ECB Disappoints with Lack of Enthusiasm for Hyperinflation

The European Central Bank (ECB) announced on Thursday that it would leave its target rates unchanged, while also standing pat on its monetary inflation.

The ECB is purchasing assets of 80 billion euros (about $90 billion) per month, which is expected to last at least through March 2017.  The ECB is trying to top the Federal Reserve’s QE3, which ended in October 2014.  At the peak of QE3, the Fed was buying $85 billion per month in assets.

In terms of quantitative easing by major central banks, Japan may be the biggest winner of them all.  As the Fed finished up QE3, the Bank of Japan ramped up its monetary inflation, buying 80 trillion yen per year.  This currently equates to around $780 billion per year.  This is lower than the Fed’s $1 trillion in 2014, but consider that Japan’s GDP is about one-quarter that of the United States.

Despite the ECB’s continued program of asset purchases (digital money printing), investors were disappointed that the central bank isn’t being more aggressive.  In a world of negative interest rates and massive monetary inflation, investors still want more.

The ECB is going to continue on its path.  If the economic conditions in Europe don’t improve, we can be rather sure that the ECB will continue its program beyond March of 2017.  Why would they announce it now when they can just wait until later?  It will be easier to find excuses later to continue the monetary inflation.

It is similar to the Fed’s strategy of raising the federal funds rate.  Fed officials keep saying it is on the table, but there is always a new excuse when the next time arrives.

Even though the Fed isn’t raising its target rate, other than the one quarter percent last December, it still has the sanest policy of all of the major central banks.  The Fed has actually kept the monetary base relatively stable for nearly two years now.

The economies in Japan and most of Western Europe are already far weaker than that of the United States.  The U.S. economy has a bigger chance of weakening in the short run because of central bank policy.  The relatively tight policy could expose the malinvestments from the previous Fed stimulus.

On the other hand, Japan and Europe could fall much harder.  They have copied the Fed’s insane policy from 2008 to 2014.  But the ECB and Bank of Japan have stepped it up beyond what most of us would have thought was possible.

The massive monetary inflation is unsustainable.  It may not seem like it now, but this cannot go on forever without seeing some serious consequences.  We will either see a scenario of massive price inflation, or we will see a big depression.  It could even be a combination of both for a while.

Americans should hope that Japan and Europe implode first.  As more Americans learn that the Fed is part of the problem and not the solution, we can hope that public pressure will prevent us from going down a path similar to Japan.

The inflation and debt in the U.S. have been massive, but it is still nothing compared to Japan.

A Libertarian Case for Hillary

Yes, you read that right.  And no, I have not gone off the deep end.

I am not supporting, endorsing, or voting for Hillary Clinton.  In fact, I think she is among the worst human beings on this planet.  She is a career criminal who should be locked up in a cell for the rest of her pitiful life.

So why would I even suggest a libertarian case for Hillary Clinton?

To be sure, I am not at all cheering for Hillary Clinton.  In fact, I am somewhat cheering for Donald Trump.  He is far from being a libertarian.  Trump is terrible on economic issues, especially dealing with trade.

However, I do appreciate the fact that Donald Trump has stared down political correctness and the entire rotten establishment.  If both the Bushes and Clintons despise Trump, then he must not be all bad.  He also said that the Iraq War was based on lies, yet still managed to get the Republican nomination.  I am not sure if anyone but Trump could have accomplished that feat.

Trump is a wildcard and we don’t know what we will get if he becomes president.  He could be the one chance for a major shift in foreign policy.  On the other hand, he does seem to have something of an authoritarian streak in him, which can be dangerous for liberty.

This had me thinking about the consequences of a Hillary Clinton presidency.  I think the worst aspect is just knowing that there are that many American voters willing to support her.

But if voter turnout is low for a presidential election, and third-party candidates get several percentage points of the vote, then it may not be such a great mandate for her.  Her husband (or should I say business partner) won the election in 1992 with just 43% of the vote.

There is no question that Hillary Clinton is a serial liar and a criminal.  She will be as corrupt as they come in the White House.  But the occupants of the White House have been corrupt for a long time now.

She scares me on foreign policy, which is the one major reason I hesitate in making any kind of case for her.  Still, I don’t think she will intentionally start any major wars (China or Russia), even though she is poking her stick at Putin in Russia.  I am not sure that even the military-industrial complex would want to see such a war.  She would likely continue with conflicts in the Middle East and elsewhere.

Aside from foreign policy, just imagine how inept and impotent Hillary would be as president.  She has ongoing scandals.  I see conservative sites running articles about the Clinton body count, which is all of the people associated with the Clintons who have mysteriously died.  You could take a survey of Americans, and it wouldn’t surprise me if nearly a quarter of the adult population thought she was involved in murdering people (foreign policy aside).

Imagine the constant investigations and inquiries with her as president, even with the establishment media mostly on her side.  Between classified emails and the Clinton Foundation, she would be under constant attack.  There are always new scandals appearing with the Clintons.

The majority of Americans would have little respect for the president, which I think is a good thing from a liberty perspective.  It means she would not have a mandate.

If the Republicans still control the House (which is likely), then she would not get through any major domestic items (like we saw with Obamacare).  To be sure, the government would still be spending and wasting trillions of dollars per year, but that would happen under a Trump presidency too.

Libertarians talk about withdrawing consent.  The only way to scale back big government is for the populace to withdraw their consent.  If Americans see the president as a liar and criminal, what better way is there to have a withdrawal of consent?

In addition, it is likely that we will see an economic downturn, if not soon, then almost certainly in the next 4 years.  Hillary Clinton can take the blame for this, or maybe try to blame Obama.  It gets a lot more difficult to blame the Republicans, even with a Republican majority in the Congress.  Americans tend to blame the party in the White House.

As an added bonus, if Hillary Clinton is president, then the investigations on her will continue.  We may actually get to see the day where she walks in chains to a jail cell.

Overall, a Hillary presidency would be a train wreck, which could actually be somewhat positive for our liberty.  She does not have the charm that Bill possessed.  She doesn’t have a likability factor at all.

In conclusion, there are no reasons for any libertarian to consider supporting Hillary Clinton in any way.  But if she is elected president, it may not be as bad for liberty as many think.  If her bad health doesn’t stop her, then American public opinion should.  More and more Americans view her (correctly) as a liar and a criminal.  This is a benefit to the cause of liberty.

Bad News is Good News for Investors

The jobs report came out on Friday (September 2, 2016) and the numbers were worse than expected.

There were 151,000 new jobs added in August, but analysts were expecting 180,000.  Meanwhile, the official unemployment rate remained at 4.9%, while analysts were predicting a drop to 4.8%.

This sent U.S. stocks up and gold up.  So why are stocks soaring when the news is worse than expected?

In the bizarro world of central banking, bad news equals good news.  Since the economy is not as robust as expected, it means that the Fed is less likely to hike its target rate in its September meeting.  Therefore, stocks soar, as investors see rates remaining low for at least a little while longer.

The Fed comes up with an excuse not to raise the federal funds rate every time a new meeting approaches.  Fed officials and analysts in the establishment media have been talking about hiking rates for a couple of years now.  Yet, we have only seen one hike – in December 2015 – during this whole time.  Now we have to wonder whether there will be any hike at all in 2016.

I don’t think the Fed usually plays favorites during the election, as long as they are guaranteed to get an establishment figure.  The problem this time is that Donald Trump is a wildcard.  He is not approved by the establishment.  Therefore, it would not be surprising if Fed officials are strongly in favor of having Hillary Clinton as president over Trump.

This gives an incentive for the Fed to delay a rate hike, at least until after the election.  When the Fed hiked its target rate by one-quarter of a percent in December, stocks plunged in January.  Whether or not this was the cause, there is obvious uneasiness about the prospects of hiking the target rate, if nothing else for psychological reasons.

The Fed is not likely to risk a major stock market crash just prior to the election.  This would be highly beneficial to Trump.

The Federal Open Market Committee (FOMC) meets 8 times per year.  The next meeting is on September 21, when the next statement on monetary policy will be released.  There will be another meeting on November 2, just before the election.

We should not expect any announcement of Fed rate hikes in the next two meetings.  They will find excuses.  They will run with the latest bad news.  Stock investors are now in a situation of liking bad news.  This does not bode well for the economy.

Stocks Live By the Central Bank

If you live by the sword, you die by the sword, or so the saying goes (or a variant of it).  Perhaps more true is this: If you live by the central bank, you die by the central bank.

This may be something that stock investors should pay attention to.

Zero Hedge recently ran an article discussing Deutsche Bank’s calculation of how much the S&P 500’s value is due to central banks. The conclusion is that central bank policy is responsible for about 40% of the total value of the S&P.

Therefore, if this is true, a return to normal would result in a massive drop in the index to somewhere around 1,400.  It is currently close to 2,200.

The article gets a bit technical and really focuses on interest rates.  It is true that low yields can help drive up stock prices, as people look for higher yields.  The low yields drive people into taking bigger risks than they otherwise would.

My only issue with this is that central banks are not currently driving the low interest rates, or at least not directly.  It is the Federal Reserve’s prior policies that are largely responsible, but its actions today (or lack of actions) are not directly driving the low rates.

QE3 ended in October 2014 – almost 2 years ago.  The Fed has not been buying government debt except for rolling over maturing debt. Therefore, the Fed is not directly holding down interest rates.  It is private buyers or foreign central banks that are keeping rates low.

In fact, if the Fed “raises rates” – which means increasing the rate paid on bank reserves – it could actually lead to lower market rates.  It could drive more fear.  It could lead to investors seeking to lock in longer-term rates for fear of an economic slowdown.

I think the big factor here is the money supply.  The Fed increased the adjusted monetary base by a factor of almost 5 from 2008 to 2014.  While much of this money has been bottled up in bank reserves, it is inflationary nonetheless.  Just because we have not seen big consumer price inflation, it does not mean that we don’t have asset bubbles.

The Fed has had a tight money policy for almost two years, despite what you may hear from others.  The Austrian Business Cycle Theory tells us that this tightening will eventually expose the malinvestments from the previous artificial stimulus.

This should be the biggest concern right now for stock investors.  Maybe the really low yields have contributed to this stock rally lasting longer than it normally would.  But if it is unsustainable – which I believe it is without more monetary stimulus – then it will eventually turn.

In other words, unless the Fed fires up more QE or the banks start lending massive amounts of new money, then the stock market bull days are numbered.  Maybe it will hang on for another 6 months or a year, but extreme caution is recommended at this point.

The earnings, or lack of earnings, are not justifying these big rallies in stocks.

It is also interesting to note that stocks live off of monetary inflation in the first place, especially over the long run.  In a world without any significant inflation, the broad stock markets generally wouldn’t go up much, if at all.  People would own stocks for dividends.   Individual stocks would go up and down, but the overall market would not trend up, at least in nominal terms.  People would buy index funds for the purpose of dividends and increasing purchasing power.

Stocks have lived off of central bank inflation for the last 7 years.  They are going to die from the central bank’s tight money (which is the correct policy).

If stocks crash, then we can expect the Fed to step in and start its digital printing press again.  Then we can start the whole cycle all over again.  It seems to get more extreme each time.