IS published a list of crimes and their punishments on 16 December 2014 to serve “as an explanation and as a warning” to those living in territory under their control in large parts of Iraq and Syria.
The document lists hadd crimes, which are considered to be “against the rights of God,” and includes fixed punishments for theft, adultery, slander and banditry.
Crimes deemed hadd and their punishments are derived from the Quran and the hadith, the collected teachings and sayings of the Prophet Muhammad. However, with the exception of Saudi Arabia, and IS-controlled areas, they are rarely applied.
Är det här veckan då det översålda guldpriset vänder upp och dollarn får se lägre priser. Det är mycket den här veckan, IMF godkänner Yuanen som valuta inom SDR, ECB använder Bazookan och på fredag är det arbetslösheten i USA.
Corporations are now running out of steam in terms of their ability to generate earnings. As of Q2 2015, the year-over-year change in annual corporate earnings dropped to -$8.21 per share for the S&P 500 and to -$4.79 per share for the Russell 2000. The previous three times this metric fell that far into negative territory on the S&P 500 were Q1 1990, Q1 2001, and Q4 2007, coinciding with the start of each of the last three high yield default cycles. According to a recent article in The Economist, in the most recent quarter less than half of S&P 500 companies recorded increasing profit year-over-year.
And here is Ellington's chart showing where "You" are right now.
Så här ser det ut när man manipulerar guld priset till nya låga nivåer trots mycket stor fysik efterfrågan på guldet
So why not cover up the truth by hiding the “canary in the coal mine” and blasting the price of gold? That’s exactly what happened on Friday morning at 8:00 a.m. EST:
As you can see from the graph the trading in gold during the Asian and early London hours was largely subdued. At 8:00 a.m. the Comex paper gold contract went into its now-familiar cliff-dive formation. Bare in mind that this is probably one of the most quite, low-volume trading periods of the entire week, as Asia and the Middle East are in bed and London’s paper gold market is starting to doze off the weekend. No one single other commodity or market index exhibited any unusual trading patterns or volume when gold was smashed. Even silver, after an initial “sympathy” sell-off, has held up remarkably well. This was an intentional raid on the gold market.
Between 8:00 a.m. and 8:30 a.m., 19,595 contracts were traded, largely dumped into the market. This is many multiples higher than the typical pre-Comex floor open volume. Make no mistake, any seller looking to move, 1.96 million ounces of paper gold – approximately 58 tonnes – would wait for the periods of time when the there’s is a lot more volume in order to mask the amount of paper he needs to sell AND to maximize the sale proceeds.
The Commerce Department reported that retail sales increased by a miserly +0.1% in October, below the +0.3% Wall Street was expecting. Additionally, sales for the month of September were revised downward from +0.1% to 0.0%.
So this is what the last three months look like:
Världen är på väg in i en recession och då skall FED slå till med en räntehöjning. Detta kan inte sluta utan gråt.
There is much more in the video interview.)
Tyskarna har nu negativa räntor upp till 7 år och Schweiz upp till 14 år och inte mycket tyder på att det blir någon bättre fart i ekonomin. Hur skall detta Ponzi sluta? ECB planerar en ny Bazooka nästa vecka.
THE DEATH OF PAPER GOLD & SILVER
Okay, getting back to the Death of paper gold and silver, if we look at the change in paper gold and silver buying from 2006-2015, we will notice an interesting trend. Let’s look at the forensic evidence presented in the following two charts:
Episode 6 is only half of the story...
Read more at http://www.maxkeiser.com/2015/11/soaring-global-debt-the-reality-check-in-numbers/#w2qQ6QgXE93BC7EK.99
Om endast hälften av detta är sant kommer det att innebära en kraftig upptrappning mellan Ryssland och Nato
If Putin was angry when Turkey shot down a Russian plane, which may or may not have crossed Turkish territory - reports on both sides are conflicting - he will be absolutely livid to learn that, according to Turkey's Dogan News, the Russian pilots who had parachuted in an attempt to save their lives after the plane was shot down, had been executed while parachuting down by local rebels, which considering the video released earlier belonged to the Free Syrian Army, are same "rebels" who are funded directly by the CIA.
Both Russian pilots shot dead while parachuting down says Dogan News Agency citing Turkmen opposition commander
This, as many have already pointed out, is a war crime.
The only question is whether this, together with the provocative action by Turkey which many can see being an act of war, will be deemed as such by Putin.
For those who missed it, here is the video uploaded by the Free Syrian Army of at least one dead parachuter.
Vi är nu mitt inne i den längsta bear market för silver vilket vi kan tacka dom som manipulerar kursen. Vi kommer närmare en ändring på detta och då blir det förmodligen bad boll effekten
Den reviderade siffran för BNP Q3 blev 2.1% och åter var det lageruppbyggnaden som var avgörande. Någon gång måste lagren bort och då får vi en mycket dålig siffra, kanske redan under Q4
The "old faithful" plug to "growth" inventories, which instead of dropping at an annualized 1.44% as in the original release, declined just 0.59% annualized, meaning that instead of contributing $62.2 billion, inventories jumped a material $100.6 billion, confirming that the inventory liquidation is still to take place, and as a result we now expect substantial downward revisions to Q4 GDP in the coming hours as Wall Street has no choice but to assume the inventory reduction will now be shifted to Q4.
The summary GDP print:
Central Planning Can't Fix China's Economy
Rekord efterfrågan på fysiskt guld i Kina samtidigt som man säljer ner priset med derivat instrument
China Has Credit Bubble of Epic Proportions
In this episode of the Keiser Report, Max Keiser and Stacy Herbert briefly discuss the former financial regulator, warning that we need radical ideas on fixing inequality by looking back on some old ideas about private banks creating too much credit. Max then heads to the South Bank in London near Waterloo to meet Yanis Varoufakis, the former Greek Finance Minister. In the second half, Max continues his interview with Varoufakis regarding the Greek financial crisis – and whether or not the bureaucrats of the Troika are incompetent or malicious with their failed programs.
Peter Schiff, Euro Pacific Capital CEO, discusses his thoughts on a rate hike and analyzes the Fed's next move.
Then in @ 2:55, Ameera sits down with Jim Rickards – editor of Strategic Intelligence and author of “The Death of Money” – to talk about China.
Det har alltid sagts att retail står för 2/3 av USAs ekonomi vilken nu sviktar ordentligt. Ändå vill man göra gällande att allt är så bra så FED kan höja räntan och få folk att tror att hjulen snurrar ordentligt vilket bara är fals propaganda för att hålla Ponzin i gång
We are also seeing tremendous turmoil in the retail industry. The following comes from Investment Research Dynamics…
The retail sales report for October was much worse than expected. Not only that, but the Government’s original estimates for retail sales in August and September were revised lower. A colleague of mine said he was chatting with his brother, who is a tax advisor, this past weekend who said he doesn’t understand how the Government can say the economy is growing (Hillary Clinton recently gave the economy an “A”) because his clients are lowering their estimated tax payments. Businesses lower their estimated tax payments when their business activity slows down.
The holiday season is always the best time of the year for retailers, but in 2015 there is a lot of talk of gloom and doom. Most large retailers will not start announcing mass store closings until January or February, but without a doubt many analysts are anticipating that once we get past the Christmas shopping season we will see stores shut down at a pace that we haven’t seen since at least 2009. Here is more from the article that I just quoted above…
Retail sales this holiday season are setting up to be a disaster. Already most retailers are advertising “pre-Black Friday” sales events. Remember when holiday shopping didn’t begin, period, until the day after Thanksgiving? Now retailers are going to cannibalize each other with massive discounting beforeThanksgiving. Anybody notice over the weekend that BMW is now offering $6500 price rebates? The collapsing economy is affecting everyone, across all income demographics.
Last week we saw the stocks of Macy’s, Nordstrom and Advance Auto Parts do cliff-dives after they announced their earnings. I mentioned to a colleague that the Nordstrom’s report should be the most troubling for analysts. Nordstrom in their investor conference call said that they began seeing an “unexplainable slowdown in sales in August in transactions across all formats, across all catagories and across all geographies that has yet to recover.”
HY marknaden fortsätter att gå åt fel håll samtidigt som företagen har lånat rekord mycket under de senaste två åren. Det brukar börja så här innan den stora smällen kommer.
Sverige blir kanske första landet utan kontanter. Hoppas att alla förstår innebörden av detta elände
The World’s First Cashless Society
In 1661, Sweden became the first country in Europe to issue paper money. Now it’s probably going to be the first in the world to eliminate it.
Sweden has already phased out most cash transactions. According to Credit Suisse, 80% of all purchases in Sweden are electronic and don’t involve cash. And that figure is rising.
If the trend continues - and there is nothing to suggest it won’t - Sweden could soon be the world’s first cashless society.
Sweden’s supply of physical currency has dropped over 50% in the last six years. A couple of major Swedish banks no longer carry cash. Virtually all Swedes pay for candy bars and coffee electronically. Even homeless street vendors use mobile card readers.
Plus, an increasing number of government restrictions are encouraging Swedes to dump cash. The pretexts are familiar…fighting terrorism, money laundering, etc. In effect, these restrictions make it inconvenient to use cash, so people don’t.
So far, Swedes have passively accepted the government and banks’ drive to eliminate cash. The push to destroy their financial privacy doesn’t seem to bother them. This is likely because the average Swede places an unreasonable amount of trust in government and financial institutions.
Their trust is certainly misplaced. On top of the obvious privacy concerns, eliminating cash enables the central planners’ latest gimmick to goose the economy: Negative interest rates.
Making The Negative Interest Rate Scam Possible
Sweden, Denmark, and Switzerland all have negative interest rates.
Negative interest rates mean the lender literally pays the borrower for the privilege of lending him money. It’s a bizarre, upside down concept.
But negative rates are not some European anomaly. The Federal Reserve discussed the possibility of using negative interest rates in the U.S. at its last meeting.
Negative rates could not exist in a free market. They destroy the impetus to save and build capital, which is the basis of prosperity.
When you deposit money in a bank, you are lending money to the bank. However, with negative rates you don’t earn interest. Instead, you pay the bank.
If you don’t like that plan, you can certainly stash your cash under the mattress. As a practical matter, this limits how far governments and central banks can go with negative interest rates. The more it costs to store money at the bank, the less inclined people are to do it.
Of course, central planners don’t want you to withdraw money from the bank. This is a big reason why they want to eliminate cash…so you can’t. As long as your money stays in the bank, it’s vulnerable to the sting of negative interest rates and also helps to prop up the unsound fractional reserve banking system.
If you can’t withdraw your money as cash, you have two choices: You can deal with negative interest rates...or you can spend your money. Ultimately, that’s what our Keynesian central planners want. They are using negative interest rates and the War on Cash to force you to spend and “stimulate” the economy.
If you ask me, these radical and insane measures are a sign of desperation.
The War on Cash and negative interest rates are huge threats to your financial security. Central planners are playing with fire and inviting a currency catastrophe.
Lönerna i USA måste upp om det skall bli någon fart i ekonomin den monetära ekonomin måste marginaliseras
Det blev en mycket konstig reaktion efter FEDs protokoll från förra mötet blev känt för marknaden. Kan det vara så att alla marknader går dit FED vill?
William Engdahl talks about how U.S. money printing has enabled the military to infringe on Russian and Chinese sovereignty and Gold buildup by the BRICS.
Stockman. This is the Final Spasm of the Bull, When this ones over, were going down for the count.....
According to the FMS, the other biggest consensus trade right now is long US stocks vs the rest of the world. In fact, according to BofA, we now have the "largest ever US equity "overvaluation" versus RoW (Eurozone/UK/Japan/EM). Current differential is 96ppt."
And yet, there are those who are only paid if they allocate (other people's) cash into US stocks. So here is the latest breakdown of the most overowned and underowned sectors. Ifthe Fed does indeed surprise the market, not only will it slam the USD, not only will it send US equities (vs all other markets) reeling, but within the US market, the consensus trades will be promptly unwound. Which means the Contrarian play is to go long EM, energy materials, commodities & utilities, while shorting discretionary, banks and real estate and the Eurozone.
The Big November FMS takeaway is that the most vulnerable tactical trade heading into Dec Fed hike is "long dollar", and associated positioning, i.e. long discretionary, Eurozone, banks, Japan, and short EM, resources, commodities.
Exhibit 2 shows that “long USD” is the most crowded trade by far (32%), followed by the related trades of “short commodity stocks” (15%) and “short EM equities” (15%)
The two charts (courtesy of infomine.com) below show the drop from the 15th October high for gold and the 28th October high for silver. In that time, gold has dropped about 9% and silver has dropped 13%.
Thirdly, I had a look at the corresponding charts for some base metals.
Basically, all these base metals topped at about the same time as gold and silver. Copper dropped about 8%, lead by about 13%, tin by 12% and zinc by 16%. Compare these to gold’s 9% drop and ask yourself whether in fact all these drops have a common cause rather than a secret group gunning for gold? Did the central bankers also smash copper, lead, tin and zinc? I don’t think so.
The answer is more likely to lie in a more mundane explanation and that is the US dollar. During this metal downturn, the US Dollar Index rose by 6%. And the reason for all this is nothing to do with clandestine groups, but the fact that a stronger US dollar also weighs on base metals, because it raises the costs for buyers using other currencies.
And that includes precious metals as well. Somebody may quote people like Greenspan intervening in the gold market, but there is a big difference between haphazard interventions and consistent manipulation.
Silverproduktionen ner och efterfrågan upp brukar leda till högre priser, detta gäller dock inte för silver är riggat.
Retail Sales i USA är på nivåer som påminner om recessions nivåer, detta brukar leda till lägre räntor och inte högre räntor som marknaden tror.
Most notable is the drop in year-over-year gains (and downward revisions) to a rise of just 1.7% - the 2nd weakest since the financial crisis.
* * *
But the picture is clearest when excluding the debt bubble-funded auto-spending spree. When one excludes autos, what we find is that the last two times retail sales were this weak, The US was already in recession.
När bankerna får skapa obegränsat med fiat valutor får vi följande utveckling. Problemet för bankerna är att alla fiat pengar dör ut och då är deras storhetstid över. Kan inte vara långt kvar tills vi har ett nytt monetärt system där bankerna tjänar systemet och inte tvärtom
• Conservative investors by nature come under increasing pressure with respect to their investments and take on excessive risks in light of the prospect that interest rates will remain low in the long term. This leads to capital misallocation and the emergence of bubbles.
• The sweet poison of low interest rates leads to massive asset price inflation (stocks, bonds, works of art, real estate).
• Structurally too low interest rates in industrialized nations due to carry trades lead to the emergence of asset price bubbles and contagion effects in emerging markets.
• Changes in human behavior patterns occur, due to continually declining purchasing power. While thrift is increasingly mutating into a relic of the past, taking on debt comes to be seen as rational.
• As a result of the structurally too low level of interest rates, a “culture of instant gratification” is created, which is among other things characterized by the fact that consumption is financed with credit instead of savings. The formation of wealth becomes steadily more difficult.
• Many corporate managers engaged in share buybacks in order to get higher bonuses resulting from higher share prices. Also mergers and acquisitions and even dividend payments have been financed by cheap credit. This kind of indebtedness is crucially dependent on future cash flows and hence very speculative.
• The medium of exchange and unit of account function of money increases in importance, while its role as a store of value declines.
• Incentives for fiscal discipline decline.
• Zombie banks are created: Low interest rates prevent the healthy process of creative destruction. Banks are enabled to roll over potentially non-performing loans practically indefinitely and can thus lower their write-off requirements.
• Distributive injustice (Cantillon effect): Newly created money is neither uniformly nor simultaneously distributed amongst the population. This results in a permanent transfer of wealth from later receivers to earlier receivers of newly created money.
Är det verkligen läge för FED att höja räntan när företagens vinster sjunker och världshandeln sjunker snabbt
Enligt Bloomberg så kommer nu Yuanen att kunna användas i affärer med Swiss Franc vilket är ytterligare ett steg mot inträde i IMFs SDR
China took another step to boost the yuan’s global usage, saying it will start direct trading with the Swiss franc, as the nation pushes its case for reserve-currency status at the International Monetary Fund.
The link will start on Tuesday, the China Foreign Exchange Trade System said in a statement, making the franc the seventh major currency that can bypass a conversion into the U.S. dollar and be directly exchanged for yuan. The rate will be allowed to fluctuate a maximum 5 percent on either side of a daily fixing, according to CFETS.
“This is an important step in strengthening bilateral economic and trade connections between China and Switzerland,” the People’s Bank of China said in a statement on its website on Monday. The link will help lower conversion costs and facilitate the use of both currencies in bilateral trade, it added.
Fortsatt hög efterfrågan på silver samtidigt som priset rasar och utbudet sjunker. Hur länge till kan riggningen av silver och guldpriset fortgå?????
Kan FED höja räntan när företagens tillväxt och vinster sjunker. FED har målat in sig i ett hörn och det skall bli spännande och se hur dom tar sig ut det lär bli kladdigt hur dom än gör
According to FactSet, the blended revenue decline for Q3 2015 is -3.7%. If this is the final revenue decline for the quarter, it will mark the first time the index has seen three consecutive quarters of year-over-year revenue declines since Q1 2009 through Q3 2009. It will also mark the largest year-over-year decline in revenue since Q3 2009 (-11.5%).
Har dollarns uppgång bara tagit en paus och vi skall vidare uppåt kan det sätta press på guld och silver i dollarvärde.
Återhämtningen i amerikanska ekonomin har varit den svagaste sedan andra världskriget vilket dock inte har märkts på börsen
With the S&P 500 just over 1% from its all-time record-high, it is perhaps shocking that only just over 50% of the index members are trading above their 200-day moving average. Worse still, the divergence between index price performance and underlying component performance has never been greater as The Fed's last money-printing effort drove a wedge between the have-nots and the have-yachts...
The S&P 500 (with its 108x P/E Facebook and 928x P/E Amazon) is practically back to record highs but underlying breadth remains a disaster...
But, when we look at the entire US equity market - based on the world's largest stock index NYSE Composite - this is a story that began when The Fed unleashed the $85bn per month QE3...
As is clear, the massive surge in performance of the overall indices was concentrated more and more among the names underlying the index as the free money party from The Fed only benefitted the biggest.
And that's where it all went wrong for The Fed as their plan to re-wealth the world failed to trickle down yet again.
Hur lätt blir det för FED att höja räntan när skuldutvecklingen är exponentiell. Tidsfråga innan vi har negativ ränta eller QE4
Join Greg Hunter as he analyzes these stories and more in the Weekly News Wrap-Up.
November 5 (King World News) – Jason Goepfert at SentimenTrader: Gold has declined 13 out of the past 15 days. Since 1975, the only precedent was in January 1998 after which it rallied more than 10% over the next three months.
And despite Bo’s call for 3-digit silver in 2016 – and Clif High’s web bot prediction for silver to explode higher when Bitcoin retakes $408-$420, I argue that silver and gold will remain capped until the Bankster manipulation stops – or is stopped – once and for all.
John Hathaway is a Senior Portfolio Manager, and currently co-manages the Tocqueville Gold Fund (TGLDX). Beyond expertise as an investment advisor and portfolio manager, John is one of the most popular writers and speakers in the investment world, particularly in the precious metals market. His insights on gold have been published in numerous online and printed publications and he makes regular appearances as an expert in the financial media.
Det är nu 293 oz pappers guld som gör anspråk på samma fysiska oz av guld som finns för leverans. Vi närmar oss tidpunkten då detta Pyramidspel inte går att hålla ihop.
After the Interview:
• Earnings growth has been sluggish…
Earnings for companies in the S&P 500 have only grown 6.9% annually since 2011. That’s far less than during past economic expansions, according to The Wall Street Journal. Earnings grew 12.9% per year between 2003 and 2007. They grew at 11% per year between 1995 and 1999...
As of Friday, 340 companies in the S&P 500 reported third-quarter results. So far, earnings have declined 2.2% from last year. We can’t know for sure until all the results are in, but it appears that earnings will decline overall this quarter. If that happens, research firm FactSet says it will be the first time since 2009 that earnings have declined two quarters in a row.
Take a look at the various charts I am going to post up here.
I actually went back and modified this particular chart so that it would include all the data beginning from 2006, the year in which this Disaggregated Report starts. The reason I did so is because silver has now the dubious distinction of having the largest numerical HEDGE FUND NET LONG POSITION on record. Let me state that again – never in the 9+ years that the CFTC has broken out the data in this format have the hedge funds ever had this large of a net long exposure to the silver market.
In keeping with a method I introduced to some of the readers last week, I also have tabulated this same data in percentage terms of total open interest.
Here is that chart.
This is the LARGEST OUTRIGHT LONG POSITION held by the hedge funds on record.
For some reason which I am unable to comprehend, as of this past Tuesday afternoon, the hedgies have gotten almost giddy with bullishness on a metal right smack dab in the midst of a global slowdown and falling commodity prices.
Now, since this data covers only through Tuesday and does not include the price action for the rest of the week, we can take a look at the price chart and surmise what has happened as a result of this.
As you can see, on Wednesday, the day of the FOMC statement, the silver price shot above the $16.00 mark and the CME registered it as closing above that level. However, the time at which CME registers the closing price of the metal during the day was PRIOR to the release of the FOMC statement. Immediately after that statement hit the wires, the metal sold off sharply as the Dollar staged a big rally higher on the hawkish nature of the Fed.
The following day, Thursday, the metal opened well below that previous day’s close over $16.00 and proceeded to lose about $0.80. Friday, the metal did not move all that much as the Dollar was a bit weaker.
What can we surmise from this? Look at the support level drawn in near the $15.50 level. That had been holding it for almost the entire month of October on the downside. While it was holding above that level, the hedge funds were continuing to add longs on the dip lower in price and only further increasing the size of that record net long position of theirs. The way I am reading this is that while we have seen some long liquidation on late Wednesday afternoon and certainly on Thursday, there remains a very, very large number of hedge funds on the long side of this market. Those positions are now going to be increasingly vulnerable to any further deterioration in price.
As of Friday afternoon, the price is sitting right atop the lower Bollinger Band. It is also about $0.40 above the 50 day moving average. If silver falls below $15.40, I am expecting to see sell stops begin to kick in which should result in enough selling ( long liquidation) to push the price down to the 50 day moving average near $15.18. If that gives way, look out!
Those fund positions are so numerous that the amount of selling firepower in a concerted round of forced long liquidation could do significant damage to the price of the metal.
The question I have is whether or not these funds want to try to defend this massively lopsided long position by adding even more long side exposure or whether their computers are going to take them out. Much depends on what the fate of the Dollar is going to be next week and the week thereafter but if it starts to strengthen again, it is difficult for me to see how silver is going to be able to withstand the selling that is generally tied to the rising Dollar.
What I am saying here is that anyone who happens to be long this market had at the very least get themselves some downside protection. You could not pay me to be naked long this market without any downside protection in place given the extreme imbalance that currently exists in the silver market and the fact that the Fed is sounding a hawkish theme at the moment.
Yes, the Fed is going to be data dependent and if the data is weak, the odds of a move in December go down considerably. That would weaken the Dollar and breathe some life into the metal but a coin flip in which the data can go either way in a situation in which the downside risk is so dramatic on account of the massive long position of these hedge funds is not something I would even considering exposing myself to without some sort of insurance. That is suicidal in my opinion given this COT data.
Here is what I am watching for.
I have noted how significant the zone is that silver is currently sitting within. If price falls through that zone, it will take the RSI down to the red support line I have drawn on that indicator. If it breaks that and then falls below 40, the posture of this market then shifts to one of a bear. It is still in a friendly posture as long as it remains above support but given the size of this hedge fund long position, I am not sure how much longer they are going to be able continuing to build a larger and larger exposure without some sort of very strong fundamental shift from somewhere.
Could we get something like that? Maybe since nothing is impossible these days in our goofy markets but based on the current slow growth/deflationary/stagnant global economy theme it is hard to see what that might be. Some of these metals of late have been benefitting from the REFLATION TRADE which is basically a bet that the reflation efforts of so many Central Banks at once and the actions of China to ward off pressures on its economy, will be successful. That however remains to be seen especially considering that after 6+ years of QE here in the US the Fed is still fretting about raising interest rates a piddly 25 basis points. For that matter, just look at Japan and see what they have been battling for 20 years now!
I honestly have no idea whether these Central Bank efforts will be successful in and of themselves. I personally do not believe that they will mainly because my view is that monetary policy alone cannot fix what ails these economies. That requires structural reform and sound fiscal policy as well as sound economic measures taken by a nation’s leaders. As of this time, we certainly do not have that here in the US as the current leadership knows as much about sound economic policy as does my dog about physics.
Until such times as that might happen, the best these Central Banks can do is to prevent things from getting worse in the short run but as far as creating lasting prosperity and solid economic growth, with plentiful new and good paying jobs, forget about it.
Let’s see what shapes up next week in this market.
Fiat money quantity update
29 October 2015
After a few months of slower growth, FMQ has picked up again.
FMQ is the sum of True Money Supply (as defined by the Austrian School of Economics), plus the banking system’s reserves and other banking-related liabilities on the Fed’s balance sheet. Account is taken of temporary adjustments that otherwise distort the picture, such as the Fed’s repurchase agreements and reverse repurchase agreements. See here for a fuller description of FMQ.
The intention is to quantify fiat money both issued into public circulation and also held in reserve within the federal banking system. Fiat currency was originally issued in return for gold deposited with the commercial banks in return for bank notes and deposits. This gold was then passed to the Fed in return for cash and reserves, subsequently handing it on to the US Treasury in return for a certificate, which appears on the Fed’s balance sheet to this day. FMQ quantifies the full reversal of this process.
The chart above shows that the growth in FMQ since 1960 followed an exponential path until the banking crisis in 2008. Subsequently, it has accelerated to the end-September 2015 level of $14.39 trillion, considerably above its long-term historic path, and reflects the monetary hyperinflation initiated by the Fed in its attempts to rescue the financial system from the last banking crisis, and then to revive the US economy.
The biggest jump in September was an increase in reverse repurchase agreements of $413 bn. While the trend in reverse repos is rising, it is a very volatile component of FMQ. In a reverse repo, the Fed temporarily borrows money from commercial banks for a fixed period, posting financial assets, such as US Treasuries, as collateral. So what are these reverse repos about?
There are two basic reasons for the Fed to enter into reverse repo transactions: either the Fed wants to mop up liquidity in the banking system, or it is alleviating a shortage of collateral in the wider financial system. In this case it would appear to be the latter, and is therefore a sign of financial stress. Put simply, there is an imbalance between too much fiat money and not enough collateral, which is creating operational problems.
One should bear in mind that the dollar is the world’s reserve currency; so as well as managing the US banking system, the Fed also has a responsibility for foreign-owned dollar liquidity. Aggressive quantitative easing by the ECB, through a demand for collateral, has driven 2-year government bonds in most European markets into negative yields. Financial engineering employing derivatives arbitrages this problem into dollars, and therefore increases banking demand for repos with the Fed in order to obtain collateral. This is the same as reverse repos from the Fed’s perspective; hence the Fed ends up supplying the dollar collateral required by the global banking system.
The moral of the story is that the Fed has to keep pumping out both money and collateral under all circumstances, QE or no QE. While there is variation in the monthly growth in FMQ, the accelerating trend is clear to see. It is no exaggeration to say that the dollar is undergoing a monetary hyperinflation that has become unstoppable without incurring serious economic dislocation. So long as the purchasing power of the dollar in terms of everyday goods is not undermined, there will be no restraint in the pace of money-creation.
The primary sources of demand for new fiat money are the financial system and the US Government. The financial system requires continuing injections of bank credit in order to stop asset prices from stalling, and the government continues to need funds to cover its budget deficit and to pay interest on earlier debt. As if to rub in this point, for the umpteenth time the debt ceiling will have to be raised next week to avoid a government default.
Meanwhile, non-financial private sector demand for money remains subdued. The lack of economic growth over recent years is a reflection of how little extra money is entering the “real” economy. Furthermore, depressed overseas markets have undermined commodity prices and created bad debts estimated in the trillions, payable in dollars both in the US and abroad. Sound businesses are reluctant to borrow, except for purely financial reasons, and banks are understandably reluctant to lend. Unsound businesses are the only eager borrowers, needing more credit to survive.
Inevitably, the solution to this problem from a central banker’s perspective is further monetary expansion, if only to offset a tendency for bank lending for non-financial purposes to contract. Even money-inflation moderates now accept that the quantity of money must be expanded, at an accelerating rate if necessary, to prevent the US economy from sliding into depression.
The relevance to gold
While the purpose of FMQ is to quantify the fiat money originally created through the acquisition of publicly owned gold, there is no point in trying to estimate a value for gold by reversing the process. The Fed no longer has the gold on its balance sheet. Instead it has a gold certificate valued at $11bn, issued by the US Treasury.
The gold certificate is just a piece of paper. The true quantity of gold held by the US Government is unknown, even though it is stated to be 8,134 tonnes. A subset in the Treasury, the Exchange Stabilisation Fund, was set up by a provision of the Gold Reserve Act of 1934, explicitly without legislative oversight, for the purpose of covertly managing the dollar gold price. It is likely that over the decades the majority of the Treasury’s gold has been sold or leased into the market through this fund.
Instead, we can only deflate the gold price by the increase in FMQ to arrive at a value in 1934’s dollars, at the time of the Gold Reserve Act. It is only fair to also deflate the gold price on the same basis, given the world’s above-ground stocks in 1934 were estimated to be 49,000 tonnes, against 165,000 tonnes today. The result is shown in the chart below.
Priced in dollars deflated by the increase in FMQ and global above-ground gold stocks since 1934, the price has fallen from $35 to only $3.42. The lowest it has been in these terms was $3.31 in April 1971, when heavy government intervention failed to suppress the price, only four months before President Nixon threw in the towel.
You can take one of two views: either gold is now only an historical curiosity and has no relevance to modern macroeconomics, or it is incredibly undervalued. Anyone taking the former stance will need to convincingly explain:
1. Why it is irrelevant that people all over the world are accumulating gold as the ultimate store of exchangeable value;
2. Why it is that monetary hyperinflation, in defiance of history, will not lead this time to an uncontrollable fall in the purchasing power of the dollar; and
3. Why ordinary people will not discard fiat currency for gold in the future.
In the absence of a convincing case for the status quo, FMQ indicates that a revival in the gold price of epic proportions is long overdue.
After the Interview: