Why the Fed Will Have to Raise Interest Rates

CapInflow-USA

The prospect of the Federal Reserve remaining on track to raise interest rates later this year is still settling in, yet people fail to grasp that raising rates will be bullish and it will confirm the capital flows are moving into the USA. We have a serious divergence between the USA and Europe. Not only is the USA the best situated from the problem of the greying of society, but the lower taxes in the USA remains key, as well as the fact that FATCA does not apply in reverse. Foreign citizens can come to the USA and open bank accounts without a problem; Americans cannot leave the country with the same privilege.

Capital inflows are pointing straight to the USA. As real estate is on the high end, and stocks look good, more and more capital will travel into the USA. The Fed will be accused of creating the bubble, since the domestic press will never understand the complexity of the world economy as a whole. So the Fed will face blame for creating a bubble, both from the media (rich are getting richer) and from Congress.

Meanwhile, there are growing concerns that financial woes could engulf Spain, in addition to Greece. Higher interest rates for the world’s largest economy could lessen the likelihood of economic survival among the allure of the emerging markets, adding to the problem of Europe going negative. Everything so far appears to be shaping up for a Phase Transition in the USA. That will baffle most and will place the maximum amount of pressure of Asia and Europe. By the time we get to the other end, they will be calling for a one-world currency – just watch.

The Money-Debt Paradox

Money-Debt

QUESTION:

Dear Martin,

if bonds are beginning to crash in 2015.75 , is there anything that prevents central banks from printing even more money and buying bonds as many as governments needs?  Can’t they basically print unlimited amounts of money, thus preventing the crash?

Best regards from Germany,
AM

ANSWER: You are making the logical assumption here. Your problem is government reasoning. To them, they will go shopping with your credit card and hand you a bill for €10,000. You say, “What the hell?” They explain that they just saved you €15,000 because they saw something they wanted that was €25,000, so they only spent €10,000 and therefore saved you €15,000. This is government logic. When they claim they have reduced spending, it only a reduction in future expectations.

The central bank of Japan owns 70% of the national debt of Japan. So why borrow if you are borrowing from yourself? Go ahead, write yourself a check for $1 billion, and place it in your left pocket and the checkbook in your right. You can now claim that you are a billionaire, for you have $1 billion in assets (accounts receivable). As long as you do not try to cash the check, you are a billionaire. This is government logic.

Musical-Chairs

This is the paradox of government. There is no one in charge with a rational thought. This is why it does not make sense to borrow anymore. This is a game of musical chairs. When the fat lady stops singing, that is when reality comes in. They can monetize all they want. However, they are simultaneously raising taxes and regulations to hunt money. The money they create is not going back into the system to stimulate anything, as they are simultaneously extracting as much as they can from everyone (deflation). This is why a correlation of money supply and inflation fails to work. It is only one side of the coin. If I hand you a €100 and then demand back a tax of €110, the increase in the money supply is offset by the contraction simultaneously. It is the NET residual amount of an increase in the money supply within a domestic economy that would be any measure of inflation.

When the bulk of the “money” bring created is debt paying interest, that will not stimulate the economy if it flows externally. The Fed increased the money supply by purchasing in 30-year bonds assuming from a domestic view that would create a shortage in 30-year paper domestically and hence stimulate the real estate market. That failed because China said thank you, sold their long-term and moved short-term leaving the Fed holding 30-year bonds they cannot now resell. This is why the long-term bonds should have peaked ahead of the short-term going into 2015.75. It is the shift in the yield-curve.

The increase in the money supply will only create inflation when the people start to flee government and buy private assets domestically. That will cause those assets to rise and such a bull market is typically driven by capital inflows. We are witnessing that in real estate, arts, and coins. The smart money has begun to move. This is reflected in the share market as well. When it hits Main street, the music stops. That is Phase II.

This Time It Is Different

capitalism-vs-socialism

For years, I have warned that we will face our worst nightmare – the collapse of socialism. In the death throes of this abomination that even the Ten Commandments listed as a serious sin, equal to “thou shalt not kill”, government will become the ugly beast that will devour society to retain power. Of course, they will never see themselves that way, but they will justify in their minds that stripping us of our freedom, rights, privileges, and immunities, is necessary to maintain socialism for the good of the people.

Thatcher-Socialism

Marx-Changing World

We are running out of other peoples’ money, as Margaret Thatcher warned. Karl Marx, who sought to change society by sheer force, set all this in motion. What has taken place is really scary, for indeed they have altered society far more than anyone dares to ponder.

Why is this Sovereign Debt Crisis collapse different from 1931? When the governments of the world defaulted on their debts in 1931, there were no pension funds. Government has exempted itself from all prudent reason for you take the state operated pension funds, like Social Security in the USA, where 100% of the money is in government bonds. They may have no intention of defaulting, but very few government have ever paid off their debts in the end.

Then there are states who regulate pension funds requiring more than 80% to be in government bonds. A Sovereign Debt Default this time around will wipe out socialism, yet the bulk of the people are clueless not merely about the risk, but the ramifications. Younger generations do not save to support their parents for that was government’s job post-Great Depression. Socialism has altered thousands of years of family structure following the ranting of Karl Marx. This has been one giant lab experiment that ended badly in China and Russia and is coming to a local government near you.

So this time it is SUBSTANTIALLY DIFFERENT. Government is now on the hook, which is part of the reason why they are moving to eliminate cash to prevent bank runs and to force society to comply with their demands. This is why we have people like Gordon Brown, who sold Britain’s gold reserves in 1999 making the low, claiming now that eliminating cash will eliminate the boom and bust of the business cycle. Let’s face it, Gordon Brown has NEVER been right when it comes to politics, not even once, and he has been the worst manager of finance that Britain has ever known. He sold the low in gold and now he presumes he can fulfill Marxism by eliminating cash. He postulates ideas that are theory without any support whatsoever. We cannot afford more arrogant people like this in politics who believe they have a right to experiment with society.

This time it is very different. They have wiped out society placing the entire scheme of socialism as a terrible nightmare that will end badly, and they have ruined the social family structure disarming people that for thousands of years was our very means of self-sufficient survival. These clown have set the tone for wiping out the dreams they sold the elderly, all while hunting taxes and causing job creation to implode as the youth has been converted into the lost generation. All this with pretend good intentions. Can you imagine the damage to society if they had actually intended this mess? They have lied to themselves and to the people. We have to crash and burn – that part is inevitable. Only when the economy turns down will we then argue over solutions.

 

The Polish Election – Really No Surprise

Andrzej Duda

 

Polish President, Bronislaw Komorowski, 62, conceded defeat to conservative challenger Andrzej Duda, 43, shown above voting in the Sunday’s presidential election with his wife and daughter. This is reflecting the shift in politics that our computer has been forecasting for this period going into 2017 on a global scale (including the USA) for 2016.

Duda seems to have won in a 53% to 47% vote. At first, it looked as if Duda did not have a chance, but closer to the election the public was starting to call it neck-and-neck. To me, it was no surprise after talking to people in Warsaw and Krakow. No doubt, this is sending yet another warning that Brussels is out of touch with the rising discontent in Europe. Poland has retained the zloty, not yet adopting the euro. The presidential result is setting off shock waves in Poland, which will ring the alarm bells for government, whom faces their own election later this year.

Originally, Komorowski seemed unbeatable. Yet we are facing a generational shift that comes with changing attitudes. We saw this in Scotland, where the youth are now wanting out of the UK, as well as in Spain, Greece, and Italy. There is a desire among young voters for new faces and new ideas. They are very much a part of Poland’s newfound prosperity, as many U.S. companies move their back offices to Poland, for they have an educated workforce that is well versed in English.

Duda’s victory marks the first major electoral win in almost a decade for his party, the opposition Law and Justice Party. This is illustrating the change in generational shifts that is upon us, and we may see this in the 2016 election in the USA. Despite the piles of money for Hillary from Wall Street, what the pundits may not be considering is the generational shift that wants to see new faces.

Duda, regarded as socially conservative, is close to the Catholic Church. This has some likening to him as a Catholic, but what so many people do not realize is that even in China, you cannot show films that even depict divorce. The markers view Duda as less business-friendly than the governing Civic Platform. This resulted in a 1% drop in zloty, but the youth employment depends upon friendly relations with business and the importation of jobs.

 

2015.75 = The Crash in Government

Franklin-Obama

To set the record ABSOLUTELY straight, the “C R A S H” we see on the horizon is by NO MEANS the private sector and the stock market. It seems just using the word “crash” leads people to assume we are talking about another stock market crash. Interestingly, inaccurate reports have said that I have said that were will be a “stock market crash” rather than a “crash in government” which explains the problem that we face – they assume government will be there forever. The contrast between the view of LIBERTY of the 18th century, compared to the cycle inversion of LIBERTY as expressed by Obama, says it all. This is no longer about the people and freedom, this is all about government maintaining power, for it feels that scepter of power slipping from their hands.

This is similar to what they said about the Romans. When Rome fell to the barbarians, the Romans were still laughing as they watched their sports and games. We ignore government as a society; therein lies our doom. Politicians realize they can be as corrupt as they desire since, for only government can prosecute them, and the press is in their back pocket while selling their own personal futures down the drain. Just look at the onslaught of press coming out now, declaring cash is evil and now is the time to abolish it. This illustrates that they are part of the problem, for they are the propaganda wing of government.

3-Fates

There is no one in our corner to defend our liberty. The collapse is inevitable. We cannot stop what is about to unfold. It is very disheartening to watch the press join government in ushering in our own demise, as they laugh at the pubs after wiping out their own future. Zeus may have been the supreme leader of the gods to the Greeks, but even he could not judge someone upon death. All Zeus could do was give his recommendation to the Three Fates, whose duty it was to judge mankind. In this respect, we are subject to fate, for this is just inevitable.