The story line is going out that the economic boom is weakening and the Federal Reserve has to get the printing press running again. The Fed uses the money to purchase bonds, which drives up the prices of bonds and lowers the interest rate.
The theory is that the lower interest rate encourages consumer spending and business investment and that this increase in consumer and business spending results in more output and employment.
The Federal Reserve, European Central Bank, and Bank of England have been wedded to this policy for a decade, and the Japanese for longer, without stimulating business investment. Rather than borrowing at low interest rates in order to invest more, corporations borrowed in order to buy back their stock. In other words, some corporations after using all their profits to buy back their own stock went into debt in order to further reduce their market capitalization!
Far from stimulating business investment, the liquidity supplied by the Federal Reserve drove up stock and bond prices and spilled over into real estate. The fact that corporations used their profits to buy back their shares rather than to invest in new capacity means that the corporations did not experience a booming economy with good investment opportunities. It is a poor economy when the best investment for a company is to repurchase its own shares.
Consumers, devoid of real income growth, maintained their living standards by going deeper into debt. This process was aided, for example, by stretching out car payments from three years to six and seven years, with the result that loan balances exceed the value of the vehicles. Many households live on credit cards by paying the minimum amount, with the result that their indebtedness grows by the month. The Federal Reserve’s low interest rates are not reciprocated by the high credit card interest rate on outstanding balances.
Some European countries now have negative interest rates, which means that the bank does not pay you interest on your deposit, but charges you a fee for holding your money. In other words, you are charged an interest rate for having money in a bank. One reason for this is the belief of neoliberal economists that consumers would prefer to spend their money than to watch it gradually wither away and that the spending will drive the economy to higher growth.
What is the growth rate of the economy? It is difficult to know, because the measures of inflation have been tampered with in order to avoid cost-of-living adjustments for Social Security recipients and the payment of COLA adjustments in contracts. The consumer price index is a basket of goods that represents an average household’s expenditures. The weights of the items in the index are estimates of the percentage of the household budget that is spent on those items. A rise in the prices of items in the index would raise the index by the weight of those items, and this was the measure of inflation.
Changes were made that reduced the inflation that the index measured. One change was to substitute a lower price alternative when an item in the index rose in price. Another was to designate a rise in price of an item as a quality improvement and not count it as inflation.
Something similar was done to the producer price index which is used to deflate nominal GDP in order to measure real economic growth. GDP is measured in terms of money, and some of the growth in the measure is due to price increases rather than to more output of goods and services. In order to have a good estimate of how much real output has increased, it is necessary to deflate the nominal measure of GDP by taking out the price rises. If inflation is underestimated, then real GDP will be overestimated. When John Williams of Shadowstats adjusts the real GDP measure for what he calculates is a two-percentage point understatement of annual inflation, there has been very little economic growth since 2009 when a recovery allegedly began, and the economy remains far below its pre-recession level in 2008.
In other words, the belief that the US has had a decade long economic recovery is likely to be an illusion produced by underestimating inflation. Indeed, every day experience with the prices of food, clothing, household goods, and services indicates a higher rate of inflation than is officially reported.
The low unemployment rate that is reported is also an illusion. The government achieves the low rate by not counting the unemployed. The economic and psychological cost of searching for a job are high. There are the economic costs of a presentable appearance and transport to the interview. For a person without a pay check, these costs rapidly mount. The psychological costs of failure to find a job time after time also mount. People become discouraged and cease looking. The government treats discouraged workers who cannot find jobs as no longer being in the work force and omits them from the measure of unemployment. John Williams estimates that the real rate of US unemployment is 20%, not 3.5%
The decline in the labor force participation rate supports Williams’ conclusion. Normally, a booming economy, which is what 3.5% unemployment represents, would have a rising labor force participation rate as people enter the work force to take advantage of the employment opportunities. However, during the alleged ten year boom, the participation rate has fallen, an indication of poor job opportunities.
The government measures jobs in two ways: the payroll jobs report that seeks to measure the new jobs created each month (which is not a measure of employment as a person may hold two or more jobs) and the household survey that seeks to measure employment. The results are usually at odds and cannot be reconciled. What does seem to emerge is that the new jobs reported are for the most part low productivity, low value-added, lowly paid jobs. Another conclusion is that the number of full time jobs with benefits are declining and the number of part-time jobs are rising.
A case could be made that US living standards have declined since the 1950s when one income was sufficient to support a family. The husband took the slings and arrows of the work experience, and the wife provided household services such as home cooked nutritious meals, child care, clean clothes, and an orderly existence. Today most households require two earners to make ends meet and then only barely. Saving is a declining option. A Federal Reserve report a couple of years ago concluded that about half of American households could not produce $400 cash unless personal possessions were sold.
As the Federal Reserve’s low interest rate policy has not served ordinary Americans or spurred investment in new plant and equipment, who has it served? The answer is corporate executives and shareholders. As the liquidity supplied by the Federal Reserve has gone mainly into the prices of financial assets, it is the owners of these assets who have benefited from the Federal Reserve’s policy. Years ago Congress in its unwisdom capped the amount of executive pay that could be deducted as a business expense at one million dollars unless performance related. What “performance related” means is a rise in profits and share price. Corporate boards and executives achieved “performance” by reducing labor costs by moving jobs offshore and by using profits and borrowing in order to buy back the company’s shares, thus driving up the price.
In other words, corporate leaders and owners benefited by harming the US economy, the careers and livelihoods of the American work force, and their own companies.
This is the reason for the extraordinary worsening of the income and wealth distribution in the United States that is polarizing the US into a handful of mega-rich and a multitude of have-nots.
The America I grew up in was an opportunity society. There were ladders of upward mobility that could be climbed on merit alone without requiring family status or social and political connections. Instate college tuition was low. Most families could manage it, and the students of those families that could not afford the cost worked their way through university with part time jobs. Student loans were unknown.
That America is gone.
The few economists capable of thought wonder about the high price/earnings ratios of US stocks and the 26,000 Dow Jones when stock buy-backs indicate that US corporations see no investment opportunities. How can stock prices be so high when corporations see no growth in US consumer income that would justify investment in the US?
When President Reagan’s supply-side economic policy got the Dow Jones up to 1,000 the US still had a real economy. How can it be that today with America’s economy hollowed out the Dow Jones is 25 or 26 times higher? Manipulation plays a role in the answer. In Reagan’s last year in office, the George H.W. Bush forces created the Working Group on Financial Markets, otherwise known as the “plunge protection team,” the purpose of which was to prevent a stock market fall that would deny Bush the Republican nomination and the presidency as Reagan’s successor. The Bush people did not want any replay of October 1987.
The plunge protection team brought together the Federal Reserve, Treasury, and Securities and Exchange Commission in a format that could intervene in the stock market to prevent a fall. The easiest way to do this is, when faced with falling stock prices, to step in and purchase S&P futures. Hedge funds follow the leader and the market decline is arrested.
The Federal Reserve now has the ability to intervene in any financial market. Dave Kranzler and I have shown repeatedly how the Federal Reserve or its proxies intervene in the gold market to support the value of the excessively-supplied US dollar by printing naked gold contracts to drop on the gold futures market in order to knock down the price of gold. A rising gold price would show that the dollar support arrangements that the Federal Reserve has with other central banks to maintain the illusion of a strong dollar is a contrived arrangement rejected by the gold market.
What few, if any, economists and financial market commentators understand is that today all markets are rigged by the plunge protection team. For at least a decade it has not been possible to evaluate the financial situation by relying on traditional thinking and methods. Rigged markets do not respond in the way that competitive markets respond. This is the explanation why companies that see no investment opportunities for their profits better than the repurchase of their own shares can have high price/earnings ratios. This is the explanation why the market’s effort to bring stock prices in line with realistic price/earnings ratios is unsuccessful.
As far as I can surmise, the Federal Reserve and plunge protection team can continue to rig the financial markets for the mega-rich until the US dollar loses its role as world reserve currency.
Paul Craig Roberts is an American economist and author. He formerly held a sub-cabinet office in the United States federal government as well as teaching positions at several U.S. universities. He is a promoter of supply-side economics and an opponent of current U.S. foreign policy.
The US Dollar Under Fire
The role of the US dollar as a reserve currency should be reconsidered since it has become Washington’s political weapon, Russian President Vladimir Putin told participants at the St. Petersburg International Economic Forum.
“Deep changes require adaptation of international financial organizations, reconsidering the role of the dollar, which after it became international reserve currency, turned into the tool of pressure of the country of issue on the rest of the world today,” Putin said.
The Russian president added that US actions undermine the advantages created by the Bretton Woods system, thus “trust in the US dollar is falling.”
The objective is simply to end the dominance of the valueless US dollar that is endlessly being printed by the Federal Reserve, and pegged only to the oil in the Middle East, which could become irrelevant any moment from today.
Saudi Arabia is considering participating in methanol production in Russia, and also plans to engage in Russian LNG projects, Russia’s Energy Minister Alexander Novak said during a joint press conference with his Saudi counterpart Khalid Al-Falih.
No, there won’t be any $100 billion arms purchase from the House of Saud anytime soon.
As the trade war between Washington and Beijing intensifies, the United States is poised to lose out on a major gas market, and Russia could pick up the slack.
With an increase in tariffs on some $200 billion worth of Chinese goods from 10 percent to 25 percent with another $300 billion worth of Chinese goods in the cross-hairs, Beijing has vowed to retaliate.
On Monday, it announced it will increase tariffs imposed on about $60 billion of US goods in retaliation for what it sees as President Donald Trump’s latest escalation of the trade war. The increased tariffs will take effect on June 1, according to a statement on China’s Ministry of Finance’s website. The charges will be raised on most of the goods listed on a previous retaliation list effective last September.
“China’s tariff move is in response to the US unilateralism and trade protectionism,” the ministry also stated on Monday in a different statement. “China hopes that the US will return to the right track of bilateral trade talks, work together with China and meet each other halfway, to reach a win-win and mutually beneficial agreement on the basis of mutual respect.”
Part of the increased tariffs will include U.S liquefied natural gas (LNG) imports, rising from a previous 10 percent levy to a damaging 25 percent starting June 1. The increase in tariffs already come as Chinese imports of the super-cooled fuel from the US has plunged. A Reuters report said that in 2018 some 27 LNG vessels traveled from the US to China, down from 30 in 2017. Meanwhile, most of those that left US ports last year did so before the trade war started, with 18 tankers going to China in the first half of the year and just nine during the second half.
Now that China is increasing LNG tariffs from 10 to 25 percent, these export numbers will drop even more, maybe even altogether. However, secondary traders will no doubt procure US-sourced LNG and then resell it to China. Yet, that’s little respite for major US LNG producers in the long term if the trade war continues.
Not only will the trade war impact US-Chinese LNG deals, but it will impact the overall global LNG market since the US is the fastest growing LNG producer who could view with Australia and even Qatar for the top LNG slot in terms of liquefaction capacity by the mid part of the next decade if only a fraction of the dozens of US LNG project proposals go forward.
However, that’s the real quandary. Many of these projects aren’t backed by cash-laden oil majors, like an Exxon Mobile or Chevron, but smaller players that need to sign long term off-take agreements with Chinese firms as well as secure funding from Chinese banks and financial institutions to finance their capex intensive projects. Simply put, without both Chinese funds and Chinese gas demand, the so-called second wave of the US LNG development story will stall, losing out to eager competitors, including Russia.
In lock step with the news that China is increasing tariffs on US LNG, Russian natural gas giant Novatek said on Monday that it expects to increase its LNG production capacity target to 70 million mt/year by 2030, up from a previous target of 57 million mt/year.
“Our objective over the next year is to come up with a revision to 70 million mt/year by 2030,” company CFO Mark Gyetvay said. Previously, Novatek had said it aimed to have a production capacity of 57 million mt/year by that time. Novatek brought online its first 5.5 million mt/year LNG train at the three-train Yamal LNG facility in December 2017 and has since commissioned the second and third trains.
If Novatek achieves that production point, it could propel Russia to the third global LNG production slot, possibly passing the US in the mid to later part of the next decade.
The Golden Era is Inevitable
The highly coordinated move to dump the dollar and establish a gold standard will certainly cripple those countries that don’t have enough of them. This explains why the UK is openly holding the Venezuelan gold hostage.
An ounce of gold will cost $10,000 as soon as global currencies crash and central banks have to appeal to a gold-backed monetary system, according to Byron King, editor of Jim Rickards’ Gold Speculator.
“If you take the global money supply, back it with 40 percent gold, you need $10,000 gold to make the math work, and that’s just using a 40 percent backing,” he said in an interview with Kitco News on the sidelines of the annual event set by Prospectors & Developers Association of Canada (PDAC). “And it has to do with the eventual demise of modern currencies.”
The analyst didn’t specify the timeframe for the gold price surge from the current $1,325 per ounce, but stressed that it would have to happen, as the current cash bubble, consisting of dozens of trillions in USD, cannot exist forever.
“It’s kind of like a story about the man who went bankrupt, slowly at first and then all of a sudden. It’s the same thing with the US dollar, with the euro, with the yen. We’ve created trillions and trillions, dozens of trillions, almost hundreds of trillions of dollars, of obligations that simply can never be repaid. It will have to happen,” the analyst said.
King noted that gold stocks at current valuations are rather more attractive at the moment than they were two years ago. The expert also said that today’s miners are backed by “better numbers” and “smarter geologists.”
That explains why Bitcoin suddenly experienced a surge in its value, because the cryptocurrency is the most accessible alternative currency to move one’s dollar to. But when the shit hits the fan, Bitcoin might be one of those that will quickly be taken away by the Deep State as they were the ones who put that thing in the first place.
America is at war with itself. It has been that way for decades now, but it is much more pronounced today with the existence of social media networks, where everyone can freely voice his own opinion vis a vis the issues of the day. But even the freedom of speech, and the free flow of ideas, are also being threatened now, both by the contending parties and through corporate and State controls.
There was a time when people respect each other’s opinion, which make way for a spirited debate. But now, when one decides to speak of the openly verified truth, a slew of hateful comments ensue because you have destroyed their predisposed paradigm, which at present is the only escape from their helpless financial and economic conditions.
Almost a decade ago, America was offered a battery of external tactical assistance to get rid of the Deep State criminal cabal that the latter refused to. The only reason we can think of is pride. The so called patriots said that they can surely take good care of themselves without any help from the Eastern Alliance.
There were reports of various DUMB underground sites being bombed and sealed off from cabalists’ access, and the assumption then was that the common enemy of humanity cannot start a WW3 ever. The evidence whether all this has happened at all is yet to hit YouTube, or any independent sites for that matter.
But objectively, the whole story and all its variants are mere speculations at this point since nobody has ever come up with a video of the whole operation. That is why, we must press on with whatever actions we can afford to contribute.
Instead of a Pentagon-based cooperation with the Eastern Alliance, this is what we are seeing in the South China Sea…
A near collision between Russian and US destroyers that could have started World War 3.
Among the signs that the Deep State organized crime cabal is feeling the crunch is the Orwellian actions taken by its major corporations, e.g. Google, Facebook, etc. These corporations are actively taking down accounts that are detrimental to the narrative that the Deep State wants to feed the public with.
The ongoing Yellow Vest Movement cannot continue. The Brexit must be delayed for as long as possible, to preserve the integrity of the EU.
Another problem area is the limited breadth at which some people dissect any form of criticism against both sides of the US political spectrum. If you criticize the Democrats today, you’ll be labeled as Trump’s white supremacists. If you analyze Trump’s action, or that of his alter egos like Bolton and Pompeo, you’ll be labeled as Trump hater. You can observe that if you use the right search keywords on this website.
Aren’t we allowed to take a third position of being an independent observer somehow?
Mind you, there is a certain paid group of trolls that feeds both sides of the US political spectrum, and so far, this CIA-controlled group is very effective in sowing conflict between the two. Feeding the trolls is how the effort to revive the American Constitutional Republic crumbles.
The world need not go down with it.
Finally, there’s no other moment in our shared history that gives us the most chance at achieving global peace and prosperity than today.
The technologies that are already here waiting in the wings can make all these empires irrelevant. But the moment you start to worship and pin all your hopes on someone, or some group, is the day you’re conned again.
Idolatry has always been the failing of man. We are preconditioned to think that we are weak, and we can’t accomplish by ourselves.
One of the ways that we can collectively defeat our common enemy is to get rid of the lies, and evaluate the situation only from the verifiable actions that the leaderships everywhere are taking. No more false assumptions. If there’s an impending mass arrests, what is taking it so long to happen?
If there’s a planned NESARA / GESARA, who’s going to implement them and when?
Could you plan and bet your family’s future with these uncertainties?
Or, will you rather take the necessary actions instead, that will make certain that they can have a far better future away from the control grid itself?
You can actually participate in crippling the Deep State organized criminal cabal, while enjoying healthcare freedom at the same time, by boycotting Big Pharma for good.