The beginning stages of a new paradigm. Currency and trade wars (military?) and the necessity to monetize debts.

Fed’s wisest strategy is to cut interest rates at first sign of economic distress, Williams says

Published: July 18, 2019 2:20 p.m. ET

 3

‘Don’t keep powder dry’ when benchmark rate is so close to zero, New York Fed president says

ByGREGROBB

SENIOR ECONOMICS REPORTER

Bloomberg News/Landov

New York Fed President John Williams walking with Fed Chairman Jerome Powell last summer at the annual Fed retreat in Jackson Hole, Wyo.

Given that its benchmark interest rate is so close to zero, the most effective strategy for the Federal Reserve is to cut rates at the first sign of trouble, said New York Fed President John Williams, on Thursday.

“When you have only so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress,” Williams said, in a speech at a research conference in New York.

Williams’ comments essentially endorse a rate cut at the central bank’s next policy meeting on July 30-31.

In two days of testimony to Congress last week, Fed Chairman Jerome Powell signaled the central bank was prepared to ease policy at the end of the month.

Powell cited slowing economic growth abroad and global trade policy tensions as two signs of distress that were setting the stage for the Fed to cut rates.

Read: Fed’s Powell says trade worries restraining the economy, hints at interest-rate cuts soon

The Fed’s benchmark rate is now set at between 2.25% and 2.5%. Many other economists have argued the Fed should keep its power dry with its ammunition so limited.

In his speech, Williams said this “wait-and-see” approach is fine when rates are far away from the so-called zero-lower-bound.

Williams has been a top researcher at the Fed for almost 20 years on the subject of the “zero lower bound,” when short-term rates can get stuck at zero and go no lower, even if poor economic and market conditions would call for deeply negative rates.

Some countries have experimented with negative rates, but the idea is not popular with the Fed. Negative rates can’t go deeply negative because households will simply hold their savings as cash rather than pay their banks for the deposits.

Williams said a quick rate cut was similar to a vaccination. “It’s better to deal with the short-term pain of a shot than to take the risk that they’ll contract a disease later on,” he said.

Williams said two other strategies were also seen as successful in economic models. First, the Fed should keep rates lower for longer when near zero. And the other conclusion is to promise to “make up” for any low inflation during a weak period by allowing inflation to run hotter in good times.

Williams, as New York Fed president, always has a vote on Fed interest-rate decisions. He is seen as a member of Powell’s inner circle of advisers.

His speech is also important because it sets the tone right before the blackout period when Fed officials refrain from speech making to get ready for the late-month policy meeting.

Fed Vice Chairman Richard Clarida, also a key Powell adviser, will also give an interview later Thursday afternoon.

Markets are broadly expecting the central bank to lower its benchmark rate on July 31. Even economists who don’t think a policy easing is justified have resigned themselves to the move.

Tom Porcelli, chief U.S. economist at RBC Capital Markets, for instance, thinks a rate cut is unnecessary, but he said a quarter-point move “isn’t going to unleash some imbalance” in the economy.

Saudi Arabia may be ready to “make a deal.”

Is Saudi Arabia About To Cry Uncle In The Oil Price War?

By Rakesh Upadhyay – Aug 11, 2016, 4:06 PM CDT
Oil rig
The Kingdom is struggling with weak GDP growth, higher fees and taxes, and an economy that is unable to pay the dues to its workers, leaving thousands of workers from South Asia with an uncertain future.

When a nation is unable to provide food to its migrant workers, it says a lot about their financial condition.

The oil price crash has forced the oil-rich Kingdom to introduce austerity measures, and delay payments to already cash-strapped contractors.

“It looks like austerity has hit hard and more than we had anticipated, halting construction projects and stopping hiring,” said Jason Tuvey, Middle East economist at Capital Economics, reports the Financial Times.

During the financial crisis in 2009, the government paid companies to help them tide over the cash crunch, however, this time, the finance ministry has cut advance payments from 20 percent to 5 percent, as reported by the al-Hayat newspaper.

“Money is not being paid at the top level,” said one banker to the industry. “This has been going on since October, and it is hard to know how long it will go on for,” reported Reuters back in February of this year.

The stranded Indian and Pakistani workers are evidence that things aren’t any better now than they were in February.

Who is the Hardest Hit?

Construction laborers from India and Pakistan are most affected by the Kingdom’s hardships. This group of workers are left without a job, and without basic amenities such as insurance coverage, food, shelter and medical facilities—a situation that has improved after respective consulates stepped in to offer their own citizens aid.

Why Can’t They Go Home?

The laborers haven’t been paid many months of overdue salary and benefits, and most are not sure how and when their dues will be paid to them—if ever. Under the Saudi system, the employer’s approval is needed to obtain the visas, which has left many stranded.

After having toiled for years, the workers also do not want to return home empty-handed, without taking what is rightfully theirs—in essence, workers are left to wonder whether they should cut bait or double down and try to ride it out.
Related: Oil Prices Take A Hit As Saudis Report Record Production

“They don’t give us any answers about our salaries,” said Mohammed Salahaldeen, a duct fabricator from Bangladesh, as he stood in a labor camp in Riyadh set up by the Saudi Oger construction company in better days. “After they pay me my salary and benefits, I will go,” reports the Financial Post.

Everything is Just Fine

In a meeting between the India’s junior foreign minister and the Saudi labor minister, Mufrej al-Haqbani, in Riyadh, the Saudi government has agreed to help the workers get their dues.

“Things are not as bad as they have been shown and projected,” the minister said in joint remarks with Mr. Haqbani after their meeting. “Things are very fine. We are in constant touch with all the officials and the various departments of the Kingdom of Saudi Arabia.”

Even other foreign governments are in touch with the both the Saudi government and the construction companies to ensure payment to their workers.

Saudi’s Empty Pockets

Setting aside the Kingdom’s positive outlook, until the Saudi economy reduces its reliance on oil, the situation is likely to get worse before it gets any better. With oil prices reeling close to $42 a barrel, the Saudi economy is likely to run out of cash, according to the International Monetary Fund, as shown in the chart below.

“All oil exporters will need to adjust to the new low oil price,” the IMF warned, reports the Independent. “All” in this case, includes, probably most importantly, Saudi Arabia.

Meanwhile, Saudi Arabia continues its record oil production, reaching 10.67 million barrels per day, up about 120,000 bpd on the prior month—with no signs of slowing. Although this will allow Saudi Arabia to hold onto its marketshare, which they can hardly be blamed for trying to cling to, it will no doubt add to the supply glut, and certainly will not bode well for oil prices in the short term.

And if oil prices continue to languish near today’s lows, it will be years before Saudi Arabia can regain its erstwhile glory.

By Rakesh Upadhyay for Oilprice.com

G20 meeting

G-20 A Photo-OP But No Solutions
Monday February 29, 2016 09:03
(Kitco News) – The G-20 meeting during the weekend produced no coordinated statements of policy action. In fact, in my opinion, the press releases suggested a much more ominous tone. Each global central banker to a man/woman indicated that options to stimulate the global economies were close to exhaustion. It would require fiscal reform to generate further structural help. Negative rates are not working. Deflation remains a primary concern. Currency wars will accentuate as countries rush to devalue their currencies to stimulate export growth. It is difficult not to be bullish on gold when you see the total lack of constructive ideas out of the G-20.

Volatility continues

The markets were true to form today opening down along with oil and then following oil all the way back up into positive territory. Although gold pulled back from earlier highs closed on a positive note regardless. Gold is being directed by international events, not just local economic announcements out of the U.S. Federal Reserve.

Monetary devaluation/inflation

Since the U.S. gold standard ended in 1971, they have seen a build-up of debt and currency devaluation. For example, the U.S. dollar has lost 77% against the Swiss Franc since 1971. The 2007 – 2009 crisis led to unprecedented credit creation worldwide. So from the time Then U.S. Federal Reserve head Alan Greenspan embarked on the policy of printing money, global debt has increased more than tenfold from $20 trillion to $230 trillion. So far, that has been a very long and drawn out process, however, there are many indications that trend will begin an accelerating faze in 2016. The triggers are likely to be a further collapse in the value of various currencies, and this time with the U.S. dollar included. Simultaneously, the worst problems could be in the banking sector and the credit markets, including third party derivative failures. Swiftly falling currencies could lead to high inflation or hyperinflation a lot sooner than most people expect, and there is little the U.S. Federal Reserve would be able to do because of the massive government debts and deficits. Very few people realize that there is little gold and silver available for investment. All the gold and silver produced today is easily absorbed by China, India and a few other buyers. Since we have reached peak gold and silver production, there is no possibility to produce more. Also remember that only 0.5% (if that) of world financial assets are invested in gold. Importantly, the World is facing geopolitical dangers in the Middle East, Ukraine, over the South China Sea trading routes, and serious migration problem in Europe. Gold will be the biggest beneficiary and should be a core holding in any portfolio.

US Federal Reserve showing its Achilles Heel

Fed’s Fischer says markets might be right after all

Published: Feb 1, 2016 1:49 p.m. ET

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Difficult to judge the impact of the global selloff on U.S., central banker says

By
GREG
ROBB
SENIOR ECONOMICS REPORTER

Reuters
Fed Vice Chairman Stanley Fischer
WASHINGTON (MarketWatch) — Federal Reserve Vice Chairman Stanley Fischer said Monday the U.S. central bank was worried the global market selloff could sap the strength of the U.S. economy, suggesting the market’s expectations of barely any interest rate hikes this year could turn out to be right.

Last month, Fischer was more hawkish, telling CNBC that the Fed thought the market expectations, at the time, for two rate hikes this year “are too low.” He said the Fed’s own forecast of three to four rate hikes in 2016 “are in the ballpark.”

The Fed vice chairman backed away from those sentiments in remarks at the Council on Foreign Relations in New York.

Referring to his January statement, Fischer said during a question-and-answer session: “When somebody said ‘in the ballpark,’ he meant it is among the numbers that are being talked about. He did not mean it is the only number that is being talked about.”

The central bank has said it will move gradually and goes meeting-by-meeting, and not setting out rate policy for the year as a whole.

For now, Fischer said that the jury was still out on the implications of the weak market on the economy and the central bank.

“At this point, it is difficult to judge the likely implications of this volatility. If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States,” he said in prepared comments.

Fischer said there have been prior episodes of financial market volatility in recent years “that have left little imprint on the economy.”

Answering his own rhetorical question about whether the Fed will hike rates in March, Fischer said: “We simply do not know.”

“The world is an uncertain place, and all monetary policymakers can really be sure of is that what will happen is often different from what we currently expect,” he said.

Traders who bet on rate hikes using fed funds futures contracts are now wagering the Fed will only raise rates once this year, in September, according to CME Group Fed Watch.

The Fed held rates steady after its policy meeting last week, and the central bank said it was “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”

Chinese currency is now part of the IMF’s currency basket. There will be many currency adjustments of fiat reserves around the World.

Yuan to compose 11% of global currency basket

Reuters
U.S. President Barack Obama chats with International Monetary Fund (IMF) Managing Director Christine Lagarde (L) prior to a working session at the Group of 20 (G20) leaders summit in the Mediterranean resort city of Antalya, Turkey.
WASHINGTON–The International Monetary Fund on Monday is adding the Chinese yuan to the basket of elite currencies comprising its lending reserve, marking a milestone in the country’s ascendancy as a global economic power.

Many China watchers say the IMF’s decision is in large part a political one designed to encourage stronger economic overhauls in the world’s No. 2 economy.

“It’s a milestone in a journey that will include certainly more reforms, “ IMF Managing Director Christine Lagarde said after the board approved the yuan’s inclusion.
The IMF’s move–which won’t become effective until late next year–could help accelerate a mild pickup in international demand for the yuan. It confers a measure of international legitimacy to China’s currency as the government starts to liberalize its rigidly controlled exchange rate and financial system.

For the Chinese, it is a matter of prestige, a plank in Beijing’s strategy to elevate the country’s economic role in the global economy as it challenges U.S. political and economic dominance around the world. The yuan joins the dollar, euro, pound and yen in the IMF’s reserve-currency basket. However, the fund said the yuan will make up 11% of the basket, more than the currencies of Japan and the U.K.

Comments from well known whistle blower Andrew Maguire regarding gold prices set to rocket

Andrew Maguire – This Historic Event Is About To Shock The World And The Gold Market

Today whistleblower and London metals trader Andrew Maguire gave one of his most important interviews ever.  Maguire warned King World News about a stunning event that is going to shock the world and the gold market.

October 30 – (King World News)

Andrew Maguire:  “Eric , there is so much going on under the radar in the gold and silver markets. If you recall, I made a prediction that gold and silver would end the year strong and I am still a firm believer that they will…

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We can see by the current stale-dated published Commitment of Traders (COT) open interest structure that gold is at a similar bearish structure as the January highs, and a lot has been made of this. However, there are differences. This time, the downside range scale is limited by strong seasonality, tight supply, rising wholesale bid interest, the FED backed into a corner, ECB QE, and the concern of more Chinese rate cuts, etc. 

But a much more important factor is flying under the radar — namely, a division between the two primary market making bullion banks, (who have vaulting operations here in London), and the rest of the collusive bullion bank cabal. This is a definite game-changer and a very big deal that will begin to unwind a 30-year collusive relationship.

A Crack In The Cabal’s Resolve

I have been hearing reliable rumors of this split since mid-June, but the LBMA conference last week exposed this crack in the cabal’s resolve to continue to work together. In order to assess the immediate impact of this split, it is best to first take a look at the cabal’s history and mechanisms, and then analyze how this split in their ranks is about to challenge the historical wash and rinse setups.

The Gold cabal was born under the wing of Robert Rubin, who ran the gold trading desk at Goldman Sachs in the 1980’s.

This is when the gold carry trade was born, which given the large interest differentials between gold and Treasuries at that time, was a slam dunk win for Western central banks looking to contain gold vs the dollar, while drawing the proceeds of the sale of large tranches of central bank leased gold flowing through the bullion banks into Treasuries. This created the synthetic markets as we see them today. The result of being subsidized through the central banks gave the green light for the bullion banks and central banks to leverage up a multi-billion dollar fractional-reserve gold position they never thought would need to be unwound.

The primary bullion banks, acting as agents for the central banks, who have had a free pass to naked short large volumes of synthetic gold and over a long period of time, became accustomed to exploiting the advantages of colluding together to create and protect mutually beneficial position concentrations in the paper gold and silver markets. In the process, they accrued an embedded naked short position that they thought could be infinitely rolled forward. This created a fractional reserve gold/silver position that directly mirrored the cash banking system, where it is assumed that not more than 10% of cash depositors at any one time would ever ask for the money they had deposited back…

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Unallocated gold accounts are also deemed to be cash investments in the receiving bank, giving the gold investor no right to ever receive delivery. The bullion banks operating these fractional-reserve gold positions are geared even more aggressively than their more tightly regulated cash banking operations. These multi billon dollar unallocated gold accounts were independently verified in a Reserve Bank of India report to be leveraged at a 92/1 level, far greater than the 10/1 governing other banking operations.

When analyzing many years of positioning data in the COT report, the footprints are easy to read. And when connecting the dots through the options and OCC reports, it is well established that the two primary market making bullion banks that have vaulting operations — HSBC and JPM — have for many years primarily worked directly in synch with the four non-vaulting market-making bullion banks, who are also privileged to operate gold bank accounts with the Bank of England.

This small cabal of bullion banks operating with the blessing and insider advantages of acting as agents for Western central banks, have concentrated their mutually agreed positioning against a very diverse range of hedge funds and speculators who are easy to pick off, as they are not coordinated. The resulting action is what I refer to and is now commonly known as ‘the Wash and Rinse Cycle.’

What Is Changing Will Shock The World

So what is changing? The physical element to this synthetic open interest positioning is changing the critical point where the paper market rubber hits the physical road. In fact, the physical markets have already migrated out of the hands of these few collusive bullion banks. But with regulators now finally forced to act against a full range of gold and silver market manipulation cases, this is resulting in an exit of traditional liquidity providers. These were the banks financing the unallocated markets. Right now, critical liquidity is exiting the Loco London market, and this is unprecedented.

This is where the split is occurring.  The two primary bullion banks, who have large vaulting operations here in London, are also the primary agents for the central banks who want to keep the OTC gold trade opaque and off a proposed centrally-cleared exchange.

Synthetic Gold Market House Of Cards To Collapse

However, the aggressive and predatory bullion banks that largely infest the swap dealer category of the COT report recognize the gold market has changed and are about to split ranks and reposition more bullishly, a position they would already have if they had not accrued such large underwater proprietary positions.  The head of this pack of wolves is Goldman Sachs.  These banks read the changes coming and see an incentive to compete against the two primary bullion banks forced to keep this game going for as long as possible. This is a big deal because without collusive cooperation of all of the cabal, the whole synthetic gold market house of cards collapses. 

This market change is now underway. The glass is cracked and cannot be repaired. Goldman Sachs and at least ten other trading banks are breaking rank because they see the writing on the wall and are pre-positioning for a post-cash settlement. And once released from their underwater unallocated gold liabilities, they will benefit from an embedded long position in physical as well as paper gold.

No one understands the bifurcation of the capped synthetic markets and underpriced physical markets better than these trading banks. JP Morgan has already cornered the silver physical market and Goldman Sachs plans to front-run the increasingly illiquid paper gold market against its rival bullion banks. This split in the ranks will speed up…

Volatility

The volatility in the markets in the last few weeks has been extreme. We have not seen such volatility for a long time. It is wise, in these circumstances to remain calm and literally to do nothing, holding on to our quality securities and taking in the dividends they pay. These things pass. We have seen them before, since Realgrowth started in 1980, and we have been well served over the long term to do little in the circumstances.

Tid Bit:

The Governor of Wisconsin, a U.S. Presidential hopeful, is suggesting that a Wall be built on the U.S., Canadian border. The logic escapes us, but that must be the protectionist kind of thinking going on down there.

Market Correction

The main reason for Monday’s sell-off in the Markets is, we believe, the failure of the Federal Reserve (Janet Yellen) to “implement policies to boost the economy“, a well known financial author Jim Richards says.

“She threatened to tighten at the worst possible time“. According to Richards, the best  scenario for World Markets would be for Yellen to back away from rate hikes and look at re-introducing easing measures.

As he says, “these could include more Q.E. (Quantitative Easing), negative interest rates……”

We believe, the Fed may well do that as the U.S. dollar is getting too strong for the U.S. economy to grow.