Ya sabes mi opinión, la han liado con esto de dar patadas hacia delante y no coger el toro por los cuernos… Se pensaron que los políticos iban a ser sensatos, que iban a cuadrar el déficit público reduciendo gastos, que iban a reducir las deudas acumuladas, y esto es un imposible… Además, la fantasía de crear dinero de la nada, aparcar los bonos en sus cajas, favorecer a los bancos privados hasta este extremo, iba a servir para relanzar la economía… Qué memos!!! Han conseguido que tengamos un muy bajo crecimiento y expectativas alcistas de la inflación, que se mantuvo baja con un petróleo tirado, pero que cuando el petróleo subió el año pasado, se acabó lo que se daba…
Rather than be seen to be further enriching the rich, I think central banks will start closing the "free money for financiers" spigots.
Take a quick glance at these charts of the Federal Reserve balance sheet and bank credit in the U.S. Notice what happened to bank credit after the Fed "tapered" and stopped expanding its balance sheet?
Bank credit exploded higher:
Now look at corporate profits:
Once the Fed ended its $3.7 trillion "experiment" of vastly expanding its money-creation and bond-buying in early 2014, what happened to bank credit? Bank credit had expanded by a bit over $1 trillion in the early years of the Fed's quantitative easing, but it really took off after QE3 ended, soaring roughly $2 trillion.
This was the policy goal all along: the Fed would do the heavy lifting to keep credit and the financial markets from imploding, and eventually private-sector credit would expand enough to fuel a self-sustaining recovery.
While measures of employment and production have lofted higher, productivity, profits and wages for the bottom 95% have all stagnated. Is it coincidental than corporate profits began weakening once the Fed's QE3 ended? Perhaps.
How about the stagnation of household median income during the Fed's expansion and the rise of private bank credit from 2014 to the present? Was that also a coincidence?
If the economy was expanding smartly as the Fed was goosing credit higher, it certainly wasn't trickling down to households.
What's happening beneath the happy-happy surface is that the returns on expanding credit are diminishing rapidly. The Fed's QE "free money for financiers" never did "trickle down" to the bottom 95%, and the enormous expansion of bank credit is no longer driving corporate profits higher.
There are other factors at work, of course; a global slowdown in trade, for example, a rise in energy costs and a stronger US dollar. All of these impact credit, profits and the share of GDP flowing to labor in wages, salaries and benefits.
Whatever the causes, the reality is that the positive results of credit expansion have reached the top of the S-curve and are now declining. Expanding credit, via central bank monetary policy or private-sector bank credit, is no longer boosting profits or wages.
As noted yesterday in The Central Banks Pull Back: Now It's Up to Fiscal Policy to "Save the World", even the cheerleaders of central bank gimmickry now admit QE enriched the rich and impoverished everone else.
So what happens as other central banks taper their expansion? It's unlikely to be a positive for private-sector economies stagnating despite rapid expansion of bank credit.
And what happens if central banks unleash new torrents of cash? If the returns on new credit have plummeted, rapid expansion by central banks may well hasten the slide down the S-curve-- the opposite of what conventional economists expect.
Rather than be seen to be further enriching the rich, central banks will start closing the "free money for financiers" spigots. If the returns on central bank "free money for financiers" are diminishing rapidly while public anger at rising wealth inequality is heating up, why put the central bank's credibility and political independence on the line for a policy that has visibly failed to benefit Main Street?
Abrazos,
PD1: ¿Depresión con inflación?
We are heading into a new depression. It is not coming. It is already here but we are only in the beginning so it may not be easy for many people to see just yet. Once it is easy to see it will be too late for any meaningful actions to mitigate the effects. Just as you must prepare for a tornado ahead of time, you must prepare for economic conditions early.
We have 20 trillion in debt, over 200 trillion in unfunded liabilities and over a quadrillion in derivatives held by the banks. Our GDP is only about 17 trillion a year and world GDP is only about 60 trillion. It does not take a math wiz to realize that even if we are not paying any interest at all on this massive debt, there is no way to ever pay it all back short of some type of default.
That is what depressions do. They wipe out all of the misallocation of resources and bad debt and provide a reset for the economy. These resets can be relatively easy or they can be very destructive depending on the amount of misallocation that is present in the system. The amount of debt, brought on by decades of unrestricted credit creation, is the largest in history. That means we are in for a very bad ride in the near future.
Much of the money that people think they have is really only made up of digits in some computer somewhere. The banking industry has already taken this money for its own use. To eliminate the need to ever give it back to the rightful owners they must destroy these digits. That is what the new bail-ins are all about. They can at some point just wipe all of those digits out of existence and say tough luck suckers.
The depression of the 1930’s was a deflationary one in nature. People lost their jobs, prices fell and cash was king. People holding bonds did very well. In an inflationary depression, prices rise, people will get paid in increasingly worthless paper and bonds will collapse. Banks will enact bail-ins to stay solvent and people will go broke while holding piles of cash.
In the end the inflationary depression will end with the currency collapsing and people losing everything they have that is not fully owned. Eventually we will see deflation as prices fall due to the destruction of the monetary system. At this point most people will be financially devastated. Those that make it to this point with their wealth in tact will be the new wealthy class.
So how can a person survive something like this? You simply need to focus on the needs of your family over this period of time. If you can provide the needs of your family regardless of the prices at the time, you will make it through the worst of times, This means you need a plan to provide these items to your family whether prices are rising or falling. If you have a years supply of food, it does not matter what the current price is, you will have the means to feed them.
If your home is paid for, your car is paid for and you have a supply of energy or a way to produce it yourself, it will not matter to you how fast prices are changing or how much money you bring home every week. You will be able to live outside of the rapidly changing economy. The rapid changes that will destroy others will only provide you a glancing blow.
Those that survive on credit will be devastated as their access to credit is cut off and they become unable to continue making payments on their possessions. They will be devastated even if they still have a paying job. For those that expect to survive on their savings and pensions, they will find those accounts empty following any bail-ins.
Where you live will also play a major role in how well you survive the depression. What do you think will happen when those dependent multi generational families lose their welfare and food stamps following the breakdown of the credit system and prices rise faster than benefits? The ability to produce some items yourself will also depend on your location and the ability to stay safe.
The whole of the production and distribution system depends on 30 day credit. When the credit system ceases to function, goods will stop being produced and transported. This will lead to high prices and few goods to buy. So even if you have a bag full of money you may not be able to buy what you want at some point.
Just like a tornado that tears through a community, a depression can leave the people without the resources they need unless they have them hidden away safely for future use following the event. This is why having resources, real physical goods, put away now will allow you to thrive when the system fails. When the system resets, you will not get a second chance to do it right. You only have one shot and that requires you to finalize your preparations now while you still can make a difference.
The whole point of preparing for this type of upheaval is to maintain a standard of living that you find acceptable. Lack of preparation in this type of event will likely find you living much poorer than you would like. If you are successful in maintaining your standard of living and preserving your wealth throughout this event you will have won the battle and set yourself up for a better future when things stabilize.
PD2: "La oración no es pedir. La oración es ponerse en las manos de Dios y escuchar su voz en el fondo de nuestros corazones", Madre Teresa. Pero hay que ponerse un rato todos los días, alabarle, darle gracias, oir lo que nos quiere decir…, y por supuesto, también pedir por cosas espirituales, no materiales. Hoy operan a un amigo mío, pido rezos, y ayer nos enteramos que esperamos otro nieto, el sexto, pido rezos para que sea una gran persona, un buen cristiano, como sus padres.
