Oct 042014
 October 4, 2014  Posted by at 9:19 pm Finance Tagged with: , , , , ,

Jack Delano Atchison, Topeka & Santa Fe line at Duoro, NM March 1943

Weekend. Saturday. Beautiful Indian summer imitation where I’m presently located in western Europe. Good time to start out with an empty sheet of text file (for lack of a better term), and stream some consciousness.

Most people must have figured out that things in the economic sphere haven’t gotten any quieter lately. That’s at least something. Stock exchanges in the developed world jumped from a -1%+ loss one day to a 1%+ gain the next. Volatility, nerves, and probably ritalin, have returned. You have to wonder what that means in markets reigned supreme by high-frequency robot traders and central banks, but nevertheless, the public perception remains. And perception is key.

At first glance, US data coming in on Friday look positive, with more jobs and a lower unemployment rate of 5.9%. Bloomberg even had a headline that said the real payrolls increase was 600,000 jobs, instead of the ‘official’ BLS 248,000, because American wage slaves allegedly worked 0.1 hour more per week, 34.6, up from 34.5 in August.

The most since May 2008, the article claims, citing Deutsche’s Joseph LaVorgna. I’m sure if y’all clocked in those 0.1 hours, or 6 minutes, later, you really made them count. I just don’t know whether to laugh or cry when I see things like that reported.

What would seem to me to matter more is the rates in labor participation and Americans not in the labor force.Unfortunately, both are still ugly as warthogs and getting worse. New records all around, as Tyler Durden notes:

While by now everyone should know the answer, for those curious why the US unemployment rate just slid once more to a meager 5.9%, the lowest print since the summer of 2008, the answer is the same one we have shown every month since 2010: the collapse in the labor force participation rate, which in September slid from an already three decade low 62.8% to 62.7% – the lowest in over 36 years, matching the February 1978 lows. And while according to the Household Survey, 232,000 people found jobs, what is more disturbing is that the people not in the labor force, rose to a new record high, increasing by 315,000 to 92.6 million!

But, you know, that’s just the usual nonsense from the usual suspects, and at least today for once we can confidentially state that America is not the horse most likely to be slaughtered tomorrow morning at the glue factory. Drinks all around! Just make sure you finish them within 6 minutes. Or if want to really help out, hand on to your glasses for 10 minutes, and raise job numbers, as calculated by Bloomberg and Deutsche, by a million …

Anyway, the US, the greenback, that’s this week’s story. And it will be for a while to come. The Fed has gone out all guns blazing, cold turkey QE, push up the dollar, (10% or so vs the ‘basket’ of currencies in no time), and the finishing touch waiting in the wings, the rate hike.

The US economy in the months ahead is set to shine. The higher dollar and rates will throw lots of Americans out of their – export-oriented – jobs, but you’re not going to see that reflected in the numbers. Remember how Obama said he was going to double exports in 5 years? That lofty thought is long gone; the basic reality always was.

America is in the process of calling its – dollar – children home. All it needs to do is execute those three steps: QE, dollar, interest rates. That will increase its power, economic and therefore political, over the rest of the world to such an extent that many nations will effectively turn to panhandlers in Lower Manhattan.

Emerging markets, and economies, are the easiest victims. They have risen to what seemed to be great heights, despite the global financial crisis – or is it because of it? – in the past 7-8 years, on the wings of loose monetary policy. From the Fed, from other central banks. Now they need to roll-over the debts that made them shine, and they find themselves having to scramble for the dollar their debts are denominated in.

Every step in the three step program, QE, dollar, interest rates, makes it harder and – much – more expensive for them to service their debts. And the effects haven’t even truly started to sink in yet. For that matter, even the Fed policies haven’t. 2015 is not going to be a nice year for the citizens of Brazil, Thailand, Turkey, you name them, and there will be an enormous amount of unrest and fighting and worse.

Whoever prints the reserve currency rules the world, and the lives of untold millions trying to make a better future for their kids. That last bit: not going to happen.

Japan still plays the role of a rich society, and convincingly, but in reality it’s done. It has been able to keep up appearances more or less so far by selling state debt to its own citizens, but Mrs. Watanabe is not a complete fool. If your 2nd quarter GDP is down -7.1%, that’s not some minor detail.

The final blow to the Japanese economy will be delivered by PM Abe’s insistence that the main pension funds invest in stocks, which will plummet in the upcoming global market plunge – or recalibration if you will -. At which point Abe will be left with two choices: either he leaves in disgrace, not a favorite pastime among the Japanese, or he declares war on China over a bunch of islands. I think Abe’s mind is made up.

As for China, it will have to accept that growth numbers will be way below what it desires, and that ‘massaging’ those numbers is not a solution anymore than it is in Washington, although creative accounting can buy time. The present ‘official’ Beijing growth target is 7.5%, but the real number is nowhere near that.

Which is a huge problem in a society built on the effects and consequences of the higher numbers. Like the by far largest human migration in history, which has seen 100-200 million Chinese peasants into urban centers. And the empty apartment buildings these former peasants have ‘invested’ their hard earned money in. And the unprecedented pollution and other devastation in the areas the peasants came from, to which they can now never return and make a living.

I have no idea how the sequence of Xi’s and Li’s plan to keep that burning cooking cauldron in check, but there’s no way this is going to be pretty and peaceful. Hong Kong is a 5 year old girl’s birthday party compared to what’s coming. And a soaring US dollar will hit the Forbidden City, just as it will most of the world, like a sledgehammer.

And then there’s Europe.. Which needs no help on the way down, it has all the boxes ticked for a descent into mayhem. From what I can see, it will take years for Brussels to admit that Brussels is a really bad idea (and it eats women and children alive), other than as the capital of Belgium, and Europe doesn’t have those years. It needs to decide now that if Germany wants Greece in the eurozone and EU, it will have to pay big bucks for that. No such notion is even considered, but that makes it no less true.

The EU is a dead experiment, a Frankenstein and Mr. Hyde all in one. But no-one wants to see it, and no-one has a clue. Well, wait till interest rates go back up to historically ‘normal’ levels, to 5% or so for the lowest, to 8% or so for you average mortgage loan. That should be interesting to watch.

It’s coming, though, courtesy of Grandma Yellen and the puppeteers that move her limbs and lips up and down. It’s time, wherever you are on the planet, to collect your belongings outside of the reach of the ‘system’, sit down on your porch, and watch the sky for that mushroom cloud on the horizon.

Home Forums Grandma Yellen And The Mushroom Cloud On The Horizon

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    Jack Delano Atchison, Topeka & Santa Fe line at Duoro, NM March 1943 Weekend. Saturday. Beautiful Indian summer imitation where I’m presently located
    [See the full post at: Grandma Yellen And The Mushroom Cloud On The Horizon]


    This will get granny off her rocker and onto the treadmill. https://mhanson.com/archives/1674

    Interest will by necessity reach 8% eventually. But only because the actuaries require it and inflation (not the academic kind, the kind caused by too much money chasing too few goods in a supply chain disruption) will be considerably in excess of that figure.

    Hanson’s piece tells me the yield curve may flatten a bit, or even flatline, but not invert anytime soon. Houses and stocks are the Feds favorite play things. Bonds scare the bejesus out of ’em.

    V. Arnold

    “The EU is a dead experiment, a Frankenstein and Mr. Hyde all in one. But no-one wants to see it, and no-one has a clue.” Ilargi

    As an American who left, I find it likewise remarkable the vast scope of denial in the states.
    The media is excitedly talking Hillary 2016, Bernie Sanders 2016, and wild speculation about Warren.
    As though the 2016 elections will actually change anything. Americans are living in a lala land of fantasy and dreams.
    Those firmly rooted in the here and now are either the very wealthy, or people who never bowed to the fear and lies that have been and are now America today. Both are minority factions, with the truly wealthy possessing power to rule and manipulate the planet. The other minority, the un-cowed, have the power of choice in at least their own lives. In this sense knowledge is power.


    I like some of what Elizabeth Warren has to say, but I watched just a small segment of her on Bill Maher where she was talking about student debt. She said that when she went to college/university, she paid $50.00 per semester, and she was very thankful for the opportunity to get educated for a reasonable price. She said she wants to see the same thing again so America can get back to growing and producing again. To me, she just is another “maintain the status quo” type of person. She also wants to see the minimum wage raised, which to me doesn’t change a thing except pushes prices up (because there’s more demand), and in a few years we’re back to square one asking for it to be raised again.

    I wish there was someone who actually wanted to see prices come down, growth slow down, the environment protected more, with less emphasis on the financial industry (growing money out of nothing) and more emphasis on truth, honesty, and transparency.

    So even though she may be a nice lady, I don’t see her really trying to change anything.


    You say to collect “belongings outside the reach of the ‘system’ … And watch the sky.”

    If you have US dollars saved, where would you keep them? As USD gets stronger, the most logical place to leave them is in a bank given the expected asset deflation. Are not banks part of the system?

    Do you recommend certain countries whose banks are better than others given the system? Should these dollars be transferred today to JP Morgan from emerging markets? Because holding assets given your logic is not logical. Gold? Silver? Combo of everything?

    The system is everywhere.

    V. Arnold

    @ kibbinayye
    You say to collect “belongings outside the reach of the ‘system’ … And watch the sky.”
    Well, you can start by relocating. And then collect all the cash you can. I recommend keeping the cash close (no banks, no records).
    Keep a very low profile in all aspects. Live modestly even if you can “afford” more.
    That’s as much as I’m willing to say; you think about it and figure the rest out for yourself.

    @ Raleigh
    I like some of what Elizabeth Warren has to say…
    Are you aware Warren supported Israel’s attack on Gaza?
    That was enough for me to cross her off as viable.
    There are no choices for 2016 independent of the machine.
    Do not vote in 2016!


    Earth has lost 50% of its animals in 40 years.
    Earth will lose 50% of its animals in 40 years.
    75% of river life has been lost in 40 years.
    Humans and livestock make up 97% of earth’s vertebrate biomass.
    Humans and livestock consume 40% of earth’s annual green biomass.
    Mass extinction becomes unstoppable and irreversible in about 40 years.
    The World Bank said we will be fighting over food and water in 10 to 15 years.
    I don’t think we should worry about money right now.
    Solar and wind will not save us in time due to peak mining ROEI..



    We’ve long held the point of view that short-term government bonds are the safest place for Americans. That hasn’t changed. Part of the system perhaps, but one the system can’t easily touch, since the government won’t default – not for now. Other than that, productive assets are obviously always good. Arable land, tools, skills.



    Thank you for your response. Will make a very short list of countries. Canada, eh?

    I agree with you on Warren.

    Jef Jelten

    Again you lay out a scenario that looks a lot like least worse or last nation standing.

    Is that what you see playing out here?


    Thanks @Raul!

    I guess you would recommend the same (gov’t bonds) for those who are outside USA!? Since there is a low/no probability of default.


    Absolutely, Jef, prettiest horse in the glue factory.



    It’s not that easy, since not all countries issue truly short-term sovereign bonds. But the shortest term you can get, for sure.


    V. Arnold – no, I was not aware that she supported Israel’s attack on Gaza.

    “Israel gets more foreign aid from the U.S. than the U.S. gives to all other countries combined. […] Between July 1, 2008 and June 20, 2014, Israeli lobbies funneled an impressive $12,036,252.00 into the campaigns of U.S. Senate candidates, most of them incumbents. This included monies donated to their failed presidential campaigns. During the period of July 1, 2013 to June 30, 2014, Israeli lobbies donated a mere $5,190,280.00 to members and candidates of the House of Representatives.[1] One need not wonder just who it is the elected ‘representatives’ are representing.”

    The U.S. Dares to Criticize Israel

    Perhaps Ms. Warren was a recipient of some of this money? This is what needs to stop, the buying of policy. So Israel is given this foreign aid, then turns around and funnels it back into the U.S. political system? Nice circle.

    V. Arnold

    @ Raleigh

    Perhaps Ms. Warren was a recipient of some of this money? This is what needs to stop, the buying of policy. So Israel is given this foreign aid, then turns around and funnels it back into the U.S. political system? Nice circle.

    I would put it differently; if she and the rest weren’t corrupt in the first place the money wouldn’t work.
    I’m sure they all justify their graft with platitudes such as; “…how else can I get into office where I can do the greatest good?”
    The system is systemically broken and corrupt. That’s why voting is a joke.
    The sleeper is not wakened…

    V. Arnold

    @ kibbinayye
    Will make a very short list of countries. Canada, eh?

    Canada was good during the Vietnam war, but things have changed a lot. IMO, not a good choice.
    I’m in S.E. Asia, which values its independence somewhat. While friendly to the U.S. they maintain a healthy distance, mostly. South America has some interesting choices which if my circumstances were different I would seriously consider. Spain and Portugal offer interesting possibilities but I personally don’t trust the European politic or economy. If one is mobile then it doesn’t matter so much, because if you don’t like a place pack up and move. I will no longer consider flying as mode of transport (I absolutely detest flying), so rail and sea are my two options.
    Good luck and don’t wait too long…

    Dr. Diablo

    The U.S. will never default on bonds? Hahahahahahahahaha.

    They most certain WILL default on their bonds, and their entire currency system, because, mathematically, the MUST default. Not only can it not be repaid in fact, but a debt-based fiat money system requires debt-money/money-debt to ever increase at an ever-increasing rate. That is to say, doubling the supply while the time period is halved, halved, and halved again. Ever hear about doubling rice on a chessboard or a drop of water in a football stadium? How high is the water 1 minute before you drown? Chart shows money supply doubling every 10 years, then 5, then 2-1/2, then 1 year…and here we are now. This was known in 1971 when they got off the vestiges of the gold standard, and knew that in 40-odd years the system would need to be re-invented again, hopefully to inescapable world-wide digital currency. The Bancor, as Keynes called it, the IMF’s SDR as they call it now. But…best laid plans of mice and all that: it may not go off 100% now.

    What isn’t in dispute is that, they will have to default on the bonds by re-setting, re-inventing the currency and the entire monetary system because even the dumbest people will not have confidence in a system that doubles the monetary base every 6 hours, which is mathematically not that far away. So you close up that game of Monopoly, put the money away and put all little houses and hotels back in the bank, and start a new game, same as the old one.

    What I agree with Raul is that the U.S. will be the LAST currency to go under. Money withdraws to the core, but the U.S. is not the world, nor can it stand against 150 now-raided, bankrupt, desperate, angry BRICS nations, anymore than Napoleon or Augustus could. The U.S. cannot be the world economy. When the world goes down, the U.S. eventually will too, and then even the US$ will fail and start over in the new game. Of Monopoly, aptly named. But it was all known and planned long ago.

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