By David Stockman
Did we say it’s getting stupid crazy down there in the Imperial City?
Well, we probably have....ad infinitum. And we are doing so again but not merely owing to today’s abomination in the once and former Peoples’ House, which thinks so little of its oath to defend the constitution and the rights of current and future taxpayers that it approved the $2 trillion Everything Bailout without even a roll call vote.
Then again, like the late night TV pitchman says— wait, there’s more!
Consider the chart below, which surely the Fed heads have not. To wit, it took the Fed 95 years after its doors opened in 1914 to print enough money to fund a $600 billion balance sheet.
It wasn’t exactly the Ohio State offense– three yards and a cloud of dust—which accomplished this. But it was pretty close—even including Greenspan’s first years at the helm. Between the famous Treasury Accord in 1951, under which the Fed was liberated from Treasury-ordered yield pegging, and 1999, its balance sheet grew at a modest 5.2% per annum.
And, by your way, the Fed’s relative stinginess with the printing press was a great big no nevermind. Real GDP grew at 3.4% per annum over that near half-century period, and real median family income more than doubled from $35,000 to $74,000.
We are pondering the number “$600 billion” today because its capsulizes the insanity loose in the Imperial City. What took 95 years to accomplish in the purportedly benighted 20th century, has now taken just five days!
You truly cannot make this stuff up. The Fed has purchased $622 billion of USTs and MBS since March 19th, meaning that its balance sheet has expanded from $4.75 trillion last Thursday evening to $5.372 trillion last night.
And, yes, we do have a calculator which generates compound annual growth rates by the day. Even giving credit to the fact that these madmen/women rested their printing press, apparently, on Saturday and Sunday, the growth rate in the box below computes to, well, 61,084% per annum!
Even Uncle Milton Friedman, the evil genius who started all this at Camp David back in August 1971, is surely rolling inconsolably in his grave.
If there is any doubt that this madness is literally destroying the bond markets, you need look no further than the side-by-side charts below. The massive corporate bond bubble that 10 years of the Fed’s foolish interest rate repression generated is now coming unstuck at the seams.
As we have said all along, the specious assurance from the Eccles Building that the financial system is sound because banks have been passing their ludicrously rigged “stress test” was malarkey of the first order.
For crying out loud, Waldo wasn’t hiding in bank balance sheets! That was the last rodeo.
The latter have been repaired as a result of savaging returns on the bank deposits held by millions of savers and retirees. But that just meant Waldo scampered over to the trillions of new corporate bond mutual funds and ETFs which have risen up to quench the desperate thirst for yield among asset gatherers.
But now these hideously low yields are being clobbered by the Covid-19 shutdown panic, causing a run on the bond funds like no brick and mortar bank run ever before. In just the last two weeks there has been a $218 billion outflow from these funds, including $34.6 billion on “bond capitulation day” on March 20 alone.
We’d say, better late than never. In an honest market, corporate bond yields would be rising smartly and the C-suite geniuses who trashed their own balance sheets over the last decade to fund rampant stock buybacks and financial engineering adventures might well be getting a tap on the shoulder from their own complicit boards, who might not otherwise relish the prospect of spending the rest of their days in shareholder litigation.
Alas, the last thing our monetary central planners wish to see is honest bond yields or any other kind of honest financial asset prices. So that’s why they are virtually flaunting the law and setting up a thinly disguised corporate bond buying double-shuffle with the US Treasury in order to flood the bond pits with a massive state-financed bid for the bonds being dumped by real money private investors.
That is, the 5%, 7% or even 10% corporate bond yields that today’s hyper-leveraged corporate balance sheets deserve would finish the job of puncturing the stock market bubble where Covid-19 left off.
That moment of reckoning, of course, must be precluded at all hazards, even if it means fostering an even more incendiary blow-up just down the road. That is to say, when the Fed/Treasury owns all the bonds and the private world is sitting on a mountain of cash (nee trash), look out below!
We leave it to another occasion to ponder the financial market implication of the absolute monetary mayhem which has issued from the Fed during the last two weeks, and only hinted at by the above observations.
But the ever prescient Jim Bianco today summarized the action neatly, and what it actually amounts to.
In effect, said the great Bianco, meet your new de facto Fed chairman—Donald J. Trump!
In just these past few weeks, the Fed has cut rates by 150 basis points to near zero and run through its entire 2008 crisis handbook. That wasn’t enough to calm markets, though — so the central bank also announced $1 trillion a day in repurchase agreements and unlimited quantitative easing, which includes a hard-to-understand $625 billion of bond buying a week going forward. At this rate, the Fed will own two-thirds of the Treasury market in a year.
Now that’s not only a downright frightening thought, but actually at the present fraught moment there is only one entity more dangerous than the Donald and that is the entire lot of numbskulls and morons which comprise the U. S. Congress (with the exception of the Heroic Rep. Thomas Massie, who had the cojones to futilely stand up to the braying herd and demand a recorded vote).
In effect, every shred of historic resistance on Capitol Hill to unhinged spending and borrowing has been vaporized by the Fed’s lunatic nationalization of the bond, loan and money markets. The politicians now literally feel free to borrow like crazy because they know the Fed will monetize every single dollar of it.
But here is one thing we do know because we have been there and when it comes to Congressional politicians and the public debt, we have stared into the very white of their eyes.
The one and only thing they feared back in the day was that massive borrowing by Uncle Sam would hog the available funding supplies, thereby driving up interest rates and crowding out the only two things they care about:
• Room in the budget for their favorite charities and pork;
• Angry homeowners, businessmen, farmers and car buyers in their districts getting hammered with high rates or squeezed out of the market entirely. But that’s now a distant memory for the old-timers still in Congress (like our successor, Rep. Fred Upton who has been there 36 years) and most especially the 21st century crop of ne’er-do-wells who, apparently, have no experience with fiscal discipline whatsoever.
Thus, this morning we actually heard one of them on CNBC— the former GOP chairman of the House Ways and Means Committee, Rep. Brady— urging a voice vote.
That is, the body which the framers charged with originating spending and financing bills was to wave through unread and sight unseen $2 trillion worth of Senate-passed crony capitalist bailouts, coast-to-coast soup lines and $340 billion of new appropriated pork—all contained in 883 pages scribbled together in the dead of night Wednesday.
And Rep. Brady was one of the more sober voices rushing for the cameras. Celebrating her 80th birthday in this life and accession to immortality in the financial hall of shame, Nancy Pelosi promised, in effect, that you haven’t seen nothing yet.
It seems that another, probably even larger bailout #4 for states and municipalities is already being plotted:
@ChadPergram: Pelosi says both bodies of Congress should work on the phase 4 coronavirus response. “Four corners,” as she said....Says she urged Mnuchin to do the direct payments more quickly
We fear even prayer isn’t up to the task. Not when you even scratch the surface of what this drooling pack of fiscal incontinence just gummed through by voice vote.
For instance, it includes $250 billion for unemployment insurance, with most of the money going to a $600 per week boost in normal benefits over the next four months and increasing the standard benefit period from 26 weeks to 39 weeks.
Of course, we haven’t heard even the sky-is-falling nitwits on CNN arguing that the shutdown will last for 26 weeks, to say nothing of making provision through next New Year’s Eve (39 weeks).
But what takes the cake for mindless profligacy is the $600 per week add-on to benefits which in most states already range between $400 and $700 per week. In this context, we have been insisting that this massive tsunami of money really isn’t about humanitarian concerns or even a modest helping hand for workers and families caught up short, and that’s exactly what we have with the $600 benefit raise.
That is, it’s just another plank in the 100% GDP replacement program aimed to restore the false prosperity on main street and the egregious bubbles on Wall Street embodied in the January 2020 status quo ante.
That’s why the maximum rate now payable to laid off workers will reach the following per hour equivalents for the next four months; and these figures are based on an assumed 40 hour week, which virtually none of the claimants actually log (US average is about 34 hours per week):
• NY ($27.60);
• TX ($28.03);
• PA ($29.33);
• CT ($30.33);
• CO ($30.45);
• ND ($30.82);
• NJ ($32.83);
• MN ($33.50);
• WA ($34.75);
• MA ($35.58)
No, we don’t begrudge wage earners getting a generous portion of the loot. But replacing wages at this level on the taxpayers dime for a short-term emergency is just plain ludicrous.
Indeed, the reason this insanity is even in the bill is because that’s what the Donald and McConnell had to cough up to Chuckles Schumer and the labor/progressive Dems in order to get what they really wanted: Namely, the massive $4 trillion front door (US Treasury) and back door (Fed) bonanza of crony capitalist handouts that are the real reason for the Everything Bailout.
We will address this abomination in detail in Part 5, but consider this: No business should get a dime from Washington to keep people on the payroll who aren’t working (regular UI is already taking care of that); and if they have trashed their own balance sheets over the years, they should pay-up the market rate of interest to borrow the money to cover other cash shortfalls during the Covid-19 shutdown.
Take the example of the restaurant chain called the Cheesecake Factory (CAKE), which yesterday ostentatiously announced it would not pay April rents on its 620 locations.
Fine. The landlords can throw them out or, more likely, work out a rent abatement program for the relatively short-term duration of the Covid-19 dislocation. In fact, exactly those kinds of adjustments are what happens on the free market and are actually happening from coast-to-coast at this very moment.
But we mention CAKE because it was one of those momo stocks awhile back where the top management couldn’t resist the temptation to goose their share price and stock options by trashing the company’s balance sheet to pump a tsunami of money back into Wall Street.
To wit, during the past 10 years, the company generated $1.12 billion of cumulative net income and $1.31 billion of operating free cash flow. But, alas, it spent over that same 10-year period $1.50 billion on stock buybacks and dividends.
That is, it returned 133% of net income to Wall Street and spent 115% of free cash flow on appeasing the trading gods and robo-machines of Wall Street, not building sustainability and rainy day reserves into its own balance sheet.
In fact, the company’s debt currently stands at $1.6 billion or a debilitating 11.2X annual free cash flow.
And, yet, these cats want a bailout!
Now they will surely get one from the $4 trillion cheap money bonanza the GOP has just rammed through without a vote and even a day of hearings and analysis.
As we said, there has never been a Day of Shame on Capitol Hill like that which has just transpired.
This article was reprinted with permission from David Stockman's Contra-Corner.
David Stockman began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street. Stockman is an Advisory Board member for the Ron Paul Institute for Peace and Prosperity.
Keep your eye on Pompeo! President Trump is understandably distracted by the coronavirus outbreak in the US but in the "never let a good crisis go to waste" mode, the neocons in his Administration - led by Pompeo - are launching their war plots without the normal scrutiny. Venezuela, Iran, Syria, Russia - the long knives are coming out. Trump has been able to put the kibbosh on Pompeo's plans before, but a distracted Trump is in danger of losing control of his foreign policy. Launching a foolish war in the midst of the current crisis would surely spell disaster for the president...
By Ron Paul
September 17, 2019 was a significant day in American economic history. On that day, the New York Federal Reserve began emergency cash infusions into the repurchasing (repo) market. This is the market banks use to make short-term loans to each other. The New York Fed acted after interest rates in the repo market rose to almost 10 percent, well above the Fed’s target rate.
The New York Fed claimed its intervention was a temporary measure, but it has not stopped pumping money into the repo market since September. Also, the Federal Reserve has been expanding its balance sheet since September. Investment advisor Michael Pento called the balance sheet expansion quantitative easing (QE) “on steroids.”
I mention these interventions to show that the Fed was taking extraordinary measures to prop up the economy months before anyone in China showed the first symptoms of coronavirus.
Now the Fed is using the historic stock market downturn and the (hopefully) temporary closure of businesses in the coronavirus panic to dramatically increase its interventions in the economy. Not only has the Fed increased the amount it is pumping into the repo market, it is purchasing unlimited amounts of Treasury securities and mortgage-backed securities. This was welcome news to Congress and the president, as it came as they were working on setting up trillions of dollars in spending in coronavirus aid/economic stimulus bills.
This month the Fed announced it would start purchasing municipal bonds, thus ensuring the state and local government debt bubble will keep growing for a few more months.
The Fed has also created three new loan facilities to provide hundreds of billions of dollars in credit to businesses. Federal Reserve Chairman Jerome Powell has stated that the Fed will lend out as much as it takes to revive the economy.
The Fed is also reducing interest rates to zero. We likely already have negative real interest rates because of inflation. Negative real interest rates are a tax on savings and thus lead to a lack of private funds available for investment, giving the Fed another excuse to expand its lending activities.
The Fed’s actions may appear to mitigate some of the damage of the coronavirus panic. However, by flooding the economy with new money, expanding asset purchases, and facilitating Congress and the president’s spending sprees, the Fed is exacerbating America’s long-term economic problems.
The Federal Reserve is unlikely to end these emergency measures after the government declares it is safe to resume normal life. Consumers, businesses, and (especially) the federal government are so addicted to low interest rates, quantitative easing, and other Federal Reserve interventions that any effort by the Fed to allow rates to rise or to stop creating new money will cause a severe recession.
Eventually the Federal Reserve-created consumer, business, and government debt bubbles will explode, leading to a major crisis that will dwarf the current coronavirus shutdown. The silver lining is that this next crisis could finally demolish the Keynesian welfare-warfare state and the fiat money system.
The Federal Reserve’s unprecedented interventions in the marketplace make it more urgent than ever that Congress pass, and President Trump sign, the Audit the Fed bill. This would finally allow the American people to learn the truth about the Fed’s conduct of monetary policy. Audit the Fed is a step toward restoring health to our economic system by ending the fiat money pandemic that facilitates the welfare-warfare state and the unstable, debt-based economy.
Throughout the country, bureaucrats and politicians are clamping down on the Constitution in the name of fighting a virus that thus far has not shown itself more deadly than the seasonal flu. Those numbers can change and it can be a serious disease, but as after 9/11 we are being told we must sacrifice our liberties in the name of security. Government did not deliver then and it will not deliver now. Liberty stolen will not be returned. Is there a better way?
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It's never "different this time." The Fed's bubbles and busts keep coming and they're getting more intense. Every bubble is bigger than the previous one, as is every "bailout." Every "bailout" carries with it a promise for a future economic crisis. The Fed will fail.
The assault on our civil liberties is in overdrive. Habeas corpus is thrown out the window and the government is asking to be able to indefinitely detain Americans without charge or trial. Constitutional law attorney John Whitehead, President of the Rutherford Institute, joins today's Liberty Report to discuss these threats...and to let us know what we can do about them!
By Chris Rossini
Every single human being is a one-of-a-kind creation. There are no carbon copies.
The way that each of us look at, and interpret the world, is completely unique to ourselves. When any event occurs, your explanation to yourself about what it means will be influenced by your prior experience, by what you've been taught in the past and accepted as true (even if, in reality, it is false).
Since no human individual is all-knowing or omnipotent, it means we all walk around with some level of ignorance. We all carry falsehoods between our ears, and we're all responsible for replacing them with the truth if we want the best that life has to offer.
We're all uniquely wise, as well as uniquely ignorant.
Our local situations are completely different as well. Imagine if you could walk down your street and could go into each person's home. By the time you get to the last house on the block, the following thought would smack you in the face:
"Boy, we may all be human beings, but we are all certainly different."
Different preferences, different talents, different abilities, different tastes, different desires, different personalities, different body types, different heights, weights, shoe sizes....etc., etc., etc.
Difference is the distinguishing characteristic of all the human beings that comprise humanity.
So how are billions of different people supposed to interact with one another?
Well, since difference is such an obvious part of our nature, there is a concomitant part of our nature that compliments it perfectly --- Liberty.
We are free to think whatever we please, and act according to our thinking. We are not programmed robots. There can be no algorithms for humans.
We each identify a localized discomfort, and then act to remove it. We do this over, and over, and over....all day, every day. We're constantly switching out what we believe to be unsatisfactory with something that we believe would be more satisfactory.
What is unsatisfactory to you may be perfectly OK to another. What seems to be a problem to you, is considered a blessing to another. You run from a fire, another runs towards it.
We are all different, and we are all free.
So how are billions of different and free people supposed to interact with one another?
The only logical answer is that we should first respect (and accept) that we are different and free. Since we are different, it would be foolish to try to impose uniformity. One cannot impose uniformity on that which is naturally different.
The keyword is "impose," which means "to force."
Violent force is the enemy of human nature. It is the weed that tries to overtake the garden. It is the free radical that tries to destroy the cell.
If the imposition of force is the enemy of our nature, it means that we are meant to interact with one another voluntarily. We are to give our consent, or refuse to give our consent. We can say "Yes," or we can say "No."
Is there a time where the use of force can be ethically justified?
Since we are free, it means there will always be the unfortunate few who (out of error) will choose to be violent. If someone is aggressive, then force is justified to put down that aggression.
Force can be ethically justified for defense only. When there is a weed, you rip it out by the roots. You defend the garden.
The key for billions of different and free individuals to interact with one another is "First, do no harm."
Solve problems, create a more satisfactory set of circumstances...but first, do no harm.
If you think you have to harm someone else first in order to solve a problem, you need to think again.
You're in error.
Today we live in a time, where some individuals wield aggressive force, trying to impose "one-size-fits-all" solutions on a population of different and free individuals.
There is no "one-size-fits-all" in this world. Humans are not homogeneous. We are not like a box of identical nails that you can buy in bulk at the hardware store.
We are unique. Our situations are unique.
Our solutions must be uniquely and peacefully arrived at.
Our individual solutions require "First, do no harm."
But for many, it is perfectly acceptable to do harm first, in order to help others.
That's a very big problem.
Now that the coronavirus scare has much of the country fearful and sheltered-in-place, there are more than a few special interests that are profiting massively from the "Emergency State" that has emerged. Crony capitalists, corporate criminals, Keynesians, big brother government advocates, previously unknown minor county officials...there is plenty of profit to go around.
While major military exercises have been cancelled in Europe due to coronavirus fears, the US has decided to continue with war games in the Middle East aimed at making war on Iran. On the home front, Secretary of State Mike Pompeo is using the virus to fight a hybrid war on Iran and other US 'enemies.' Will kicking them while they're down really work to our advantage? More sanctions on suffering countries?
By Ron Paul
Last Monday, a bipartisan group of Senators and a coalition including libertarian and progressive activists thwarted a scheme to ram through the Senate legislation renewing three provisions of the USA FREEDOM Act (previously known as the USA PATRIOT Act). The bill had already been rushed through the House of Representatives, and most expected it to sail through the Senate. But, instead, Senate leadership had to settle for a 77-day extension.
Senate leadership was also forced to allow consideration of several amendments at a later date. Included is Sen. Rand Paul’s amendment that would forbid the FISA court from issuing warrants targeting American citizens.
Deep state supporters claim the expiring business records provision (which authorizes the collection of our communications and was at the center of Edward Snowden’s 2013 revelations), lone wolf provision (which allows government to subject an individual with no known ties to terrorists to warrantless surveillance), and roving wiretaps provision (which allows government to monitor communications on any device that may be used by a targeted individual) are necessary to keep Americans safe. But, since Congress first passed the PATRIOT Act almost 20 years ago, mass surveillance, warrantless wiretapping, and bulk data collection have not stopped a single terrorist attack.
The legislation does have “reforms” aimed at protecting civil liberties, but these new protections contain loopholes that render the protections meaningless. For example, the bill requires those targeted for surveillance to be notified that the government spied on them. However, this requirement can be waived if the government simply claims — not proves but just clams — that notifying the target would harm “national security.”
The notice provision also only applies to the target of an investigations. So, if you were caught up in a federal investigation because a coworker is being targeted and you shared an office computer, or if a store clerk reported to the government you and others bought pressure cookers, the government could collect your phone records, texts, and social media posts without giving you the chance to challenge the government’s actions.
The bill also makes some reforms to the special FISA court, which serves as a rubber stamp for the intelligence community. These reforms are mainly aimed at protecting political campaigns and candidates. They would not stop the FISA court from rubber-stamping surveillance on organizations that oppose the welfare-warfare-surveillance-fiat money status quo.
Anything limiting warrantless wiretapping and mass surveillance should be supported. However, nothing short of repeal of the USA FREEDOM Act will restore respect for our right to live our lives free of the fear that Big Brother is watching. The path to liberty, peace, and prosperity starts with eliminating all unconstitutional laws and returning to a system of limited government, free markets, individual liberty, sound money, and a foreign policy that seeks peaceful commerce and friendship with all instead of seeking new monsters to destroy.