FLOWS - Liqudity, Credit & Debt

QE Is Debt Cancellation

02-17-15 Richard Duncan

When a central bank prints money and buys a government bond, it is the same thing as cancelling that bond (so long as the central bank does not sell the bond back to the public). That means governments have far less debt than is generally understood. It also has very important policy implications.

The new Macro Watch video, QE Is Debt Cancellation, explains in detail how the US central bank earns vast profits on its bond portfolio – and then hands those profits over to the US government, thereby reducing the government’s budget deficit every year. Last year, the Fed gave the government $99 billion. It has given the government $500 billion since 2008.

We also look at what this means for other countries.

The Bank of England owns 26% of all UK government debt. That means the ratio of government debt to GDP is not 84% as it is reported to be. It is actually 58%. This reality completely undermines the case for growth-retarding austerity in the UK.

The Bank of Japan owns Japanese government bonds equivalent to 22% of Japan’s GDP. When it is understood that QE is debt cancellation, the BOJ’s very aggressive Quantitative Easing program makes sense. It may be the only way to prevent a fiscal crisis in Japan.

The European Central Bank’s plans to create €1.1 trillion over the next 20 months will effectively cancel the combined budget deficits of the Eurozone national governments in both 2015 and 2016, with a considerable amount left over.

Quantitative Easing has only been possible because it has occurred at a time when Globalization is driving down the price of labor and industrial goods. The combination of fiat money and Globalization creates a unique moment in history where the governments of the developed economies can print money on an aggressive scale without causing inflation.

They should take advantage of this once-in-history opportunity to borrow more in order to invest in new industries and technologies, to restructure their economies and to retrain and educate their workforce at the post-graduate level. If they do, they could not only end the global economic crisis, but also ensure that the standard of living in the developed world continues to improve, rather than sinking down to third world levels.

If you are a Macro Watch subscriber, log in and watch QE Is Debt Cancellation now.

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MONETARY POLICY - NIRP

Why the Bond Market Is Yielding Negative and What Negative Yields Mean for You PIMCO

Negative yields on bonds are no longer unicorns. In Switzerland, Germany, Denmark and several other European countries, government bonds are trading at negative nominal yields. There are four potential reasons that can explain the negative yield conundrum and can also illustrate the trade-offs between different investment strategies.

SUPPLY SHORTAGE AS A RESULT OF MONETARY POLICY BUYING

First and foremost, negative yields could simply be a consequence of active monetary policy (with the expressed goal of stimulating economic activity) in a world where bond supply and demand is not balanced. It is certainly possible for negative short term deposit rates in concert with central bank purchases of scarce fixed income assets to drive bond yields negative; policymakers, in fact, hope that this development will drive investors out of “safer” government bonds into other riskier assets. Central banks in major developed economies have amassed close to $10 trillion in government bonds since 2004, and still remain a source of demand of close to $3 trillion more a year. Meanwhile, the net issuance of government bonds of about $2.5 trillion has been on the decline. This demand mismatch is likely one of the reasons there are $3.6 trillion in bonds outstanding trading at a negative yield (or about 16 percent of the outstanding government bond universe).

If this scenario were the sole reason for negative rates, an investor could just take the central banks at their word and move out into the risky asset spectrum since they are, for the time being, underwriting the risk of loss.

FORECASTING ECONOMIC DECLINE - DEFAULTS & DFLATION

Second, negative yields could potentially be correctly forecasting a sharp economic slowdown, which, as a consequence, could lead to an increase in defaults (both corporate and sovereign) in the future. Deflation has a similar effect. Paying up now and receiving less nominal money in the future can be profitable if the price of goods has fallen sufficiently. Note that defaults and deflation usually go hand in hand. In such a scenario, the return of money becomes more important than the return on money. If this is true, then the premium above the face value one pays for a zero coupon cash flow is the “insurance premium” for a perceived higher likelihood of the return of invested capital. Investors are risk averse in the aftermath of the financial crisis and it is not irrational for them to seek assets they perceive to be highly liquid and “safe” in an effort to protect themselves against the repeat of losses incurred in the aftermath of the crisis. For example foreign banks have 17 billion Swiss francs in deposits at the Swiss Central Bank at a deposit rate of -0.75%, while yields are as low as -0.15% for a 10-year bond, and this is not likely invested for returns on capital, it is more likely an effort to protect capital and liquidity.

If the low or negative yields are signaling a sharp slowdown in the economy to come, then we should ignore the cosmetic levels of yields and buy the government bond market, since yields (and total returns once we capture roll down on the yield curve) are likely to be positive and persistent in this scenario. (To wit, the Japanese government bond market has been one of the best performers on a risk-adjusted basis over the last decade despite persistently low yields, as short-term yields have remained low and the purchase of longer maturity bonds has resulted in investors earning the duration risk premium).

PERFORMANCE METRICS

Third, negative yields could also be a consequence of the ecology of current market participants. Choosing to not own these government bonds as an active allocation decision can (even with good cause due to their negative yields) carry risk for certain investors – e.g., the potential for higher tracking error to their benchmark or underperformance versus their peers. That said, as government bonds have an increased representation in many bond indexes that are used as benchmarks, holding these bonds to stay close to the benchmark also carries a cost: lower absolute returns due to a portfolio with an increasing component of negative return. And this cycle reinforces itself: As continued investor demand meets fewer new bonds available to match indexes, investors may have to accept this cost in order to manage risk versus their benchmarks. Figure 1 demonstrates this in terms of the percentage of the indexes in market value terms trading at negative yields. Since the middle of last year the percentage of government bonds in the JP Morgan Global Government Bond Index has risen to as high as 40% for Switzerland and Denmark, and about 20% for Europe.

INVESTMENT HORIZON

Fourth, certain investors who have a preferred investment horizon may require a meaningful risk premium to buy bonds with maturities outside their preferred habitat. For instance, when investors with a shorter horizon are faced with short-term yields in negative territory, the steep slope of the yield curve and longer-maturity bonds might provide the inducement to buy longer bonds. Because they join other investors who invest regularly in longer maturities as part of their own preferred habitat, the ensuing higher demand could be a reason for negative yields on longer-maturity bonds, as was recently the case in Switzerland.

If one believes negative yields are primarily due to demand from passive or indexed investors, then an active investment strategy should tolerate the tracking error and take the other side of the indexing herd. Alternatively, for an active investor, buying at a negative yield with guaranteed loss if held to maturity can still be a profitable strategy if the security is not held to maturity (i.e. if one is willing and able to patiently wait for the opportunity to find another “greater fool” to buy at still a higher price and a more negative yield). Recently, yield curves in Switzerland and Germany have become somewhat less negative, while yield curves in Denmark and Sweden more negative. These changes speak to a market attempting to find “equilibrium” by quickly shifting duration positioning in portfolios.

At any rate, the result so far of all this has been that the duration-weighted yield – i.e., the yield that would result from buying a country’s entire curve – of major developed countries is converging to rates in Japan, which has had persistently low yields for over two decades, and not the other way around.

As investors, our response to the negative yield conundrum may depend in part on which one of these four explanations is the most important. And since the examples above are not necessarily mutually exclusive, and are, in fact, interrelated, the simple and straightforward solution we would always like to find, as usual, remains elusive.

For now, investors should pay close attention to the signals from policy makers, economic data, and anecdotes from other participants to create a flexible framework for investing in a world of negative yields.

Despite the uncertainty, there is a logical approach to constructing robust portfolios.

• First, control exposure to risk factors where the uncertainty of outcomes may be the most severe, for instance, by adjusting overall portfolio duration.
• Second, tilt portfolios in directions where relative asset valuation is more attractive, e.g. equity and bonds of companies with solid fundamentals.
• Third, look for cheap sources of convexity and diversification, where the ultimate and eventual resolution of the negative yield conundrum is likely to create large trends and market movements.
• And finally, in very broad terms, aggressive central bank intervention with negative interest rates continues to underwrite risk taking. So if/as rates go more negative, an asset allocation of long equity risk versus underweight core government bond duration remains attractive.

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THESIS 2015 - Fiduciary Failure

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THESIS 2015 - Fiduciary Failure

President Obama Explains The "Changes" He'd Like To Make To Retirement Accounts - Live Feed

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Speaking at AARP headqusrters in Washington, President Obama will announce ORDERS to the Labor Department to�write new rules for financial managers who handle retirement accounts for working Americans.�

THE COVER

As USA Today reports, The White House says the goal is to end�"hidden fees that hurt consumers and back-door payments that help Wall Street brokers,"�deals that costs retirees billions of dollars in savings.

THE AGENDA

White House officials said they want�new fiduciary standards that would require financial advisers to put clients' interests ahead of their own...�and "buy our bonds."

We wonder how long before there will be an official asset allocation by dictat...

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US MONETARY - Humphrey Hawkins Testimony

Yellen Secures More Flexibility for 'Patient' Fed

Market-Based Inflation Expectations on the Rebound

US MONETARY - Audit the Fed

During testimony before Congress , she made “central bank independence” sound like it was the holy grail.

Michael Snyder - The End of The American Dream blog 02-25-15

Janet Yellen is very alarmed that some members of Congress want to conduct a comprehensive audit of the Federal Reserve for the first time since it was created.� If the Fed is doing everything correctly, why should Yellen be alarmed?� What does she have to hide?�

During testimony before Congress on Tuesday, she made “central bank independence” sound like it was the holy grail.� Even though every other government function is debated politically in this country, Yellen insists that what the Federal Reserve does is “too important” to be influenced by the American people.� Does any other government agency ever dare to make that claim?�

But of course the Federal Reserve is not a government agency.� It is a private banking cartel that has far more power over our money and our economy than anyone else does.��And later on in this article I am going to share with you dozens of reasons why Congress should shut it down.

The immense power wielded by the Federal Reserve is clearly demonstrated whenever Janet Yellen speaks publicly.� On Tuesday, her comments about interest rates sent stocks�to brand new record highs…

Yellen, in her semi-annual testimony before the Senate banking committee, used a word familiar to investors when she reiterated that the central bank will be “patient” on raising interest rates for the first time since the 2008 financial crisis. Traders took that as a sign that interest rates would remain unchanged until autumn.

The Dow Jones Industrial Average rose 92.35 points (0.5%) to 18,209.19, while the Standard & Poors 500 gained 5.82 points (0.3%) to 2,115.48, both eclipsing Friday’s record closes.

But Yellen was also unusually defensive on Tuesday.��The “Audit the Fed” bill that is being sponsored by Rand Paul (among others) has her really freaked out.� The following comes from�the Hill…

Appearing before the Senate Banking Committee, Yellen was on the defensive, as Republicans questioned how the Fed conducts monetary policy and Democrats put forward ideas for getting tougher on Wall Street.

In the midst of all of it, Yellen generally argued the Fed was designed as an independent entity for a reason — and it would be best not to change it.

“Central bank independence in conducting monetary policy is considered a best practice for central banks around the world,” she said. “Academic studies, I think, establish beyond the shadow of a doubt that independent central banks perform better.”

In fact, she went so far as to mention the “Audit the Fed” bill�by name…

A GOP-controlled Congress has given the bill its best chances yet of passage, and that renewed interest led Yellen to deliver her most spirited opposition yet.

“I want to be completely clear,” she said. “I strongly oppose Audit the Fed.”

Yellen argued the audit measure would allow politicians to second-guess the Fed’s decisions, which, in turn, would weaken the central bank. And the ultimate victim of that process, she said, would be the U.S. economy.

So what is she so concerned about?

We are all accountable to someone.

What is so wrong about the Federal Reserve being accountable to Congress?

Why can’t we find out what is really going on inside the Fed?

And of course it isn’t just Yellen that is freaking out.� Just consider these comments�from Richard Fisher, the president of the Federal Reserve Bank of Dallas…

“It is always politically convenient to make something sound mysterious, if not malevolent, by claiming it is opaque,” Fisher said in a speech to the Economic Club of New York that is part of an effort by Fed officials to fight the legislation.

“My suspicion is that many of those in Congress calling for ‘auditing’ the Fed are really sheep in wolves’ clothing,” he said. “Having proven themselves unable to cobble together with colleagues a working fiscal policy or to construct a regulatory regime that incentivizes rather than discourages investment and job creation — in other words, failed at their own job — they simply find it convenient to create a bogeyman out of an entity that does its job efficiently.”

Obviously this is a very, very touchy subject over at the Fed.

It is quite clear that they do not want the rest of us to be able to see what they are really up to.

And the truth is that if the American people really did know how the Federal Reserve works and what it has been doing behind closed doors, most Americans would want it shut down tomorrow.

At the end of the day, the reality of the matter is that we don’t even need a Federal Reserve.� I really like how�David Stockman�made this point the other day…

At the end of the day, American capitalism does not need recycled political hacks like Jerome H. Powell or clueless school marms like Janet Yellen to thrive. If we need a Fed at all, it is the one designed by Carter Glass 100 years ago.�That is, a “bankers bank” that was intended to provide standby liquidity at a penalty spread�above the free market interest rate in consideration for good collateral originating from inventory and receivables in the real economy.

Under that arrangement, there would be no monetary central planning or pointless attempts to manage the level of GDP, the number of new jobs, the rate of housing starts, the fluctuations of the CPI or the�amplitudes of the business cycle.�There would also�be no pegging of the money market rate, no helping hand for Wall Street gamblers, no cheap debt to enable profligate politicians to kick-the-can down the road indefinitely.

In short, what the nation really needs is not an “independent” Fed, but one that is shackled to a narrow and market-driven liquidity function.�The rest of its current�remit is nothing more than the self-serving aggrandizement of the apparatchiks who run it; and who have now�managed to turn the nation’s vital money and capital markets into dangerous, unstable casinos, and the nations savers into indentured servants of�a bloated and wasteful banking�system.

The Federal Reserve has been around for just over a hundred years, and it has done an absolutely abysmal job for the American people.

I want to share with you some facts and figures that I have�shared before, but they bear repeating.� Please share this list of 100 reasons why the Federal Reserve should be shut down with everyone that you know…

#1�We like to think that we have a government “of the people, by the people, for the people”, but the truth is that an unelected, unaccountable group of central planners has far more power over our economy than anyone else in our society does.

#2�The Federal Reserve is actually “independent” of the government.� In fact, the Federal Reserve has argued vehemently in federal court that it is�“not an agency”�of the federal government and therefore not subject to the Freedom of Information Act.

#3�The Federal Reserve openly admits that the 12 regional Federal Reserve banks are organized “much like private corporations“.

#4�The regional Federal Reserve banks�issue shares of stock�to the “member banks” that own them.

#5�100% of the shareholders of the Federal Reserve are�private banks.� The U.S. government owns zero shares.

#6�The Federal Reserve is not an agency of the federal government, but it has been given power to regulate our banks and financial institutions.� This should not be happening.

#7�According to�Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.� So why is the Federal Reserve doing it?

#8�If you look at a “U.S. dollar”, it actually says “Federal Reserve note” at the top.� In the financial world, a “note” is an instrument of debt.

#9�In 1963, President John F. Kennedy issued�Executive Order 11110�which authorized the U.S. Treasury to issue “United States notes” which were created by the U.S. government directly and not by the Federal Reserve.� He was assassinated shortly thereafter.

#10�Many of the debt-free United States notes issued under President Kennedy�are still in circulation today.

#11�The Federal Reserve determines what levels some of the most important interest rates in our system are going to be set at.� In a free market system, the free market would determine those interest rates.

#12�The Federal Reserve has become so powerful that it is now known as “the fourth branch of government“.

#13�The greatest period of economic growth in U.S. history was when�there was no central bank.

#14�The Federal Reserve was designed to be�a perpetual debt machine.� The bankers that designed it intended to trap the U.S. government in a perpetual debt spiral from which it could never possibly escape.� Since the Federal Reserve was established 100 years ago, the U.S. national debt has gotten�more than 5000 times larger.

#15�A permanent federal income tax was established�the exact same year�that the Federal Reserve was created.� This was not a coincidence.� In order to pay for all of the government debt that the Federal Reserve would create, a federal income tax was necessary.� The whole idea was to transfer wealth from our pockets to the federal government and from the federal government to the bankers.

#16�The period prior to 1913 (when there was no income tax) was the greatest period of economic growth�in U.S. history.

#17�Today, the U.S. tax code is about�13 miles long.

#18�From the time that the Federal Reserve was created until now, the U.S. dollar has lost�98 percent�of its value.

#19�From the time that President Nixon took us off the gold standard until now, the U.S. dollar has lost�83 percent�of its value.

#20�During the 100 years before the Federal Reserve was created, the U.S. economy�rarely had any problems with inflation.� But since the Federal Reserve was established, the U.S. economy has experienced constant and never ending inflation.

#21�In the century before the Federal Reserve was created, the average annual rate of inflation was about half a percent.� In the century since the Federal Reserve was created, the average annual rate of inflation has been�about 3.5 percent.

#22�The Federal Reserve has stripped the middle class of trillions of dollars of wealth through the hidden tax of inflation.

#23�The size of M1�has nearly doubled�since 2008 thanks to the reckless money printing that the Federal Reserve has been doing.

#24�The Federal Reserve has been starting to behave�like the Weimar Republic, and we all remember how that ended.

#25�The Federal Reserve has been�consistently lying to us�about the level of inflation in our economy.� If the inflation rate was still calculated the same way that it was back when Jimmy Carter was president, the official rate of inflation would be somewhere�between 8 and 10 percent today.

#26�Since the Federal Reserve was created, there have been�18 distinct recessions or depressions: 1918, 1920, 1923, 1926, 1929, 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2008.

#27�Within 20 years of the creation of the Federal Reserve, the U.S. economy was plunged into the Great Depression.

#28�The Federal Reserve created the conditions that caused the stock market crash of 1929, and�even Ben Bernanke admits�that the response by the Fed to that crisis made the Great Depression even worse than it should have been.

#29�The “easy money” policies of former Fed Chairman Alan Greenspan set the stage for the great financial crisis of 2008.

#30�Without the Federal Reserve, the “subprime mortgage meltdown” would probably never have happened.

#31�If you can believe it, there have been�10 different economic recessions�since 1950.� The Federal Reserve created the “dotcom bubble”, the Federal Reserve created the “housing bubble” and now it has created�the largest bond bubble�in the history of the planet.

#32�According to an official government report, the Federal Reserve made�16.1 trillion dollars�in secret loans to the big banks during the last financial crisis. �The following is a list of loan recipients that was taken directly from�page 131�of the report…

Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion

#33�The Federal Reserve also paid those big banks�$659.4 million�in “fees” to help “administer” those secret loans.

#34�During the last financial crisis, big European banks were allowed to borrow�an “unlimited” amount of money�from the Federal Reserve at ultra-low interest rates.

#35�The “easy money” policies of Federal Reserve Chairman Ben Bernanke have created�the largest financial bubble�this nation has ever seen, and this has set the stage for the great financial crisis that we are rapidly approaching.

#36�Since late 2008, the size of the Federal Reserve balance sheet has grown from less than a trillion dollarsto more than 4 trillion dollars.� This is complete and utter insanity.

#37�During the quantitative easing era, the value of the financial securities that the Fed has accumulated is greater than the total amount of publicly held debt that the U.S. government accumulated�from the presidency of George Washington through the end of the presidency of Bill Clinton.

#38�Overall, the Federal Reserve now holds�more than 32 percent�of all 10 year equivalents.

#39�Quantitative easing creates financial bubbles, and when quantitative easing ends those bubbles�tend to deflate rapidly.

#40�Most of the new money created by quantitative easing has ended up�in the hands of the very wealthy.

#41�According to a prominent Federal Reserve insider, quantitative easing has been one giant “subsidy” for Wall Street banks.

#42�As one CNBC article stated, we are seeing absolutely rampant inflation in “stocks and bonds and art and Ferraris“.

#43�Donald Trump once made the following statement about quantitative easing: “People like me will benefit from this.”

#44�Most people have never heard about this, but�a very interesting study�conducted for the Bank of England shows that quantitative easing actually increases the gap between the wealthy and the poor.

#45�The gap between the top one percent and the rest of the country is now the greatest that it has beensince the 1920s.

#46�The mainstream media has sold quantitative easing to the American public as an “economic stimulus program”, but the truth is that the percentage of Americans that have a job�has actually gone down�since quantitative easing first began.

#47�The Federal Reserve is supposed to be able to guide the nation toward “full employment”, but the reality of the matter is that an all-time record�102 million working age Americans�do not have a job right now.� That number has risen by about 27 million since the year 2000.

#48�For years, the projections of economic growth by the Federal Reserve have�consistently overstatedthe strength of the U.S. economy.� But every single time, the mainstream media continues to report that these numbers are “reliable” even though all they actually represent is wishful thinking.

#49�The Federal Reserve system fuels the growth of government, and the growth of government fuels the growth of the Federal Reserve system.� Since 1970, federal spending has grown�nearly 12 times as rapidlyas median household income has.

#50�The Federal Reserve is supposed to look out for the health of all U.S. banks, but the truth is that they only seem to be concerned about the big ones.� In 1985, there were�more than 18,000 banks�in the United States.� Today, there are only�6,891 left.

#51�The six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten�37 percent larger�over the past five years.

#52�The U.S. banking system has 14.4 trillion dollars in total assets.� The six largest banks now account for67 percent�of those assets and all of the other banks account for only�33 percent�of those assets.

#53�The five largest banks now account for�42 percent�of all loans in the United States.

#54�We were told that the purpose of quantitative easing is to help “stimulate the economy”, but today the Federal Reserve is actually paying the big banks�not to lend out 1.8 trillion dollars�in “excess reserves” that they have parked at the Fed.

#55�The Federal Reserve has allowed an absolutely gigantic derivatives bubble to inflate which could destroy our financial system at any moment.� Right now, four of the “too big to fail” banks each have total exposure to derivatives that is well in excess of�40 trillion dollars.

#56�The total exposure that Goldman Sachs has to derivatives contracts is�more than 381 times greaterthan their total assets.

#57�Federal Reserve Chairman Ben Bernanke has a�track record of failure�that would make the Chicago Cubs look good.

#58�The secret November 1910 gathering at Jekyll Island, Georgia during which the plan for the Federal Reserve was hatched was attended by U.S. Senator Nelson W. Aldrich, Assistant Secretary of the Treasury Department A.P. Andrews and a whole host of representatives from the upper crust of the Wall Street banking establishment.

#59�The Federal Reserve was created by the big Wall Street banks and for the benefit of the big Wall Street banks.

#60�In 1913, Congress was promised that if the Federal Reserve Act was passed that it would�eliminate the business cycle.

#61�There�has never been�a true comprehensive audit of the Federal Reserve since it was created back�in 1913.

#62�The Federal Reserve system has been described as “the biggest Ponzi scheme in the history of the world“.

#63�The following comes directly from�the Fed’s official mission statement: “To provide the nation with a safer, more flexible, and more stable monetary and financial system.”� Without a doubt, the Federal Reserve has failed in those tasks dramatically.

#64�The Fed decides what the target rate of inflation should be, what the target rate of unemployment should be and what the size of the money supply is going to be.� This is quite similar to the “central planning” that goes on in communist nations, but very few people in our government seem upset by this.

#65�A couple of years ago, Federal Reserve officials walked into one bank in Oklahoma and demanded that they take down�all the Bible verses and all the Christmas buttons�that the bank had been displaying.

#66�The Federal Reserve has taken some other very frightening steps in recent years.� For example, back in 2011 the Federal Reserve�announced plans�to identify “key bloggers” and to monitor “billions of conversations” about the Fed on Facebook, Twitter, forums and blogs.� Someone at the Fed will almost certainly end up reading this article.

#67�Thanks to this endless debt spiral that we are trapped in, a massive amount of money is transferred out of our pockets and into the pockets of the ultra-wealthy each year.� Incredibly, the U.S. government spentmore than 415 billion dollars�just on interest on the national debt in 2013.

#68�In January 2000, the average rate of interest on the government’s marketable debt was�6.620 percent.� If we got back to that level today, we would be paying more than a trillion dollars a year just in interest on the national debt and it would collapse our entire financial system.

#69�The American people are being killed by compound interest but most of them don’t even understand what it is.� Albert Einstein once made�the following statement�about compound interest…

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

#70�Most Americans have absolutely no idea where money comes from.� The truth is that the Federal Reserve just creates it out of thin air.� The following is how I have�previously described�how money is normally created by the Fed in our system…

When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.

Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.

The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.

#71�What does the Federal Reserve do with those U.S. Treasury bonds?� They end up getting auctioned offto the highest bidder.� But this entire process actually creates more debt than it does money…

The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.

But wait.

There is a problem.

Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.

So where will the U.S. government get the money to pay that debt?

Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.

But that never actually happens, does it?

And the creators of the Federal Reserve understood this as well.� They understood that the U.S. government would not have enough money to both run the government and service the national debt.� They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.

#72�Of course the U.S. government could actually create money and spend it directly into the economy without the Federal Reserve being involved at all.� But then we wouldn’t be 17 trillion dollars in debt and that wouldn’t serve the interests of the bankers at all.

#73�The following is what�Thomas Edison�once had to say about our absolutely insane debt-based financial system…

That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.

Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest.

In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.

But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.

#74�The United States now has�the largest national debt�in the history of the world, and we are stealing roughly 100 million dollars from our children and our grandchildren every single hour of every single day in a desperate attempt to keep the debt spiral going.

#75�Thomas Jefferson once stated that if he could add just one more amendment to the U.S. Constitution�it would be a ban on all government borrowing…

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.

#76�At this moment, the U.S. national debt is sitting at�$18,141,409,083,212.36.� If we had followed the advice of Thomas Jefferson, it would be sitting at zero.

#77�When the Federal Reserve was first established, the U.S. national debt was sitting�at about 2.9 billion dollars.� On average, we have been adding more than that to the national debt�every single day�since Obama has been in the White House.

#78�We are on pace to accumulate more new debt under the 8 years of the Obama administration than we did under all of the other presidents in all of U.S. history combined.

#79�If all of the new debt that has been accumulated since John Boehner became Speaker of the House had been given directly to the American people instead, every household in America would have been able�to buy a new truck.

#80�Between 2008 and 2012, U.S. government debt grew by�60.7 percent, but U.S. GDP only grew by a total of about�8.5 percent�during that entire time period.

#81�Since 2007, the U.S. debt to GDP ratio has increased from 66.6 percent to�101.6 percent.

#82�According to the U.S. Treasury, foreigners hold approximately�5.6 trillion dollars�of our debt.

#83�The amount of U.S. government debt held by foreigners is�about 5 times larger�than it was just a decade ago.

#84�As I have written about�previously, if the U.S. national debt was reduced to a stack of one dollar bills it would circle the earth at the equator�45 times.

#85�If Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit�for 15 days.

#86�Sometimes we forget just how much money a trillion dollars is.� If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

#87�If right this moment you went out and started spending one dollar every single second,�it would take you�more than 31,000 years�to spend�one trillion dollars.

#88�In addition to all of our debt, the U.S. government has also accumulated�more than 200 trillion dollarsin unfunded liabilities.� So where in the world will all of that money come from?

#89�The greatest damage that quantitative easing has been causing to our economy is the fact that it is destroying worldwide faith in the U.S. dollar and in U.S. debt.� If the rest of the world stops using our dollars and stops buying our debt, we are going to be in�a massive amount of trouble.

#90�Over the past several years, the Federal Reserve has been monetizing�a staggering amount of U.S. government debt�even though Ben Bernanke once promised that he would never do this.

#91�China recently announced�that they are going to quit stockpiling more U.S. dollars.� If the Federal Reserve was not recklessly printing money, this would probably not have happened.

#92�Most Americans have no idea that one of our most famous presidents was absolutely obsessed with getting rid of central banking in the United States.� The following is�a February 1834 quote�by President Andrew Jackson about the evils of central banking…

I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!�You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal,�(bringing his fist down on the table)I will rout you out.

#93�There are plenty of possible alternative financial systems, but at this point�all 187 nations�that belong to the IMF have a central bank.� Are we supposed to believe that this is just some sort of a bizarre coincidence?

#94�The capstone of the global central banking system is an organization known as the Bank for International Settlements.� The following is how I described this organization in a�previous article…

An immensely powerful international organization that most people have never even heard of secretly controls the money supply of the entire globe.� It is called the Bank for International Settlements, and it is the central bank of central banks.� It is located in Basel, Switzerland, but it also has branches in Hong Kong and Mexico City.� It is essentially an unelected, unaccountable central bank of the world that has complete immunity from taxation and from national laws.� Even Wikipedia admits that “it is not accountable to any single national government.”� The Bank for International Settlements was used to launder money for the Nazis during World War II, but these days the main purpose of the BIS is to guide and direct the centrally-planned global financial system.� Today, 58 global central banks belong to the BIS, and it has far more power over how the U.S. economy (or any other economy for that matter) will perform over the course of the next year than any politician does.� Every two months, the central bankers of the world gather in Basel for another “Global Economy Meeting”.� During those meetings, decisions are made which affect every man, woman and child on the planet, and yet none of us have any say in what goes on.� The Bank for International Settlements is an organization that was founded by the global elite and it operates for the benefit of the global elite, and it is intended to be one of the key cornerstones of the emerging one world economic system.

#95�The borrower is the servant of the lender, and the Federal Reserve has turned all of us into debt slaves.

#96�Debt is a form of social control, and the global elite use all of this debt to dominate all the rest of us.� 40 years ago, the total amount of debt in our system (all government debt, all business debt, all consumer debt, etc.) was sitting at about 2 trillion dollars.� Today, the grand total exceeds 56 trillion dollars.

#97�Unless something dramatic is done, our children and our grandchildren will be debt slaves for their entire lives as they service our debts and pay for our mistakes.

#98�Now that you know this information, you are responsible for doing something about it.

#99�Congress has the power to shut down the Federal Reserve any time that it would like.� But right now most of our politicians fully endorse the current system, and nothing is ever going to happen until the American people start demanding change.

#100�The design of the Federal Reserve system was flawed from the very beginning.� If something is not done very rapidly, it is inevitable that our entire financial system is going to suffer an absolutely nightmarish collapse.

RISK - Excessive but Doesn't Mean Markets Are Bout To Fall

THE POTENTIAL TO SPOOK THE MARKETS

EARNINGS REVISIONS

FORWARD VALUATIONS

REMEMBERING - This Reminds Me of 1987 & 2000

A SIX YEAR BULL RUN COMING TO AN END IN 2ND HALF 2015?

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The bad news threatening to capsize what’s shaping up to a roughly seven-year bull-market run in U.S. equities.

Here are the 10 risks investors fret about the most:

1. Business cycle: The current business cycle is 67-month-old, prompting worries that it is soon to expire and lead to a recession. But given that the U.S. economy is still performing at below potential and the typical signs of imbalances aren't apparent, the current cycle will remain intact for now.

2. Strong U.S. dollar: A firm dollar hurts U.S. exports and weakens American products’ competitiveness but it alone won't trigger a recession or a bear market.

3. The Federal Reserve: The Fed turning hawkish is a worry but given the current composition of the Fed, the possibility of an ill-timed interest rate hike is limited.

4. Weak Oil: Lower oil prices is more of a boon than a bane as less money spent on gas and fuel will mean more cash for consumers and businesses.

5. Earnings: “This is a serious problem,” said Kostohryz. The S&P 500 earnings per share risk is flat to negative in 2015 and PE ratios are peaking, limiting the market’s upside.

6. Valuation: Although some experts believe the market is overvalued based on the “Shiller PE10,” the indicator isn't foolproof. “PE ratios are at levels that have historically served as a peak in valuations, but aren't yet at levels that can be considered to constitute a ‘bubble.’”

7. Greece: Investors are underestimating the possibility of a negative outcome in Greece’s debt crisis. But the Eurozone is sufficiently prepared to deal with any fallouts.

8. Ukraine: The West and Russia won't go to war over Ukraine. The situation in the Eastern European country may deteriorate in the coming months but it will have limited impact on U.S. markets.

9. China: The Asian powerhouse is slowing but the Chinese government is expected to deploy aggressive fiscal and monetary measures to prevent a “hard-landing.”

10. Geopolitical instability: Oil-dependent regimes such as Venezuela are likely to face greater instability while rising Muslim extremism in the Middle East could lead to political and social upheaval in the region.

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FIRST FATCA - Next GATCA

"This a modern day "Doomsday" Book, the same as William the Conqueror Implemented in 1066 after conquering England. He needed to know where the wealth was so he could tax it"

"This is Not Really About Tax There are Easier Ways to Solve Tax Tracking - Its about a Common Reporting Standard. Its about the ability to track Capital"

"FATCA is a decoy for the Common Reporting Standard"

"There is an incredibly aggressive urgency of implementation - an unprecedentedly quick agreement between 57 governments"

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Why?

Either to Tax it , Expropriation it or Control Its Free Movement

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"Era of Banking Secrecy is Over!"

"A Complete Misunderstanding by Banks"

NEW ACRONYMS IN THE ERA OF FINANCIAL REPRESSION

• FATCA - Foreign Accounts Tax Compliance Act
• GATCA - Global Account Tax Compliance "Acts"
• CRS - Common Reporting Standard
• IGAs - Inter Governmental Agreements on FATCA
• AEOI - OECD's Automatic Exchange of Information
• AML/KYC Procedures - The term “AML/KYC Procedures” means the customer due diligence procedures of a Reporting Financial Institution pursuant to the anti-money laundering or similar requirements to which such Reporting Financial Institution is subject.

THE ROAD AHEAD: FATCA, IGAS AND THE CRS

The costs of FATCA Compliance will be USD 1 to 2 trillion worldwide. The bulk of these costs will be incurred in the customer outreach required to obtain the required documentation.

There will also be considerable customer backlash to FATCA and the documentation it requires. In the age of social media this matters, if this sounds like hyperbole please have a look at this URL

At a most basic level FATCA, the IGAs and the CRS are about making tax part of standard KYC/AML procedures and then reporting, for tax purposes, to those jurisdictions, in which the account holder has tax residence or citizenship.

EVERYTHING YOU NEED TO KNOW ABOUT GATCA / FATCA

DOWNLOAD THE 525 PAGE REPORT

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GRAHAM SUMMERS on

Financial Repression

"QE was never meant to create jobs or generate economic growth… it was a desperate ploy by Central Banks to put a floor under the bond market so rates wouldn’t rise.

... It’s also why Central Banks have kept interest rates at zero or even negative. They cannot afford to have rates rise.

In the US, every 1% increase in interest rates means between $150-$175 billion more in interest payments on our debt per year.

As Dylan Grice from Societe General notes:

when you include unfunded liabolities, this problem is endemic throughout the Western world and has been for years.

LINK HERE to the ARTICLE

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