at Zero Hedge on Dec 25, 2017.


  • “You All Just Got A Lot Richer” – Trump Confirms The Biggest Problem With The GOP Tax Cut

    As we’ve pointed out time and time again, the biggest problem with the Trump tax cuts is that they overwhelmingly benefit the rich. In fact, shortly after the initial nine-page outline of the program was unveiled by Gary Cohn and Steven Mnuchin, the nonpartisan Tax Policy Center released an analysis that showed the wealthiest 1% of Americans would accumulate more than 80% of the benefit from the tax bill.
    One need only glance at this chart from JP Morgan to see how shabbily middle- and working-class voters are treated by the tax bill.
    This is a big problem – particularly if the administration hopes to come anywhere near the 2.9% rate of GDP growth sustained over the next 10 years, a feat that would amount to the longest period without a recession in US history. That’s because when the wealthy receive tax breaks, they tend to save the money instead of putting it to productive use – at least at first – as we discussed last week.

    This post was published at Zero Hedge on Dec 24, 2017.


  • 2017: A Review Of The Fed, Treasuries, Mortgages and Housing (Volatility and Velocity)

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    2017 has been an interesting year. Donald Trump was elected President and seated in January 2017. The Federal Reserve kept rates near zero with a massive balance sheet for almost all of Obama’s 8 years as President, then started to raise rates and unwind their massive balance sheet AFTER Trump was elected. Note the decline in M2 Money growth after Trump’s election.

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ December 23, 2017.


  • We Give Up! Part 2: Consumers And Corporations Join The Debt Orgy

    Late cycle behavior is everywhere these days. Governments have stopped worrying about deficits, and now the rest of us are apparently joining the orgy.
    Corporations, for instance, are buying each other out – mostly with borrowed money – at a record pace:
    December’s $361 Billion Deal Haul Is the Busiest in a Decade
    (Bloomberg) – Just as most people are packing up for Christmas, dealmakers across the world are rushing to finish up a slew of transactions in industries ranging from consumer to telecom and health care to gambling. Companies have announced about $361 billion of mergers and acquisitions this month, making it the busiest December in at least 12 years, according to data compiled by Bloomberg. On Friday, the last work day before bankers and executives break for the holiday, GVC Holdings Plc of the U. K. agreed to buy bookmaker Ladbrokes Coral Group Plc for as much as 4 billion pounds ($5.4 billion), Deutsche Telekom AG said it will buy Liberty Global Plc’s Austrian unit and Roche Holding AG announced the $1.7 billion acquisition of U. S. biotech Ignyta Inc.

    This post was published at DollarCollapse on DECEMBER 22, 2017.


  • Americans have no savings and with very good reason: housing, education, and health care have seen extraordinary inflation while wages are stagnant.

    It has now become a daily ritual in which story after story of broke Americans plaster the web. Yet somehow on the mainstream press, very little is discussed about this topic. Americans are largely broke because inflation is vey real. Housing, education, and health care costs have soared out of control while wages have remained stagnant. The way Americans continue to pay for these items is by going into loan shark levels of debt. There used to be a pretense that ‘we’ actually cared about having a middle class but that is now thrown out the window. At this point, we are in a full on sprint towards low wage capitalism. Many people live on a paycheck to paycheck diet and are berated about saving more for retirement. The reality is, the new retirement model is working until you die.
    In the land of no savings
    Sunday morning, I wake up and take a stroll through the neighborhood. ‘Did you hear about Bitcoin? Wild right?’ I’m asked by a stranger at the park. ‘Sure seems wild. You own any?’ To which I get the following response, ‘I wish I had some money to even invest!’ I think we live in a world where most Americans are merely spectators to the wild gyrations of the market. They hear about investments too late or mistake speculation with actual investing.

    This post was published at MyBudget360 on December 21, 2017.


  • The Reversal: “Smart Money” Using December Day Sessions To Dump Stocks

    Everything changed in December…
    For months, the so-called “Smart Money” has been on-board with the incessant rally in US equity markets, buying every dip – no matter how shallow.
    However, since the end of November, a very different regime appeared to take hold.

    This post was published at Zero Hedge on Dec 21, 2017.


  • In Unprecedented Intervention, Swiss Central Bank Bails Out Firm That Prints Swiss Banknotes

    In the most ironic story of the day, the company that makes the paper that Swiss banknotes are printed on was just bailed out by the money-printing, stock-purchasing, plunge-protecting, savior-of-global equities…Swiss National Bank.
    ***
    While The SNB has a long and checkered history of buying shares in companies… as we have detailed numerous times, it is no stranger to pumping money into companies all over the world…

    This post was published at Zero Hedge on Dec 21, 2017.


  • Why it’s essential you keep a portion of your savings in physical cash

    [Editor’s Note: As we’re coming up on the end of the year, we thought it would be appropriate to republish some of our most popular articles. Today’s was originally published on January 6, 2016]
    Think of the word ‘money’ for moment. What’s the first image that comes to mind?
    Perhaps the folded paper in your wallet. Or the balance in your bank account.
    Or perhaps the investments in your brokerage account.
    In our modern financial system where unelected central bankers wield totalitarian control over the financial system, all three of these are forms of money.
    But the relationship between them is very tenuous, and very risky. I’ll explain:
    1) Physical cash No matter where you live in the world, just about every civilized nation on the planet has some form of physical currency in various denominations. Dollars. Pounds. Euros. Yen. Renminbi.
    We pass around these pieces of paper as a medium of exchange.

    This post was published at Sovereign Man on December 21, 2017.


  • 2018’s Number One Risk

    To find the market’s biggest weakness, a good place to look is at the most crowded movie theater with the smallest exit.
    European bonds.
    ***
    You’ve probably seen the charts of European high yield floating around, so I won’t reproduce it here. Yields in the low 2s for BB credits. There was also a European corporate issuer that managed to issue BBB bonds at negative yields a few weeks ago. I think that might have been the top.
    No shortage of stupid things these days:
    Bitcoin Litecoin Pizzacoin Canadian real estate Swedish real estate Australian real estate FANG Venture capital But European bonds are potentially the stupidest. Maybe even stupider than bitcoin!
    Although there is nothing stupid about it – the ECB has been buying every bond in sight, and there’s lots of money to be made frontrunning central banks.

    This post was published at Mauldin Economics on DECEMBER 21, 2017.


  • Three Cheers for the GOP Tax Plan

    Last night the Senate passed the Republican proposed tax plan, a major political victory for Trump and the GOP-controlled Congress.
    At the Mises Wire, we have featured numerous articles pointing out many of the fallacies involved with the general debate on the issue of “tax reform.” For example, the absurdity of “revenue neutral” reform, the danger of raising rates through eliminating loop hopes, the fallacy of trying to address the deficit through eliminating deductions on state and local taxes, and the general notion that tax breaks can be equated to tax subsidies. While the Republican bill does fall for some of these traps, the result of the bill as a whole is a genuine reduction in the tax burden for the majority of Americans. That is always something worth celebrating.
    There are additional benefits to be found within the bill as well.
    For example, the elimination of the Obamacare individual mandate is a small, but significant, step to improving the American healthcare system. As I noted in March, when Paul Ryan’s attempt at Obamacare reform failed, the rise of direct primary care and other market solutions meant that the best thing the GOP could do is simply provide as much freedom as possible for Americans to opt out of government-managed insurance markets:
    Given that this is happening naturally on the market already, the legislative focus for those in Washington concerned about American healthcare should be preventing any future laws and regulations that would destroy this model going forward. Further, rather than trying to completely overhaul Obamacare, simply eliminating the individual mandate tax and allowing Health Savings Accounts to be used for healthcare membership would be subtle ways of empowering the market to revolutionize American medicine. This should be coupled with real tax cuts, not ‘revenue neutral reform’ to help Americans keep their own hard-earned money to help pay for it.

    This post was published at Ludwig von Mises Institute on 12/20/2017.


  • Don’t Just Do Something, Sit There!

    Have you heard of the depression of 1920-21?
    Unless you’re a pretty hard-core economics geek, you probably haven’t.
    The most striking aspect of this depression was its duration. It lasted just 18 months. And how did the US get itself out of this sharp economic downturn?
    By essentially doing nothing.
    A collapse in GDP and production led to a sharp spike in unemployment to double-digit numbers. Modern policymakers would immediately launch economic stimulus. Consider the 2008 crash. On top of government programs such as the $700 billion TARP and $800 billion in fiscal stimulus, the Federal Reserve pumped $4 trillion in new money into the system. For 165 out of 180 months, the Fed pushed interest rates down or held them at rock-bottom levels.
    The result? A tepid recovery at best with 2 million fewer ‘breadwinner’ jobs than during the 1990s. Oh. And a whole slew of bubbles waiting to pop.
    Lew Rockwell compares this to the how things played out in 1920.

    This post was published at Schiffgold on DECEMBER 20, 2017.


  • Expand Tax Breaks to Expand Education

    The Tax Cuts and Jobs Act is working its way through both chambers in an attempt to make it onto President Trump’s desk before Christmas. One amendment added by Senator Ted Cruz (R-TX) has some advocates of the school choice movement very enthusiastic while critics say it’s a symbolic gesture unlikely to have much of an impact.
    The amendment will expand the use of 529 plans that currently allow families to save money using after tax dollars without having to pay taxes on the accumulated amount (principal and interest) when the savings are used to pay for qualified higher education expenses. Specifically, 529s allow savers and investors to save for education purposes because income gained through these accounts are subject to less taxation. Specifically, 529’s help investors better avoid dividend and capital gains taxes which can be as high as 28 percent. The plans also help taxpayers avoid income taxes on interest earned through the accounts.
    So far, 529s have only been legal for use in higher education expenses. Cruz’s amendment, however, would expand the accounts to include k-12 expenses such as private and religious schools, homeschooling materials, online education courses, as well as tutoring for students with developmental disabilities for amounts up to $10,000 per year.
    In addition to expanding the use of the savings account, the amendment also includes language allowing families to open the 529 plans at the moment of the child’s conception as opposed to their birth, thus expanding the time during which funds can be accumulated.

    This post was published at Ludwig von Mises Institute on December 21, 2017.


  • The United States Lifted Own Ban On Funding Research To Engineer Deadly Viruses In A Lab

    The US government may now fund research that looks into engineering a virus to be more deadly and transmittable after lifting a ban they previously placed on themselves.
    According to Science Alert, the moratorium, which was imposed three years ago, froze funding for what’s called ‘gain of function’ research: controversial experiments seeking to alter pathogens and make them even more dangerous. Now, the money is back on the table, giving those trials the green light once more.
    The director of the National Institutes of Health (NIH), Francis S. Collins, announced the lifting of the moratorium on Tuesday. Collins said ‘gain of function’ or GOF research with viruses like influenza, MERS, and SARS could help us ‘identify, understand, and develop strategies and effective countermeasures against rapidly evolving pathogens that pose a threat to public health.’
    But not everyone thinks this is a good idea. In fact, most are concerned. It isn’t that this research wasn’t being conducted before, there’s a good chance it was. But once the federal government shows interest in something of this magnitude, it’s time to worry. Some are concerned that the new flow of funding heightens the risk that unseen breeds of deadly engineered pathogens could escape lab containment, which would then make their way to the public, or into the wrong people’s (the government’s) hands.

    This post was published at shtfplan on December 20th, 2017.


  • Margin Debt, Backed by Enron-Dj -Vu Steinhoff Shares, Hits BofA, Citi, HSBC, Goldman, BNP

    ‘Shadow margin’ is a hot business for brokers. Now they’re licking their wounds. When the bankers of Christo Wiese, the former chairman and largest shareholder of Steinhoff International Holdings – a global retail empire that includes the Mattress Firm and Sleepy’s in the US – went to work on December 6 in the epic nothing-can-go-wrong calm of the rising stock markets, they suddenly discovered that much of their collateral for a 1.6-billion margin loan they’d made to Wiese had just evaporated.
    Citigroup, HSBC, Goldman Sachs, and Nomura had extended Wiese this ‘securities-based loan’ in September 2016. His investment vehicles pledged 628 million of his Steinhoff shares as collateral, at the time worth 3.2 billion. He wanted this money so he could participate in a Steinhoff share sale in conjunction with the acquisition of Mattress Firm and Poundland, essentially borrowing against his Steinhoff shares to buy more Steinhoff shares.
    This loan forms part of the $21 billion of debt associated with Steinhoff that global banks are exposed to.
    But that December 6, the shares of Steinhoff plunged 64% to 1.07 on the Frankfurt stock exchange after the company announced the departure of the CEO and unspecified ‘accounting irregularities requiring further investigation.’

    This post was published at Wolf Street on Dec 19, 2017.


  • What China Can Learn from America’s Great Depression

    When Murray Rothbard’s America’s Great Depression first appeared in print in 1963, the economics profession was still completely dominated by the Keynesian Revolution that began in the 1930s. Rothbard, instead, employed the ‘Austrian’ approach to money and the business cycle to explain the causes for the Great Depression, and to analyze the misguided and counterproductive policies that were followed in the early 1930s, which, in fact, only intensified and prolonged the economic downturn.
    To many of the economists in the early 1960s, Rothbard’s ‘Austrian’ approach seemed out-of-step with the then generally accepted textbook, macroeconomic approach that focused on a highly ‘aggregate’ analysis of economic changes and fluctuations on general output and employment as a whole. There was also the widely held presumption that governments could easily maintain economy-wide growth and stability through the use of a variety of monetary and fiscal policy tools.
    Mises, Hayek and the Austrian Theory of Money and the Business Cycle However, in the early and middle years of the 1930s, the Austrian explanation of the Great Depression was at the forefront of the theoretical and policy debates of the time. Ludwig von Mises (1881 – 1973), first developed this ‘Austrian’ theory of the causes of inflations and depressions in his book, The Theory of Money and Credit(1912; 2nd revised ed., 1924) and then in his monograph, Monetary Stabilization and Cyclical Policy (1928).
    But its international recognition and role in the business cycle debates and controversies in the 1930s were particularly due to Friedrich A. Hayek’s (1899 – 1992) version of the theory as presented in his works, Prices and Production (1932) Monetary Theory and the Trade Cycle (1933), and Profits, Interest and Investment (1939). A professor of economics at the London School of Economics throughout the 1930s and 1940s, Hayek was, at the time, considered by many to be the main competitor against John Maynard Keynes’s ‘New Economics’ that emerged out of Keynes’s 1936 book, The General Theory of Employment, Interest and Money.

    This post was published at Ludwig von Mises Institute on 12/19/2017.


  • How That $1.4 Trillion In Repatriated Cash Might Result In U.S. Job Losses, Not Gains

    Moody’s estimates that there is roughly $1.4 trillion dollars belonging to U. S. corporations that has been building up in foreign bank accounts for years now to avoid the 35% corporate tax that would be levied on them if they were brought back to the U. S. Of course, getting that $1.4 trillion back to the U. S. has been a critical component of the Trump administration’s tax reform bill as Gary Cohn and Steve Mnuchin have repeatedly argued that the money would be put to good use building factories and creating jobs for American workers.
    That said, if history, math and logic are any guide, then the overwhelming majority of that money would be promptly returned to shareholders via stock buybacks and dividends immediately upon hitting U. S. shores. In fact, as University of Chicago law professor Dhammika Dharmapala told the Wall Street Journal, when a similar tax holiday was enacted in 2004 roughly $0.94 of every $1.00 was spent on buyback and dividends…something Gary Cohn apparently found out for the first time via a recent impromptu survey that yielded some ‘surprising’ results, if only to him…

    This post was published at Zero Hedge on Dec 19, 2017.


  • The Limits of China’s Economic Power

    The countries of East Asia are worried about the coercive power of Beijing’s pocketbook. And perhaps they should be. China is flush with money, and as it continues to pour massive amounts of aid and investment into the region, it’s only a matter of time before Beijing tries to cash in.
    China’s overseas investments are being pushed, at least in part, for strategic reasons. This is evident in the high number of projects included in China’s One Belt, One Road initiative that make little commercial sense and fail to perform their stated purpose: to bypass chokepoints that a hostile power could use to asphyxiate the Chinese. In areas such as the Philippines, the primary goal appears to be the cultivation of political influence in foreign capitals or, more cynically, the creation of dependence on Chinese investment or consumers, which Beijing could someday exploit.

    This post was published at Mauldin Economics on DECEMBER 18, 2017.