Bubble Watch: The Fed KNOWS We"re in a 1999-Type Mania...

The Fed raised rates another 0.25% the week before last.

This marks the 5th rate hike since the Fed embarked on its policy tightening in December 2015 and the fourth rate hike in the last 12 months. The Fed’s latest statement also indicates it plans on raising rates three more times in 2018.

It is easy to gloss over the significance of this, but the Fed’s actions are indeed unusual; other major Central Banks (the Swiss National Bank, Bank of Japan, European Central Bank and Bank of England) are all currently running QE programs (the BoJ, ECB and BoE) or openly printing new money to buy stocks outright (the SNB).

What precisely is the Fed doing? Why the urge to tighten when other banks are all printing new money by the billions?

The following quotes from Fed offer us clues.

Fed Monetary Policy Report, June 2017:

“Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades,

Fed minutes, July 2017:

"Since the April assessment, vulnerabilities associated with asset valuation pressures had edged up from notable to elevated, as asset prices remained high or climbed further, risk spreads narrowed, and expected and actual volatility remained muted in a range of financial markets."

Janet Yellen response to question from IMF Panel, October 2017:

Market valuations “are at high level in historical terms” when assessed on metrics akin to price-earnings ratios,

Fed Minutes, October 2017:

"In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances,"

Janet Yellen during Fed presser December 13th, 2017:

Stock valuations are at high end of historical levels.

I want to be clear on the significance of these statements.

The Fed’s primary role is to maintain financial stability. This means that the Fed will always downplay risks in its public statements. Indeed, former Fed Chair Ben Bernanke once stated that Fed policy is “98% talk, 2% action.”

With that in mind, the above quotes are astonishing in their clarity: the Fed is explicitly stating (in Fed terms) that the markets are in a bubble. And the Fed didn’t just do this once, the Fed has been warning about asset valuations/froth in the system for six months straight.

So just how “frothy” are things that the Fed is being so explicit?

Try “1999-levels” frothy.

Perhaps the best means of measuring frothiness in stocks is the Price to Sales (P/S) multiple. Most investors prefer to use Price to Earnings (P/E), but I am wary of that method because earnings can easily be fudged via gimmicks (different methods of depreciation, write-offs, reducing loan loss reserves, tax loopholes, etc.).

Sales, on the other hand, are very hard to fudge. Either money came in the door, or it didn’t. And if a company gets caught fudging its revenues, someone goes to jail.

With that in mind, consider that the S&P 500’s current P/S multiple has surpassed its former all time peak from 1999: a period that is now widely considered to be the single largest stock bubble in history.

Put simply, stocks are extraordinarily overvalued by a reliable measure.

H/T Bill King

However, there is one main difference between 1999 and today...

Namely, that the Fed has been INTENTIONALLY creating bubbles for nearly 20 years today... and it"s out of more senior asset classes to use!

Let me explain...

The late ‘90s was the Tech Bubble.

When that burst in the mid-‘00s, the Fed created a bubble in housing.

When that burst in ’08 the Fed created a bubble in US sovereign bonds or Treasuries.

And because these bonds are the bedrock of the US financial system, the “risk-free rate” of return against which ALL risk assets are valued, when the Fed did this it created a bubble in EVERYTHING (hence our coining of the term “The Everything Bubble” and our bestselling book by the same name).

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Stockman Slams "Bubble Finance And The Era of No-See-Um Recessions"

Authored by David Stockman via Contra Corner blog,

Today"s single most dangerous Wall Street meme is that there is no risk of a stock market crash because there is no recession in sight. But that proposition is dead wrong because it"s a relic of your grandfather"s economy. That is, a reasonably functioning capitalist order in which the stock market priced-out company earnings and the underlying macroeconomic substrate from which they arose.

Back then, Economy drove Finance: You therefore needed a main street contraction to trigger tumbling profits, which, in turn, caused Wall Street to mark-down the NPV (net present value) of future company earnings streams and the stock prices which embodied them.

No longer. After three decades of monetary central planning and heavy-handed falsification of financial asset prices, causation has been reversed.

Finance now drives Economy: Recessions happen when central bank fostered financial bubbles reach an asymptotic peak and then crash under their own weight, triggering desperate restructuring actions in the corporate C-suites designed to prop up stock prices and preserve the collapsing value of executive stock options.

Accordingly, you can"t see a recession coming on Janet Yellen"s dashboard of 19 labor market indicators or any of the other "incoming" macroeconomic data---industrial production, retail sales, housing starts, business investment---- so assiduously tracked by Wall Street economists.

Instead, recessions gestate in the Wall Street gambling parlors and become latent in carry trades, yield curve and credit arbitrages and momentum driven excesses. Eventually, these latencies---central bank fostered bubbles-----erupt suddenly and violently. So doing, they spew intense, unexpected contractionary impulses into the main street economy via the transmission channel of C-suite "restructuring" actions.

Within weeks of a bubble implosion, therefore, a No-See-Um Recession is born and goes rampaging across the economic landscape. But it comes as a shock to economists and especially the Keynesian apparatchiks at the Fed because they are focused on the macroeconomic externals rather than the coiled spring internals of the financial markets.

In this context, it can be said that the Great Recession was the first major business cycle contraction that reflected the new regime of central bank driven Bubble Finance.

What happened was that a garden-variety macroeconomic slowdown which incepted in 2007 went rogue when it was monkey-hammered by the Lehman bankruptcy and the related crash of fundamentally insolvent Wall Street gambling houses thereafter.

This is evident in much of the macroeconomic data, but the snapshot of retail sales below aptly illustrates the case.

From July 2006 through August 2008 (the ninth orange bar in the shaded area) the US economy oscillated along a flatline of weak and inconsistent retail sales growth. Although in its wisdom the NBER dated the recession as incepting in December 2007, the retail sales pattern during the first nine months of the downturn was not appreciably different than during the 17 months just prior.

But in September 2008 retail sales went into free fall----coterminous with the Wall Street meltdown and the desperate Washington interventions via the massive Fed liquidity injections and the TARP bailout.  During that month, retail sales plunged at a 21% annualized rate-----followed by 50% annualized rates of collapse in November and December and nearly a 30% rate of shrinkage in January 2009.

As demonstrated more fully below, those four months were ground zero of the Great Recession. They constituted a macroeconomic air pocket ignited by panic on Wall Street and in the corporate C-suites---exacerbated by the frenzied sky-is-falling machinations of Treasury Secretary Paulson and Ben Bernanke.

Stated differently, the violently collapsing Greenspan mortgage, credit and Wall Street gambling bubbles triggered four to eight months of macroeconomic freefall that no one saw coming. As late as July, the Fed minutes denied that a significant downturn was even likely in 2008, while the Wall Street stock peddlers were insisting that the goldilocks economy was alive and well.

The clueless Keynesian monetary central planners in the Eccles Building had thus fostered the first big No-See-Um Recession, but remained ignorant as to why it suddenly happened; and, consequently, doubled down on Bubble Finance policies that were destined to generate a future replay of the same.

Needless to say, that"s where we are now. The Wall Street casino has again become a coiled spring of excesses, deformations and unsustainabilities---that is, recession latencies waiting to burst.

For instance, there is no other way to describe current razor thin credit spreads in the junk and investment grade sectors alike. Central bank financial repression has fostered a relentless scramble for yield among fund managers that has caused the high yield spread to contract by more than 700 basis points from its post-recession high.

Likewise, the investment grade BBB spread at 1.32% now stands at just 29% of its June 2009 level. And since then the massive explosion of investment grade corporate debt has been concentrated in the BBB tranche of the bond market (one notch above junk), where it now comprises 50% of outstandings compared to just 25% a decade ago.

Needless to say, cheap high yield and BBB debt has had but a single major application since the post-recession recovery of the corporate bond market. To wit, it has funded trillions of financial engineering deals in the form of LBOs and levered recaps in the junk sector and massive stock purchases and dividends in the BBB sector.

So doing, these Fed-fueled financial engineering flows back into the casino have functioned to shrink the stock float and balloon the supply of speculative capital on Wall Street. At length, stock bubbles get aggravated and recession latencies intensified.

When the bond bubble finally implodes, of course, the overwhelmingly largest stock purchaser of the present bubble cycle---LBO shops and financial engineering addicted C-suites---will be forced to the sidelines. The coiled spring of financial engineering will thereupon unwind violently, triggering the next No-See-Um Recession.

And it will be self-reinforcing in a manner that is obvious, but to which the nation"s monetary central planners remain completely oblivious. That is, they continue to pronounce the "all clear" on financial instabilities and signs of incipient financial bubbles based on the alleged improved condition of bank balance sheets---especially the dozen largest mega-banks which account for 80% of deposits.

But the coiled spring this time is not in the mega-banks, but in the trillions of fixed income and high yield mutual funds and ETFs which have arisen to absorb the massive flow of corporate debt. And their liabilities are the ultimate "demand deposit", callable by investors on a moments notice and at the hint of a financial crash.

Nor is the $6.1 trillion corporate bond sector---double the $3.3 trillion outstanding in late 2007----the only coiled spring of recession latency lurking on Wall Street. The massive expansion of the ETF market since 2007 is probably even more potent as a bubble crash accelerant and therefore ignition channel for the coming No-See-Um Recession.

Outstandings have increased by 10X in the last decade and at more than $5 trillion are 3.3X the level  extant on the eve of the financial crisis. Yet in the context of a dramatic market break---whether triggered by a black, orange or red swan---they  will function as pure downside accelerants as fund managers are forced to dump their holdings in order to buy-in and liquidate the torrent of ETF shares which will be on offer.

Then, too, the violent break in September 2008 occurred long before the massive "short vol" play of the present moment had metastasized in the trading pits. Yet today an estimated $1 trillion is invested in risk parity funds, double and triple inverse VIX ETFs and a menagerie of bespoke vol shorts concocted by Wall Street for its hedge fund customers.

Indeed, the current massive short vol trade is the ultimate coiled spring that will aggravate and accelerate the next bubble collapse, and thereby function as the mother of all recession latencies. Yet we are quite certain that our bubble blowing monetary central planners have given no consideration at all to this ticking time-bomb---even as they gum endlessly over the meaning of hairline noise in the BLS" latest (and useless) JOLTS report.

In this context, we do not profess to know the catalyst for the next bubble implosion, but we can readily identify the speed with which the post-Lehman collapse occurred in the stock market, and the manner in which that triggered massive restructuring actions, inventory liquidations and sweeping job cuts by the corporate C-suites.

What we do know, however, is that the financial market internals and their coiled springs of recession latencies are far more widespread and combustible than last time around. So it is worth specifying in more granular detail the recession transmission channel that operated through the corporate C-suites during the on-set of the Great Recession. The fall-winter dislocation of 2008-2009, in fact, is a roadmap for what comes next.

The S&P chart below is indexed to 100 as of September 1, 2008 and represents the eve of the Wall Street meltdown. By October 10, the S&P index was down 30% and by November 20 it closed at 58.7% of its September 1 level.

So in roughly 50 trading days the broad market lost 41% of its capitalization.

Again, that was the heart of the bubble implosion. Thereafter the market gyrated along the flatline until it hit a one-day capitulation low on March 9 at a 47% loss. So fully 90% of the capitulation low occurred during the first 50 days, and it was the speed and violence of this bubble collapse that triggered what amounted to mayhem in the C-suites.

Needless to say, the response of the corporate C-suites was swift and violent. The Challenger survey of monthly corporate layoff announcements accordingly surged during the 4-6 months that the stock market was establishing a bottom 50% below the November 2007 bubble peak.

But as will be further documented below from the BLS payroll employment data, this spree of excess payroll liquidations occurred in a very concentrated pulse and then reverted to low order clean-up until hiring growth resumed about a year after the stock market crash.

Another measure of C-suite liquidation activity is represented by corporate restructuring charges. The latter not only capture severance expense associated with job terminations but also plant and store closures, charge-offs for bad debts and excess/obsolete inventories and numerous other categories of asset write-downs.

But it all shows up on the true bottom line---GAAP net income---which plunged to negative $15 per S&P 500 share in Q4 2008.

As shown below, that represented a negative $34 per share swing from the level of Q4 2007 and more than a 40% drop from Q4 2006. Still, the housecleaning was relatively short lived and confined to the period of maximum C-suite panic over company stock prices and option values.

The panic in the C-suites was aggravated substantially by a household sector buying strike----especially on high price tag durables and automobiles.

In fact, the drop in auto sales was spectacular: After drifting steadily lower earlier in the year, dealer sales took a further sharp plunge after August 2008. Altogether, the dollar value of sales off the dealer lots contracted by a stunning 33% before hitting bottom in March 2009.

Needless to say, the above plunge of dealer sales occurred at a time when their lots were already bulging with excess vehicle inventory. Accordingly, the production cut back at domestic assembly plants was downright brutal----with the seasonally adjusted assembly rate dropping from 9.1 million units in July 2008 to just 3.6 million units at the January 2009 bottom.

Indeed, that staggering 60% drop in six months-----which also sent GM and Chrysler into Chapter 11---represented anything but your grandfather"s economy. This was a collapsing Wall Street bubble ripping through the main street economy with malice aforethought.

The recession transmission channel through the C-suite liquidation process is starkly evident in the business inventory data and the BLS data on payroll employment change. As to the former, the chart below makes clear that business inventories had continued to build through the spring and summer of 2008, reaching a peak level of $1.54 trillion in July.

Eventually, $225 billion of that inventory (15%) was liquidated before restocking commenced in November 2009, but the key point is that more than 60% of the destocking occurred during the concentrated period of stock market collapse between September and March. The C-suite was desperately attempting to lighten the load.

Finally, the payroll data surely leaves nothing to the imagination. Nearly 5.5 million jobs were liquidated during eight months stretching from September 2008 through April 2009. That represented nearly 65% of all job losses during the entire Great Recession.

Stated differently, desperate to appease the Wall Street casino via "restructuring" actions to increase ex-items earnings,  corporate America essentially embarked on a scorched earth policy of shooting jobs first and asking questions later.

In short, there can be little doubt that Finance drives Economy in the world of monetary central planning, and that the only place to look for the next recession is in the coiled springs of Bubble Finance.

Needless to say, you can once again find them metastasizing rapidly from one end of the casino to the other; and you will also find not a single word about them in today"s swan song by our Keynesian School Marm.

Then again, Janet Yellen"s cluelessness is also why Wall Street is telling you that the macroeconomic dashboard shows nary a sign of recession, and that its safe to plunge into the casino at 110X the Russell 2000 and 280X AMZN"s miserly earnings.

Call that misdirection like never before. But also know that another No-See-Um Recession is coming right at you.

 

2 Charts That Might Define The Fed"s Jerome Powell Era

Authored by Daniel Nevins via FFWiley.com,

In September, we proposed a theory of the Fed and suggested that the FOMC will soon worry mostly about financial imbalances without much concern for recession risks. We reached that conclusion by simply weighing the reputational pitfalls faced by the economists on the committee, but now we’ll add more meat to our argument, using financial flows data released last week.

We’ve created two charts, beginning with a look at cumulative, inflation-adjusted asset gains during the last seven business cycles:

According to the way that the Fed defines its policy approach, our first chart stamps a giant “Mission Accomplished” on the unconventional policies of recent years. Recall that policy makers explained their actions with reference to the portfolio balance channel, meaning they were deliberately enticing investors to buy riskier assets than they would otherwise hold. Policy makers hoped to push asset prices higher, and they seem to have succeeded, notwithstanding the usual debates about how much of the price gains should be attributed to central bankers. (See one of our contributions here and a couple of other papers here and here.) But whatever the impetus for assets to rise, it’s obvious that they responded. In fact, judging by the data shown in the chart, policy makers could have checked the higher-asset-prices box long ago, and with a King Size Sharpie.

Consider the measure on the vertical axis, percent of personal income. From the risky asset trough in Q1 2009 through Q3 2017, households accumulated asset gains, in real terms, equivalent to 139% of personal income. (Nominal gains were much greater, but we used the CPI to deduct the amount of purchasing power that households lost on their asset holdings. Also, we defined asset holdings as the four biggest categories that the Fed computes gains for—equities, mutual funds, real estate, and pensions.)

In other words, households are enjoying an investment windfall that amounts to nearly sixteen months of personal income, which is larger than the windfalls accrued in any other business cycle since the Fed began tracking asset gains in 1947. Not only that but the gap continues to widen—as of this writing, we’re likely approaching 145% of personal income and well clear of the previous peak of 128% from the 1991–2001 expansion.

Getting back to policy priorities, the chart seems to tell us that asset prices no longer need boosting. The Fed’s pooh-bahs proved they could boss the investment markets, and they’ve almost certainly moved on to new endeavors.

Bull, bear, or donkey?

But record asset gains are just one of the reasons the Fed’s priorities are likely to be changing. To describe another reason, we’ll first show that policy makers may wield a King Size Sharpie but that it’s not a Permanent Marker:

As you can see, our second chart looks like the first, except that we pinned the tails on the asset price donkeys.

We tacked on the down halves of each cycle, showing that the portfolio balance channel has a reverse mode.

So what should we make of the result that asset price cycles, adjusted for inflation, have ended with busts that reverse a large portion and often the entirety of the prior booms?

According to our beliefs about how investment markets work, the up and down phases of asset cycles are closely connected. Also, monetary stimulus influences both phases at the same time. It helped fuel the giant gains of recent expansions, but it also helped create the imbalances that led to giant losses. And after the accelerated advances of 2016-17, it’s fair to wonder if today’s imbalances are approaching the extremes of 2000 and 2007. Even some FOMC members are gently acknowledging that risk.

But we think the committee members are even more concerned than you would know by just reading their meeting minutes. We expect financial imbalances to become their biggest worry, bigger than the risk of recession, which should matter less and less to the central bankers’ reputations as the business cycle expansion continues to lengthen. In fact, a garden variety recession would barely affect their legacies at all by mid-2019, when the expansion, if still intact, would become the longest ever. By that time, the FOMC’s greatest reputational threat would be another financial market debacle, which would suggest that manipulating asset prices maybe wasn’t such a good idea, after all. In other words, the committee’s reputational calculus will change significantly during Jerome Powell’s first few years as chairperson.

All that said, Powell probably wants a recession-free economy in, say, his first year or two in the position. Moreover, he’ll certainly stress continuity with his predecessors’ policies. But once he becomes comfortable in the job, the Fed’s priorities will look nothing like they did under Janet Yellen and Ben Bernanke. Instead of fueling asset gains, Powell’s biggest challenge will be containing imbalances connected to prior gains. He and his peers will aim to avoid pinning another oversized tail on the donkey—or at least to manage the fallout from said tail—and that’s a challenge that could very well define his regime.

Brandon Smith Warns "The Virtual Economy" Is The End Of Freedom

Authored by Brandon Smith via Alt-Market.com,

There is one simple rule to follow when understanding the tragic history of economies: Never put blind faith in a system built on an establishment-created foundation. You would think this would not be a difficult concept to grasp being that we have so many examples of controlled economies and collapse to reference over the centuries, but in our era more than ever the allure of a virtual world with promises of endless wealth and ease is overwhelming.

Yes, I am referring primarily to cyptocurrency "tulip-mania" (sorry bitcoiners, the description is too fitting, it isn"t going away), but not this issue alone. I am also referring to a far-reaching problem of which cryptocurrencies are a mere reflection.

Namely, the fact that humanity is swiftly losing sight of what a true economy is and what it is supposed to accomplish. It is because of this reality that crypto is thriving.

First, let"s be clear, fiat currencies are one of the first machinations of the virtual economy. Once paper currencies printed from thin air by central bankers were separated from tangible backing and accepted by the masses as "valuable" and worth trading labor for, the seed of financial cancer was planted. Today, there is one final step needed for the establishment to accomplish complete tyranny in global trade and that is to disconnect the masses fully from private transactions. In other words, we must be tricked into going digital, where privacy is an absurd memory.

Virtual economics is appealing for several reasons, most of them bad.

Americans and much of the west in particular are increasingly uncomfortable with the idea of real production. The latest generation coming into political and social influence, the millenials, is a perfect example. Surveys show American millenials more than any other generation lack basic workplace competency skills, including scoring low on arithmetic and reading comprehension. Often portrayed as "tech savvy" in popular culture and the media, millenials are quite inept when it comes to core skills that fuel strong business and trade, which is part of the reason why the U.S. is falling into the shadow of foreign workforces.

Millenials in the West also exhibit abysmal technical skills in international testing and lag far behind foreign peers. This has come as a surprise to many mainstream economists and social analysts, primarily because millenials are also considered the "most educated" generation ever. But, of course, we have not only been given a virtual economy in recent decades, but also a virtual educational system. A majority of millenials are lacking when it comes to key production skills and entrepreneurship methods because they have been trained to dismiss such skills as negligible. In other words, millenials have been conditioned to be academic idiots.

Why go through the struggle and hardship required to become an effective producer of tangible necessities when it is far easier to join a collectivist drive for socialism and a structure in which little to no work is required to obtain such necessities? Why not steal from a productive minority and spread it thinly enough to keep the unskilled majority fed? It is only within this kind of culture that virtual production, a virtual society and virtual "money" is seen as an ideal solution.

The notion is becoming more and more prevalent in our popular media, and I believe this is rather symbolic (or ironic) of our conundrum.

For example, consider the book Ready Player One, a pop-culture craze and archetypal zeitgeist for millenials soon to be released as an intended Hollywood blockbuster directed by Steven Spielberg. The novel depicts the world of 2045, a world in which fossil fuel depletion and "global warming" have triggered economic and social decline (Remember in the 1980s when they used to tell us that global warming was going to melt the polar icecaps and we would be under water by the year 2000?). A totalitarian governing body controlled by corporate behemoths rules over the dystopian sprawl.

In response to an ever painful existence in the real world, the masses have sought to escape to a virtual world called "the Oasis," created by a programming genius. The Oasis becomes a nexus for the global economy and a virtual society.

This sounds like a rousing background for a story of rebellion, and it is about that... sort of. Unfortunately, here is where the disturbing ties between our world and the fictional world of Ready Player One meet. The "rebellion" is for all intents and purposes also virtual, and for millenial audiences in particular, this is supposed to be inspiring.

Perhaps this is why cryptocurrencies are so appealing to the millenial crowd in particular. Think about it — the dismal economic doldrums of Ready Player One exist NOW; we don"t have to wait until 2045. Millenials are already feeling disaffected, indebted and disenfranchised, and most of them are also skill-less. Self reliance to them is an idea so alien it rarely if ever crosses their minds. So, how do they fight back? Or, how are they tricked into thinking they can fight back against a virtual system that has left them in the gutter? Why, with a virtual community and a virtual currency, of course.

Millenials and others think that they are going to rebel and "take down the banking oligarchs" with nothing more than digital markers representing "coins" tracked on a digital ledger created by an anonymous genius programmer/programmers. Delusional? Yes. But like I said earlier, it is an appealing notion.

Here is the issue, though; true money requires intrinsic value. Cryptocurrencies have no intrinsic value. They are conjured from nothing by programmers, they are "mined" in a virtual mine created from nothing, and they have no unique aspects that make them rare or tangibly useful. They are an easily replicated digital product. Anyone can create a cryptocurrency. And for those that argue that "math gives crypto intrinsic value," I"m sorry to break it to them, but the math is free.

In fact, for those that are not already aware, Bitcoin uses the SHA-256 hash function, created by none other than the National Security Agency (NSA) and published by the National Institute for Standards and Technology (NIST).

Yes, that"s right, Bitcoin would not exist without the foundation built by the NSA. Not only this, but the entire concept for a system remarkably similar to bitcoin was published by the NSA way back in 1996 in a paper called "How To Make A Mint: The Cryptography Of Anonymous Electronic Cash."

The origins of bitcoin and thus the origins of crytpocurrencies and the blockchain ledger suggest anything other than a legitimate rebellion against the establishment framework and international financiers. I often cite this same problem when people come to me with arguments that the internet has set the stage for the collapse of the globalist information filter and the mainstream media. The truth is, the internet is also an establishment creation developed by DARPA, and as Edward Snowden exposed in his data dumps, the NSA has total information awareness and backdoor control over every aspect of web data.

Many people believe the free flow of information on the internet is a weapon in favor of the liberty movement, but it is also a weapon in favor of the establishment. With a macro overview of data flows, entities like Google can even predict future social trends and instabilities, not to mention peek into every personal detail of an individual"s life and past.

To summarize, cryptocurrencies are built upon an establishment designed framework, and they are entirely dependent on an establishment created and controlled vehicle (the internet) in order to function and perpetuate trade.  How exactly is this "decentralization", again?

TOTAL information awareness is the goal here; and blockchain technology helps the powers-that-be remove one of the last obstacles: private personal trade transactions. Years ago, a common argument presented in favor of bitcoin was that it was "completely anonymous."  Today, this is being proven more and more a lie. Even now, in the wake of open admissions by major bitcoin proponents that the system is NOTanonymous, people still claim anonymity is possible through various measures, but this has not proven to sway the FBI or IRS which have for years now been using resources such as Chainanalysis to track bitcoin users when they feel like doing so, including those users that have taken stringent measures to hide themselves.

Bitcoin proponents will argue that "new developments" and even new cryptocurrencies are solving this problem. Yet, this was the mantra back when bitcoin was first hitting the alternative media. It wasn"t a trustworthy assumption back then, so why would it be a trustworthy assumption now? The only proper assumption to make is that nothing digital is anonymous. Period.

With the ludicrous spike in bitcoin prices, champions of the virtual economy are unlikely to listen to any questions or criticisms. I have never argued one way or the other in terms of bitcoin"s potential "market value," because it does not really matter. I have only ever argued that cryptocurrencies like bitcoin are in no way a solution to combating the international and central banks.  In fact, cyrptocurrencies only seem to be expediting their plan for full spectrum digitization and the issuance of a global currency system.

Bitcoin could easily hit $100,000, but its "value" is truly irrelevant and consistently hyped as if it makes bitcoin self evident as a solution to globalism. The higher the bitcoin price goes, the more the bitcoin cult claims victory, yet the lack of intrinsic value never seems to cross their minds. They have Scrooge McDuck-like visions of swimming in a vault of virtual millions. They"ll only accuse you of being an "old fogey" that "does not understanding what the blockchain is."

The fact is, they are the one"s that do not really understand what the blockchain is — a framework for a completely cashless society in which trade anonymity is dead and economic freedom is destroyed.

Ask yourself this: Why is it that central banks around the world (including the BIS and IMF) are investing in Bitcoin and other crytpocurrencies while developing their own crypto systems based on a similar framework? Could it be that THIS infusion of capital and infrastructure from major banks is the most likely explanation for the incredible spike in the bitcoin market?  Why is it that globalist banking conglomerates like Goldman Sachs lavish blockchain technology with praise in their white papers? And, why are central bankers like Ben Bernanke speaking in favor of crypto at major cryptocurrency conferences if crypto is such a threat to central bank control?

Answer — because it is not a threat. 

They benefit from a cashless system, and liberty champions are helping to give it to them.

Above all else, the virtual economy breeds weakness in society. It encourages a lack of tangible production. Instead of true producers, entrepreneurs and inventors, we have people scrambling to sell real world property in order to buy computing rigs capable of "mining" coins that do not really exist. That is to say, we may one day soon be faced with millions of citizens expending their labor and energy in order to obtain digital nothings programmed into existence and given artificial scarcity (for now).

It also encourages false rebellion. Real change requires actions in the real world. Removing banking elitists and their structures by force if necessary (and this will probably be necessary). Instead, freedom activists are being convinced that they will never have to lift a finger to beat the bankers. All they have to do is buy and mine crypto. The day will come in the near future when the folks that embrace this nonsense will wake up and realize they have wasted their energies chasing a unicorn and are ill prepared to weather the economic reset that continues to evolve.

To maintain a real economy in which people are self reliant and safe from fiscal shock, you need three things: tangible localized and decentralized production, independent and decentralized trade networks that are not structured around an establishment controlled system (like the internet is controlled), and the will to apply force to protect and preserve that production and those networks. If you cannot manufacture a useful thing, repair a useful thing or teach a useful skill, then you are essentially useless in a real economy. If you do not have localized trade, you have nothing.  If you do not have the mindset and the community of independent people required to protect your local production, then you will not be able to keep the economy you have built.

This is the cold hard truth that crypto proponents do not want to discuss, and will dismiss outright as "archaic" or "not obtainable." The virtual economy is so much easier, so much more enticing, so much more comfortable. Why risk anything or everything in a real world effort to build a concrete trade network in your own neighborhood or town? Why risk everything by promoting true decentralization through localized commodity-backed money and barter systems? Why risk everything by defending those systems when the establishment seeks to crush them? Why do this, when you can pretend you are a virtual hero wielding virtual weapons in a no risk rebellion in a world of electronic ones and zeros?

In truth, the virtual economy is not legitimate decentralization, it is a weapon of mass distraction engineered to kill legitimate decentralization.

A Question For Every Investor

Authored by 720Global"s Michael Lebowitz via RealInvestmentAdvice.com,

Recently we received the following question from a subscriber:

“If a correction in the stock or bond markets comes, the Central Banks will buy stocks with printed money, like the Japanese Central Bank, etc. Will there ever be a shakeout of the garbage and junk in the system? I am losing all confidence.” –Ron H.

Questions like Ron’s that suggest the decay of capitalism and free markets should raise concerns for anyone’s market thesis, bullish, bearish or agnostic. What stops a central bank from manipulating asset prices? When do they cross a line from marginal manipulation to absolute price control? Unfortunately, there are no concrete answers to these questions, but there are clues.

Global central banks’ post-financial crisis monetary policies have collectively been more aggressive than anything witnessed in modern financial history. Over the last ten years, the six largest central banks have printed unprecedented amounts of money to purchase approximately $14 trillion of financial assets as shown below. Before the financial crisis of 2008, the only central bank printing money of any consequence was the Peoples Bank of China (PBoC).

The central banks’ goals, in general, are threefold:

• Expand the money supply allowing for the further proliferation of debt, which has sadly become the lifeline of most developed economies.


• Drive financial asset prices higher to create a wealth effect. This myth is premised on the belief that higher financial asset prices result in greater economic growth as wealth is spread to the masses.
  
  • “And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”– Ben Bernanke Editorial Washington Post 11/4/2010.
  
  


• Lastly, generate inflation, to help lessen the burden of debt.

QE has forced interest rates downward and lowered interest expenses for all debtors. Simultaneously, it boosted the amount of outstanding debt. The net effect is that the global debt burden has grown on a nominal basis and as a percentage of economic growth since 2008. The debt burden has become even more burdensome.

The wealth effect is putting riches in the hands of a small minority of the population, with negligible benefits, if any, flowing to the majority of the population. Bernanke’s version of the virtuous circle, as highlighted above, is far from virtuous unless you are in the upper five to ten percent of households by wealth.  To understand how a real economic virtuous circle works, we recommend you read our article The Death of the Virtuous Cycle and watch The Animated Virtuous Cycle.

Inflation has been low since 2008 and deflation continues to be a chief concern of most central bankers. Because QE, in all cases, was focused on financial asset prices and not the prices of everyday goods and services, the inflation they aimlessly seek has not occurred.

To summarize our views, largely ineffective monetary policies are providing few economic benefits. They are increasing the debt burden and furthering socially destabilizing trends. Worse, these policies are packed with consequences that lie dormant and have yet to emerge. One of our concerns, which is being heralded as a positive, is the massive distortions in financial asset prices worldwide. Consider a few of these facts below and whether they are sustainable:

• U.S. yields have been among the lowest ever on record dating back to 1776


• U.S. equity valuations have risen to levels rarely observed and from this perch have always been followed by massive losses


• Over $9 trillion in sovereign bonds yields in many European countries and Japan have negative current yields


• European junk-grade debt now trades at yields lower than U.S. Treasuries


• Veolia, a French BBB rated company, recently issued a 3-year bond at a yield of -.026%.


• Italian 3-year government bonds yield -0.337%, despite the 3^rd highest debt to GDP ratio of all developed nations (132%)


• Argentina, which has defaulted 6 times in the past 100 years, issued a $2.75 billion 100-year bond paying a paltry 8% interest


• The BOJ owns over 75% of all Japanese ETFs


• The Swiss National Bank owns 19.2 million shares of Apple, or 3% of total shares outstanding, and $84 billion in aggregate of U.S. stocks

Yes, Ron, the central bankers have clearly crossed the line between free markets and government controlled markets. To answer your question about the “shakeout,” we must wait until the inevitable day comes and asset prices are in free-fall. When this occurs, we will learn the full extent of their support and how far they have crossed the line. We like to think the central bankers are willing to endure the short-term pain of such a situation and allow the natural cycle of economies and asset prices to run their course. The reality, however, is that the pattern of their actions in the post-financial crisis era argue that they are unlikely to relinquish their grip. To the extent that authority and power is extended to the Fed through the U.S. Congress, it does not seem likely for career politicians to urge action that may be painful in the short-term but highly beneficial in the long-term.

This premonition was supported by recent statements from the October 2017 Federal Reserve minutes and appointed Fed Chairman Jerome Powell respectively. Fed Minutes:

“In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances,” further “They worried that a sharp reversal in asset prices could have damaging effects on the economy.” Jerome Powell, in prepared remarks to Congress stated: “(the Fed) will respond with force to threats to the nation’s stability.”

Putting two and two together, one can quickly figure out that falling asset prices and the “damaging effects” they will inflict on the economy will not be tolerated by the Fed. 

Ron, while we cannot answer your question with certainty, we are relatively confident the Fed and other central banks’ influence on markets will only increase in time as they continue to perpetuate the debt and economic problems they helped create. Naturally, the next question for consideration is to what extent markets may be bigger than the Fed? That is an article for another day.

"Statists Don"t Share" - A Race To The Potential For Bitcoin

Authored by Jeffrey Snider via Alhambra Investment Partners,

The timing just never seems to fall in our favor. If we had had this conversation ten years ago as would have been appropriate, then this evolution might have fell perfectly in our collective laps. Just as the global financial system, really the international, interbank monetary system of the eurodollar, was crashing all around us, the genesis block of the Bitcoin blockchain was hard coded.

Within it contained very insightful if superfluous (from a technical standpoint) text, a truly elegant starting point for a competing monetary idea:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

Officials, particularly Western central bankers, were at that time in no mood for thinking about alternative global arrangements. Even those other monetary officials (Zhou Xiaochua) who happened to know what was really wrong were still willing to give the Ben Bernanke’s a second chance to fix it. It was our lost opportunity because central bankers didn’t then, and still don’t now, know what’s actually broken.

The world is far too focused today on Bitcoin, not without legitimate reasons. It has in 2017 taken it by storm, rising parabolically for quite a remarkably sustained period. People who have no idea what it really is are rushing toward it, some buying it without first appreciating the whole complexity and texture of the technology behind it.

As such, it forces unwanted political attention that might have been better served understanding the motivations behind the message contained within the genesis block. Now, they can simply claim it’s in a destructive bubble and lump every form of crypto, both what’s already in existence and what is yet to come (the really exciting part), into the same negative category.

Economists, even those who still bother trying to resemble free market thinkers, rush to ban it.

As I wrote last week on the topic of what’s really, in my view, motivating Bitcoin mania:

Statists don’t share power. Economists in the realm of money are thorough statists, however they might describe themselves as some range of capitalist.

Bitcoin is not, to me, the part to focus on. It is in many important ways, as President Obama was often fond of saying, a distraction. The potential lies not in it being a competing currency but upgrading as to what the eurodollar has been for half a century already. If you understand that the eurodollar system isn’t really a currency system but a set of network standards and protocols, then blockchain seems like it was made to be if not the perfect solution than still perhaps the right one given where we are (to really make sense of this, you really should read the whole thing).

That’s what the acceptance market essentially became – a way for banks to conduct their thousands of individual transactions across time and geography with only having to ship, or wait to receive, money once the net sum of all those trades would come due. It was a ledger system (poker chips) that was backed by deposits of gold and cash (with the dealer), as well as central banks (the house).

The eurodollar which supplanted the acceptance market even while the Bretton Woods gold exchange system remained nominally the official reserve standard was merely the next step for international monetary evolution along these lines. How much more elegant might the whole operation become if we just eliminate the need for cash deposits altogether? To a true money adherent, such an idea was and is today abhorrent. To a bank merely trying to operate as efficiently as possible, this was a dream scenario.

The primary problem with the eurodollar system is that it is a decentralized ledger, where much of what goes on with them doesn’t ever see the light of day (the shadows). It was an attempt at a pure medium of exchange, and for a very long time it seemed to work that way as if nobody really needed to know what was on all those darkly hidden registers. From August 9, 2007, forward, it was proven that even a decentralized ledger system really needs full private scrutiny.

This is where blockchain may hold an answer. The technology behind Bitcoin (don’t get hung up on specifically Bitcoin) is nothing more than a network ledger. It is instead centralized, but it could in theory (with a bit more work, pun intended) take the place of the decentralized eurodollar ledger. In the latter, the credit-based money system, the banks are what matter for creation of money supply (the dealers create all the chips, and even control what kind of chips may be played). In the former, that weakness is removed as is the foolish dependency on incompetent, ideologically stunted central bank statisticians.

In other words, it’s not so much ridding ourselves of dollars or even “dollars”, but changing the way they are accounted for while still allowing for some positive attributes (there are some) of the eurodollar system to be maintained. A pure medium of exchange is a truly tantalizing idea, a dedicated payment system alone, but it needs to be far more robust in a way the dispersed and spread out eurodollar format just never could be.

More than that, I think it offers the shortest distance between A and B; A being where we are now stuck in chronic monetary instability and thus the worst economic case; B being the very happy day when that problem is solved and the great global recovery, real not imagined, takes off.

We are going to get to B at some point in the future, and the journey we take to that point will determine what that means. If we arrive at B in the same way as the Great Depression era (Bretton Woods taking place toward the end of another world war), meaning doing nothing but the same thing that Economists tell us to do over and over, it will have been the worst of the worst cases. The idea is to get started as soon as possible so that we can work out the solution and the way to implement it as painlessly and with as little disruption as possible so as to arrive at B long before the political and social sh#& hits the fan.

That’s where the timing may have us unlucky. Maybe our fate was sealed the minute Ben Bernanke started acting courageously and we let him off the hook for why he felt that way in the first place (he’s never answered for “subprime is contained”, and nobody has ever made him). It’s too late now, and with Bitcoin off like a rocket there is a very real, dispiriting chance blockchain may never get enough work and then its real trial run.

Nobel Prize-winning economist Joseph Stiglitz said “bitcoin is successful only because of its potential for circumvention, lack of oversight.”

“So it seems to me it ought to be outlawed,” Stiglitz said Wednesday in a Bloomberg Television interview with Francine Lacqua and Tom Keene. “It doesn’t serve any socially useful function.”

Stiglitz is a buffoon and a thorough statist, but he is influential because Economics still dominates the political end of things. From China to Europe there are official and unofficial voices expressing grave doubts and discomfort over Bitcoin without really considering blockchain. It may end up where Bitcoin sinks the blockchain given that its greatest risks are all political (an outright ban).

The only way to thwart those intentions is for enough people to take a determined interest in cryptos as a class rather that solely as speculation in the one; to see the great potential in the real stuff of its evolution, and not get hung up on something like price. We have to step ourselves outside of currency and appreciate the currency system, and do it with enough of a broad basis of appreciation that it overcomes and survives what will surely be an effort to kill it. 

It may be that our future depends upon how successful we can become in this way, accepting blockchain no matter what ancient Economist decries it, or whichever political figure who clearly doesn’t get it or our real monetary problem seeks its official exile. As if we needed any more of them, it’s another race or countdown. The primary issue after losing one decade is always really going to be time.

We are going to go from A to B one way or another; willingly by design, in a messy, uncontrolled reset, or some ways in between . There are today even after ten years still some positive outcomes possible. I worry that timing (Bernanke’s real legacy) may be conspiring to take one of those few away before it ever really gets started.

The "Pecking Order" In A World Of Hollow Freedoms

Authored by Ben Hunt via Epsilon Theory blog,

"If we can agree that trickle down is just a ruse invented to trick the gullible, we should also agree that any and all QE is robbery in plain daylight."

Out of all the animals we keep on our “farm”, chickens are the only ones that bring me no joy. Chickens are, by nature, brutal and cruel. They will torture the weak to death with their pecks, not because they have to, but because they can. It’s the way their brains are hard-wired, and it works for them, as a species. So I pretend that chickens aren’t evil and I’m not complicit. Because I really like the eggs.

We are trained and told that the pecking order is not a real and brutal thing in the human species. This is a lie. It is an intentional lie, one that we pretend isn’t evil and where we are not complicit.

Because we really like the eggs.

And that’s the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.

 

- Garrison Keillor

We can’t all be rich.

We can’t all be famous.

We can’t all be Someone Who Matters to the World.

[Team Elite Narrator: OR CAN WE?]

Blake:    Put. That coffee. Down. Coffee’s for closers only. You think I’m f**king with you? I am not f**king with you. I’m here from downtown. I’m here from Mitch and Murray. And I’m here on a mission of mercy. Your name’s Levine? You call yourself a salesman, you son of a bitch?

 

Moss:    I don’t gotta sit here and listen to this s**t.

 

Blake:    You certainly don’t, pal, ’cause the good news is — you’re fired. The bad news is — you’ve got, all of you’ve got just one week to regain your jobs starting with tonight. Starting with tonight’s sit. Oh? Have I got your attention now? Good. ‘Cause we’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anyone wanna see second prize? Second prize is a set of steak knives. Third prize is you’re fired. Get the picture? You laughing now? You got leads. Mitch and Murray paid good money for their names. You can’t close the leads you’re given, you can’t close s**t. You ARE s**t! Hit the bricks, pal, and beat it ’cause you are going OUT!

 

? Glengarry Glen Ross (1992)

The truth is that unless you are really rich, you work for Mitch & Murray. Yes, that includes you, Vox writer changing the world one smarter-than-thou opinion at a time. Yes, that includes you, tech start-up developer kicking back in your flair-bedecked WeWork cubicle.

We don’t feel the crushing power of the Mitch & Murray pecking order as palpably as the salesmen berated by Alec Baldwin feel it, because the language of David Mamet has been replaced by the language of Dick Thaler and Cass Sunstein. The modern Mitch & Murrays don’t browbeat us. They nudge us. They convince us that a set of steak knives is a darn good outcome, that it’s a promise kept rather than a threat delivered. Coffee’s not just for closers. No, no … coffee is for EVERYONE. In fact, let’s put some caffeine into everything you drink. Something nice and caffeinated to wash down that big slice of office birthday cake.

Most importantly, today’s Mitch & Murray writ large — the system of Mitch & Murrays — provides credit to the non-rich, essentially limitless credit for anything that’s intangible or depreciates quickly, anything that lets the non-rich FEEL rich. How about a nice dinner out? New smartphone? You deserve it! How about a couple of years of graduate school? More than a couple of years, shooting for a tenure track position? [Heh, heh] I mean … why certainly, even better!

Go on, try the eggs. They’re delicious.

And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

 

- Ben Bernanke (2010)

Step One in the Pecking Order Lie is to promote a narrative of trickle-down economics - that making the rich even richer is a good thing for the non-rich.

This is exactly what Ben Bernanke is saying here, that the Fed’s extraordinary efforts to prop up the stock market aren’t just good for the rich, but will be good for everyone once the “wealth effect” kicks in and the rich start spending their money.

Whenever someone uses the phrase “wealth effect”, they are promoting a trickle-down narrative.  

How does trickle-down monetary policy work? By spending TRILLIONS of dollars to buy financial assets, the world’s central banks have inflated the prices of ALL financial assets, EVERYWHERE in the world.

This is not a secret plan. This is not a hidden agenda. This is the avowed purpose of what central bankers call Large Scale Asset Purchases (LSAPs). The goal is to force us to “reach for yield”. The goal is to force us to buy more and more risky assets (stocks) at higher and higher prices. The Fed is trying to make the stock market go up. And they’re succeeding.

Here’s a great chart from TCW showing how this works. The orange line is the growth rate of the US economy. The blue line is the growth rate of how rich we are. By tripling the stock market, the Fed has made us much richer than our economy has grown … SOOO much richer than our economy has grown.

But the goodies of a trebled stock market aren’t evenly distributed. Who owns stocks? If we’re talking about households, leaving aside pension funds and endowments and other institutional investors, it’s the rich, mostly. And that household share of the Central Bankers’ Bubble doesn’t increase linearly with wealth, but exponentially, meaning that the really rich own a lot more stocks than the merely rich, so the really rich have gotten a lot richer than the merely rich.

Here’s a chart from Deutsche Bank showing the impact (it’s a year old, so the effect is even more pronounced today with the stock market 20% higher). Thirty years ago, the non-rich (the bottom 90% of American households by income) owned 35% of American household wealth. Today they own about 22%. Forty years ago, the really rich (the top 1/10^th of 1% of American households by income) owned about 7% of American household wealth. Today they, too, own about 22%. Moreover, the gains of the really rich have mirrored the losses of the non-rich, which means that the well-off and merely rich (the remaining 9.9% of American households) haven’t seen much of a change one way or another.

Now this shift in relative wealth of the non-rich and the really rich didn’t start with the Central Bankers’ Bubble and its narrative of trickle-down wealth effects from monetary policy. It started roughly in 1980 with the Reagan narrative of trickle-down wealth effects from fiscal policy. And before we make overly facile comparisons with the 1920s and 1930s, this chart isn’t taking into account pensions and social security and other safety net features of the modern semi-sorta-welfare state. So I don’t know how historically abnormal today’s level of significant wealth inequality might be, whether it’s Louis XVI level inequality or simply robber baron level inequality.

But I know that it IS.

I know that inequality is growing. I know that the pecking order has been getting stronger for a couple of decades now, and that it’s been driven by the Central Bankers’ Bubble over the past decade. I suspect that this is probably a good thing for global egg production. I also suspect that this is a bad thing if you care about liberty and justice for all.

The narrative around trickle-down fiscal policy has become highly politicized, as the good Democrat soldiers at the usual Team Elite bastions never tire of telling us how those Republican tax policies will increase wealth inequality. And they’re right.

But these same tireless foes of trickle-down fiscal policy trip over themselves praising and promoting the narrative of trickle-down monetary policy under Bernanke and Yellen, which has been FAR more effective at delivering windfall gains to the really rich than Ronald Reagan or Paul Ryan could ever dream of achieving through tax “reform”.

Lenin called communist sympathizers in the West “useful idiots”. The Nudging State and the Nudging Oligarchy have their own willing crew of stooges, drawn primarily from children of privilege (well off or merely rich, not really rich) who want to “make a difference”, who want to be Someone Who Matters to the World.

[Team Elite Narrator: But you DESERVE to be Someone Who Matters to the World, my young friend. You’re good enough, you’re smart enough, and doggone it, people like you. Why, here as a WaPo staffer you’ll be making the world a more succulent host for Jeff Bezos better place for all!]

The picture on the left is Jeff Bezos, age 40, worth a billion dollars or so. The picture on the right is Jeff Bezos, age 52, worth 100 billion dollars or so. HGH looks good on you, Jeff.

I think that at some point in the next decade, it’s inevitable that oligarchs like Bezos will gain access to life extension technologies unavailable to ordinary mortals. At that point, the pecking order will take on an entirely new dimension. At that point, we have a war. Which the non-rich will lose.

You’ll be pleased to know that Janet Yellen, with a reported net worth of about $15 million, is “greatly concerned” about growing inequality, but regrets that the Fed has no purview on this terrible problem. Perhaps Congress should do something, she suggests, like “making college more affordable” — by which she means extending even more debt financing — or “supporting early childhood education” — by which she means publicly funded daycare so that both parents can work in support of the Nudging State and the Nudging Oligarchy.

This is Step Two of the Pecking Order Lie — the provision of massive debt financing to the non-rich, preferably for non-appreciating experiences like going to college or quickly depreciating things like cars and smartphones.

Why? So that the non-rich will FEEL RICH even as they BECOME POORER.

Student debt (and every other form of consumer debt) is the functional equivalent of an office birthday cake. Debt provision and a pleasant narrative to go with it is a highly cost-effective behavioral tool for maintaining worker morale in the face of objectively deteriorating labor conditions.

Milton:   The ratio of people to cake is too big!

 

- Office Space (1999)

Unless, like Milton, you don’t get your slice of cake. Then you burn the office down. Or vote for Trump. Same thing.

It is a sin to believe evil of others, but it is seldom a mistake.

 

- Garrison Keillor

The pecking order is real. It is beautifully masked in modern human society, but no less brutal and no less cruel than in the chicken coop.

How do you escape the pecking order? How do you quit Mitch & Murray? Well, you can make a lot of money. That’s the tried and true method. Enough money to build a walled garden around you and yours, expanding it as you can to take in others. F-you money. Somewhere between merely rich and really rich should do the trick, depending on how many generations you want to protect within those walls. Unfortunately, that’s a big gulf these days, that distance between merely rich and really rich, and it’s getting wider every day.

But there’s another way.

No matter how much money we have or don’t have, we can reject the idea that we can be Someone Who Matters to the World and instead embrace the idea that we must be Someone Who Matters to the Pack. Now maybe your pack IS the world. Probably not, but maybe. If it is, then be bold and matter to the world. But more likely it’s your family. More likely it’s your friends. More likely it’s your partners and employees. More likely it’s your church. More likely it’s your school. More likely it’s your country. It’s damn sure not your political party. It’s damn sure not an oligarch.

Why should we reject this notion of being Someone Who Matters to the World? Because that’s the shiny lure that the Nudging State and the Nudging Oligarchy dangle in front of bright young things. And bright not-so-young people, too. The shiny lure of mattering is how they set the hook — which is debt — and that’s how they reel you in. Because once you’ve got that hook in your mouth … once you’re up to your eyeballs in debt … it’s soooo hard to ever get free. I know of which I speak. So do a lot of people reading this note, I bet.

The simple truth is that we can’t escape the pecking order. We can’t escape economic inequality and the hard-wired impulses to brutality and cruelty used to support inequality. Not for long, anyway. Walled gardens never last.

But we can do better. We can reject the lies used to justify inequality even as we accept the reality of inequality. We can be IN the pecking order world without being OF the pecking order world.

There is an autonomy inherent in rejecting the lure of the Nudging State and the Nudging Oligarchy, an autonomy that can power a life well lived. It doesn’t mean rejecting the world as it is. It doesn’t mean leaving the grid for Alaska homesteading. No, that’s a prison of quite another sort. It doesn’t mean mattering to nothing. It means mattering to other humans who see YOU as an autonomous end-in-itself and not as a means to an end. THAT’S your pack. Make a difference for THEM.

In January 1941, eleven months before Pearl Harbor brought the United States into World War II, Franklin Roosevelt gave his Four Freedoms speech — Freedom of Speech, Freedom of Worship, Freedom from Want, Freedom from Fear — memorialized over the next few years by Norman Rockwell in these famous paintings.

What is autonomy? It’s freedom.

What freedoms? These.

If you get nothing else from Epsilon Theory, get this: these freedoms are not granted to us by the State or the Oligarchs. They are not theirs to give. They are not rewards for good behavior or allocations from a central pot. They are ours. They have always been ours. They cannot be taken away.

But we can give them away. We can sell our birthright for a mess of pottage in the form of student debt and a tasty slice of office birthday cake. We can allow ourselves to be beguiled by the glamour of mattering for a Mighty Cause, giving away our allegiance to those who would use us as fodder or feed. We can embrace the pecking order lie and exchange our True Freedoms for Hollow Freedoms, for a freedom of socially acceptable speech and a freedom of socially acceptable worship and a freedom from socially manufactured wants and a freedom from socially manufactured fears.

We can’t escape from a world dominated by the Hollow Freedoms any more than we can escape from a market dominated by Hollow Liquidity and Hollow Volatility. But in markets and in politics we can call things by their proper names. We can maintain our autonomy of mind. We can find our pack and matter to them. We can recognize that a politics without shame is a politics without honor, just as a market without risk is a market without reward. We can take a loss in the short term, knowing that we’re playing the long game. We can do this handshake by handshake, investment by investment, candidate by candidate, good deed by good deed.

And watch how our world starts to change. Watch how we Make America Good Again.

Watch Live: Senate Banking Committee "Grills" Trump"s Fed Chair Nominee Jerome Powell

Update (11:45 am ET): As Powell"s testimony draws to a close, analysts at Stone & McCarthy noted that - as expected - the future Fed chair"s comments were "generally dovish".

The hearing was largely free of surprises. As it neared its close, Powell offered his thoughts about the blockchain and digital currencies (one day they could impact the Fed"s policies, but right now they"re too small to matter), and the mysterious roots of low inflation (the Fed is still struggling to determine if it"s due to transitory factors, or some kind of fundamental shift.

Here"s Stone & McCarthy:

• In his confirmation hearing before the Senate Banking Committee, Powell fielded questions mainly on the topics of raising interest rates, shrinking the balance sheet, and his views on "tailoring" regulation.


• Powell maintained the view that it is appropriate to gradually increase short-term rates against a backdrop of healthy, consistent growth with a strong labor market. He did not address inflation issues.


• He said GDP growth should be about 2.5% in 2017, and looking forward to "something pretty close to that" next year.


• Powell declined to specifically say if he would vote for another rate hike at the December 12-13 FOMC meeting. He did say "conditions are supportive" for another rate hike and "the case for raising rates at the next meeting is coming together".


• He anticipated that balance sheet normalization will proceed "passively and gradually", and that in "about 3 or 4 years" that the balance sheet will decline to a "new normal" of about $2.5 trillion-$2.9 trillion. He said no one can be certain about the exact size at the end. He also said the Fed wants the balance sheet to be composed mainly of Treasurys.


• "I do" oppose auditing of monetary policy decisions. He reiterated that an independent central bank helps ensure better outcomes for the economy. He said there has been "nothing" in his conversation with the Administration to give him any concern about political interference.


• He declined to answer questions regarding the tax reform bill, he said broadly "the debt needs to be on a sustainable path", but "not our role" to comment on fiscal policy.


• He supported "tailoring" of regulation and supervision to put the "most intense and stringent" regulation on the largest institutions and scaling down for smaller banks. "We are taking a fresh look at this now." He said he and Vice Chair for Supervision Quarles are in agreement on most points.


• There are currently three vacancies on the Board for the terms ending January 31, 2020; January 31, 2022; and January 31, 2030. There will be a fourth when Yellen retires from the Board for her term as Governor that ends January 31, 2024. By law, one of these seats will go to a community banker.


• The office of the Vice Chair of the Federal Reserve is currently vacant. The White House has not named a candidate as yet. The position of Vice Chair for Supervision was filled by Randal Quarles as of October 15.

* * *

Update (11:00 am ET): So far, Powell’s testimony before the Senate Banking committee has been a snooze-fest. However, Powell offered what many view as a telling clue about how his approach to banking regulations might differ from his predecessor’s.

In response to a question by Republican Sen. John Kennedy of Louisiana, Powell said that he doesn’t believe there are any more “too big to fail” banks in the US.

The question came after Kennedy admonished Powell to fight harder for community banks, after accusing him of trying to "regulate them half to death.”

In previous remarks, Fed Chairwoman Janet Yellen said her assessment of the country’s financial institutions, and the industry as a whole, is that the US has “a safer” banking system now than it did leading up to the crisis. Because of that, she said the Fed planned to eliminate certain burdens on smaller regional banks.

Powell’s remark suggests he might be open to loosening the burdens on larger banks as well.

Here’s more from WSJ:

Sen. John Kennedy (R., La.) put Mr. Powell in an awkward position with a question about whether big U.S. banks are still “too big to fail.”

 

The only way to know the answer for sure is for one of those banks to actually fail, without a taxpayer bailout. That hasn"t happened since the last bailouts in 2008.

 

Mr. Powell first gave the stock answer for regulatory officials: “We’ve made a great deal of progress on that,” he said, citing regulations adopted after the financial crisis. Pressed further, Mr. Powell did something regulators rarely do:

 

He answered the question directly.

 

“I would say no,” he said.

Powell also revealed his expectations for GDP growth, saying he expects 2.5% growth this year, and around that level next year thanks to accomodative financial conditions and a strong stock maret. He added that the case for a December rate hike is "coming together," though he declined to give a "specific answer" about whether the bank would hike.

"We need to go ahead and have the meeting to listen to each other."

* * *

Just two weeks after President Donald Trump announced that Fed Governor Jerome “Jay” Powell would be his pick to succeed Janet Yellen as chairman of the Federal Reserve, he is appearing today before the Senate Banking committee in a confirmation hearing that’s viewed as a virtual certainty.

The hearing begins at 10 am ET. Watch it live below:

However, while Powell’s chances of approval are high – given that he’s been twice confirmed as a Fed governor - Business Insider’s Pedro Da Costa points out that Powell – a former private equity executive - has commented fairly sparsely on monetary policy and regulatory matters despite serving as a Fed governor since 2012, so there are lots of unanswered questions about his views. As Reuters points out, Powell - once one of the FOMC"s more hawkish members, has recently moderated his position to more closely resemble Yellen"s dovish approach.

Also, Powell"s record isn"t without blemish: In the past, however, Powell has been more cautious about the risks posed by such an expansive approach. In his first months at the Fed, Powell was among those who pressured then chair Ben Bernanke for more clarity on when the central bank would start scaling back its bond buying. When Bernanke made those plans public it triggered a “taper tantrum” spike in market interest rates in the summer of 2013, forcing Bernanke, Powell and others to do damage control.

This could precipitate a lively Q&A session as senators try to get to the heart of exactly what they can expect from the reticent central banker.

According to media reports and analysts’ assessments, Trump’s logic in choosing Powell (over both Kevin Warsh, John Taylor and Powell’s current boss, Janet Yellen) is that, being a lifelong Republican, Powell has a slightly more permissive stance on regulation than Yellen. However, he also shares Yellen’s dovish tendencies, and it’s widely believed that interest rates and the Fed’s balance-sheet unwind will proceed cautiously under his leadership.

During the hearing, da Costa posits that Powell faces two principal tasks: Flesh out his views on monetary policy, regulation and how they differ from those of his predecessor.

Here are a couple hypothetical questions that, if da Costa were a senator, he would ask:

1. Do you intend to continue raising interest rates in December and next year despite below-target inflation, and what factors are you considering in making that decision?

Part of Powell’s early mission on this front will be establishing himself as a leader and developing his own way of communicating on major policy issues, many of which he has touched upon only sparsely as a Fed governor.

 

Powell should be pressed on his lack of economics training - he’s the first Fed chair in decades to lack a doctorate in the field - and how he will use his staff and the expertise of his colleagues to help guide decision making.

 

Powell is expected to maintain the more committee-centered approach that began under Ben Bernanke, who wanted to move away from Alan Greenspan’s cult of personality, and continued under Yellen.

 

The Fed has raised interest rates four times since December 2015, to the current 1% to 1.25% range. The central bank has also started to gradually shrink a $4.5 trillion balance sheet that expanded sharply in response to the Great Recession of 2007-2009.

2. What is your view of the post-crisis financial rules and how willing would you be to roll them back, in particular capital requirements for big banks and consumer protections now under challenge?
 

Many investors and public advocates worry that weaker rules could lead banks to again take wild risks and put consumers and workers at undue risk. Powell, a former Carlyle Group executive, has plenty of financial market experience, but some might worry he is ideologically too close to the sector to supervise it closely.

 

Both Yellen and the recently-retired vice chair, Stanley Fischer, have spoken in unusually blunt terms about the dangers of rolling back financial rules.  

 

Powell has been friendly to the idea of letting financial institutions roam more freely, albeit within limits, according to The New York Times. Indeed, Powell"s industry-friendly stance probably didn"t hurt his chances of landing the job.

 

A political squabble that started last week over the leadership of the Consumer Financial Protection Bureau is just a small taste of all the political blowback that is likely to ensue from Republican efforts to undo post-crisis financial regulations. These include much higher capital requirements for the largest Wall Street institutions, because these are the ones that brought the financial system to the brink of failure in 2008.

 

Another big regulatory issue facing the Fed is how to regulate so-called “shadow banks,” which range from hedge funds to private equity to the money market industry — essentially firms without a banking charter that perform banking-like functions.

 

Before the financial crisis, investment banks were part of the shadow banking world, and the lack of regulatory scrutiny on their activities was a major culprit of the crisis.

 

Given the massive and lingering costs of that debacle in the form of lost jobs, wealth and productivity, Americans should hope Powell places the burden of proof on the need for any rule rollbacks on the industry, and even then, assesses their assertions with a giant grain of salt.

In his prepared remarks – released last night - Powell said he expected the central bank to continue raising its benchmark interest rate and trimming its balance sheet under his leadership, but had some pointed comments over deregulation, economic stability, and the plunge protection team...

Chairman Crapo, Ranking Member Brown, and other members of the Committee, thank you for expeditiously scheduling this hearing and providing me the opportunity to appear before you today. I would also like to express my gratitude to President Trump for the confidence he has shown by nominating me to serve as Chairman of the Board of Governors of the Federal Reserve System. The Federal Reserve has had a productive relationship with this Committee over the years, and, if you and your colleagues see fit to confirm me, I look forward to working closely with you in the years ahead.

 

Before I continue, I would like to introduce my wife, Elissa, who is sitting behind me. I would not be here today without her unstinting love, support, and wise counsel.

 

As you know, I have served as a member of the Board of Governors and the Federal Open Market Committee (FOMC) for more than five years, contributing in a variety of capacities, including most recently as chairman of the Board"s Committee on Supervision and Regulation. My views on a wide range of monetary policy and regulatory issues are on the public record in speeches and testimonies during my service at the Fed. The Congress established the Federal Reserve more than a century ago to provide a safer and more flexible monetary and financial system. And, almost exactly 40 years ago, it assigned us monetary policy goals: maximum employment, meaning people who want to work either have a job or are likely to find one fairly quickly; and price stability, meaning inflation is low and stable enough that it need not figure into households" and businesses" economic decisions.

 

I have had the great privilege of serving under Chairman Bernanke and Chair Yellen, and, like them, I will do everything in my power to achieve those goals while preserving the Federal Reserve"s independent and nonpartisan status that is so vital to their pursuit. In our democracy, transparency and accountability must accompany that independence. We are transparent and accountable in many ways. Among them, we affirm our numerical inflation objective annually and publish our economic and interest rate projections quarterly. And, since 2011, the Chairman has conducted regular news conferences to explain the FOMC"s thinking. Additionally, we are accountable to the people"s representatives through twice-a-year reports, testimony, oversight, and audited financial statements. I am strongly committed to that framework of transparency and accountability and to continuing to look for ways to enhance it. In our federated system, members of the Washington-based Board of Governors participate in FOMC deliberations with the presidents of the 12 regional Federal Reserve Banks, which are deeply rooted in their local communities. I am a strong supporter of this institutional structure, which helps ensure a diversity of perspectives on monetary policy and helps sustain the public"s support for the Federal Reserve as an institution.

 

If confirmed, I would strive, along with my colleagues, to support the economy"s continued progress toward full recovery. Our aim is to sustain a strong jobs market with inflation moving gradually up toward our target. We expect interest rates to rise somewhat further and the size of our balance sheet to gradually shrink. However, while we endeavor to make the path of policy as predictable as possible, the future cannot be known with certainty.

 

So we must retain the flexibility to adjust our policies in response to economic developments. Above all, even as we draw on the lessons of the past, we must be prepared to respond decisively and with appropriate force to new and unexpected threats to our nation"s financial stability and economic prosperity--the original motivation for the Federal Reserve"s founding.

 

As a regulator and supervisor of banking institutions, in collaboration with other federal and state agencies, we must help ensure that our financial system remains both stable and efficient. Our financial system is without doubt far stronger and more resilient than it was a decade ago. Our banks have much higher levels of capital and liquid assets, are more aware of the risks they run, and are better able to manage those risks. Even as we have worked to implement improvements, we also have sought to tailor regulation and supervision to the size and risk profile of banks, particularly community institutions. We will continue to consider appropriate ways to ease regulatory burdens while preserving core reforms - strong levels of capital and liquidity, stress testing, and resolution planning - so that banks can provide the credit to families and businesses necessary to sustain a prosperous economy. In doing so, we must be clear and transparent about the principles that are driving our decisions and about the expectations we have for the institutions we regulate.

 

To conclude, inside the Federal Reserve, we understand that our decisions in all these areas matter for American families and communities. I am committed to making decisions objectively and based on the best available evidence. In doing so, I would be guided solely by our mandate from the Congress and the long-run interests of the American public.

 

Thank you. I would be happy to respond to your questions.

The hearing is expected to last until noon ET.