The Fed is Arranging Deck Chairs on the Titanic (the Iceberg Comes in 2018).

The Fed concludes its final FOMC meeting of the year today.

The entire financial world expects the Fed to raise rates a final time. This will mark the fifth rate hike since December 2015, and the fourth of the last 12 months.

Throughout this time period, the Fed has routinely stated that it is confused as to why inflation is “too low.”

Inflation is not too low. The method the Fed uses to measure inflation is intentionally incorrect. As a result, the official inflation numbers reflect whatever the Fed wants, as opposed to reality.

Alan Greenspan devised this entire gimmick back in the 1990s. At that point, the amount of debt in the US financial had already become a systemic issue.

So Greenspan opted to “paper over” this fact via inflation… hoping that by aggressively devaluing the US Dollar he could keep this game going.

The only problem as far as the Fed was concerned was that the inflation numbers would reveal the Fed’s strategy. So Greenspan started tinkering with how the Fed measured inflation, removing various components (food and energy) and tweaking things so the Fed would no longer measure the cost of maintaining the same quality of life.

Greenspan hoped understating inflation publicly he would give him the cover he needed to pursue an aggressive devaluation of the US Dollar. The flip side of this was that the Fed would begin intentionally creating asset bubbles by maintaining loose monetary policy ad infinitum.

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.

That bubble is now beginning to burst. And ironically it is inflation (which the Fed claims is too low) that will do it.

It will take time for this to unfold, but as I recently told clients, we"re currently in "late 2007" for the coming crisis.

The time to prepare for this is NOW before the carnage hits.

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

Trump Sends Second Aircraft Carrier To Korean Peninsula With 7,500 Marines Aboard

Just one week after uttering his now-infamous "this is the calm before the storm" statement to the press ahead of a dinner with military leaders, we now learn that President Trump has dispatched a second nuclear aircraft carrier, the USS Theodore Roosevelt, filled with 7,500 marines, to the Korean Peninsula.  Of course, this comes after rumors swirled earlier this week that North Korea is preparing to fire multiple short-range rockets around the opening of the Chinese Communist Party’s twice-a-decade congress on Oct. 18th.

The USS Theodore Roosevelt, a Nimitz-class aircraft carrier, is en route to the western Pacific after leaving San Diego port last week.

The Roosevelt will focus on maritime security operations in the Pacific and Middle East, the US military announced.

But the £3.4billion ($4.5billion) warship, known as “the Big Stick”, has been sent to boost US defence on the Korean peninsula, according to South Korean media.

It is expected to arrive in region in the coming weeks amid fears North Korea is about to test another missile or nuclear weapon.

Per the following map from Stratfor, the USS Theodore Roosevelt will join the USS Ronald Reagan which is already operating in the region.

According to a statement from Admiral Steve Koehler, a strike group commander on the ship, the Roosevelt is carrying some 7,500 sailors and marines that are “ready as a war fighting force”.

“The US Navy carrier strike group is the most versatile, capable force at sea,” he said in a statement before the ship’s launch.

“After nearly a year of training and integration exercises, the entire team is ready as a warfighting force and ready to carry out the nation’s tasking.”

Of course, as we noted above, this buildup of naval forces in the Pacific follows an ominous warning from the President last week that preceded a dinner with military leaders: "You guys know what this represents? Maybe it"s the calm before the storm," he said: "It could be the calm... before... the storm."

A reporter quickly asked what the storm might be -"Is it Iran, ISIS, what"s the storm?"  to which he replied... "...you"ll find out."

TRUMP: "Maybe it"s the calm before the storm."
...
REPORTER: "What storm Mr. President?"
TRUMP: "You"ll find out." (via Satellite News) pic.twitter.com/bWMzGrDPNa

— Kyle Griffin (@kylegriffin1) October 5, 2017

So what say you?  Just more bluster from a headline seeking President and normal-ish naval patrols in the Pacific or have we reached a point of no return in an escalating conflict with a rogue North Korean leader that could turn violent at any moment?

5 Reasons Franklin D. Roosevelt was the WORST

Via The Daily Bell

Can you believe that there are at least three statues of Franklin D. Roosevelt in Washington DC? There is one in South Dakota too, another in Virginia, and even more in London.

It appears all these places are overrun by racists and fascist sympathizers. How can people put up with revering a man who:

1. Literally Rounded Up 120,000 Japanese Americans, and Put them in Concentration Camps!

That was authorized by executive order 9066, which Roosevelt signed February 19, 1942.

How is this fact so often left out of any discussion about how “great” FDR was? These people were American citizens, and they were arrested for no reason other than their heritage.

He imprisoned an entire race. How is he not widely accepted as the biggest American racist of the last century? He was certainly the most effective racist.

Two reports which Roosevelt commissioned in the years prior found that Japanese Americans posed little to no risk to the government. Since FDR ignored the reports’ recommendations, it seems his violation of the rights of Japanese Americans was motivated by racism.

2. He Actually Outlawed Gold!

FDR had absolutely no respect for the people’s rights. He had no respect for the rule of law. He was a tyrant!

With Executive Order 6102, signed on April 5, 1933, everyone living in America was given 25 days to turn in their gold. Yes, their property was confiscated without due process. The government set the price they paid to about $20 per ounce. Three months later, the price miraculously jumped to $35 per ounce.

The law wasn’t repealed until 1974!

3. FDR was Pen Pals With Mussolini, Whom he Admired.

It was a mutual love between FDR and Mussolini. The book, Three New Deals, shows how similar the movements of the 1930’s were in America, Italy, and Germany. It recounts how Roosevelt said:

“‘I don’t mind telling you in confidence,’ FDR remarked to a White House correspondent, ‘that I am keeping in fairly close touch with that admirable Italian gentleman"”

And Mussolini reviewed FDR’s book Looking Forward.

“Reminiscent of Fascism is the principle that the state no longer leaves the economy to its own devices.… Without question, the mood accompanying this sea change resembles that of Fascism.”

4. The Roosevelt Administration was Infested with Russian Spies.

Diana West described in her book, American Betrayal, just how well the Soviet Union infiltrated the White House. Top officials close to the President were supportive of the Soviet Regime to the point of suspicion.

In one sketchy encounter, soldiers were told to stand down when they witnessed American secrets being smuggled out of America on a plane bound for Russia, guarded by Soviet soldiers. This may be how the Soviet Union was able to make nuclear weapons.

And other policies were directly influenced by socialist sympathizers and possibly outright spies in the government during FDR’s tenure. Soviet troops were given precedence for American supplies over American troops during World War Two!

5. FDR Hated the Press and Suppressed Them.

Reason Magazine describes FDR’s War Against the Press:

Roosevelt warned in 1938 that “our newspapers cannot be edited in the interests of the general public, from the counting room. And I wish we could have a national symposium on that question, particularly in relation to the freedom of the press. How many bogies are conjured up by invoking that greatly overworked phrase?”

Roosevelt started the FCC and limited licenses for radio to six months.

It did not take long for broadcasters to get the message. NBC, for example, announced that it was limiting broadcasts “contrary to the policies of the United States government.” CBS Vice President Henry A. Bellows said that “no broadcast would be permitted over the Columbia Broadcasting System that in any way was critical of any policy of the Administration.” He elaborated “that the Columbia system was at the disposal of President Roosevelt and his administration and they would permit no broadcast that did not have his approval.” Local station owners and network executives alike took it for granted, as Editor and Publisherobserved, that each station had “to dance to Government tunes because it is under Government license.”

FDR’s government illegally intercepted telegraphs and used the ill begotten information to subpoena journalists, chilling any decent, and drying up the flow of information to reporters. A law was even proposed to give prison sentences for anyone who knowingly published false information: fake news.

Tear down this racist, fascist’s statues!

All Conundrums Matter

Authored by Jeffrey Snider via Alhambra Investment Partners,

Since we are this week hypocritically obsessing over monetary policy, particularly the federal funds rate end of it, it’s as good a time as any to review the full history of 21st century “conundrum.” Janet Yellen’s Fed has run itself afoul of the bond market, just as Alan Greenspan’s Fed did in the middle 2000’s. But that latter example wasn’t truly the first conundrum for monetary policy. There remain a great many questions (in the mainstream, anyway) about the dot-coms.

If we define conundrum more broadly as I believe more appropriate, then it’s not just about UST yields long or short. It is instead the lack of (monetary) effect through federal funds rate management. In the early 2000’s this was apparent in a whole range of factors – starting with the stock market.

It had become conventional trading wisdom that, under Alan Greenspan, you don’t fight the Fed. He was the “maestro” who at his whim sat enormous monetary power. This idea of the so-called Greenspan put was born sometime in 1998 after the LTCM debacle, a fiasco that nonetheless seemed to validate the premise.

The dot-com bust, however, pushed stocks very sharply lower over an unusually lengthy period of time, taking almost three years to fully complete. During that time, the Fed was not at all idle (as you can plainly see above). In less than a year, Greenspan had reduced the federal funds target from 6.50% down all the way to 1.75%. While the rationalization for its actions was largely economic in nature, there can be no denying that under a discretionary policy regime the FOMC heavily considered the stock market.

That was supposed to be massive “stimulus” and “accommodation”, that which no stock investor should or could ignore. And yet, it clearly had no effect. The dot-com bust went on further despite what in mainstream tradition was a change to tremendously “loose” policy. Greenspan had unleashed the might of his put, and stocks tanked anyway.

But it wasn’t just the stock market that failed to be accommodated. Though the dot-com recession that began in 2001 was the mildest on record, an outcome which many were and are quick to give Greenspan credit for, the economic problem persisted instead through the first years of the recovery. In other words, the issue wasn’t its depth, but the lack of growth that followed what would otherwise have been a minor footnote in economic history.

In terms of GDP, the recession itself was just two negative quarters spread out over the final three of 2001 (and they were non-consecutive, proving that the “technical” definition of recession isn’t one). GDP jumped to nearly 4% in the first quarter of 2002, setting up expectations for a traditional V-shaped recovery, but by the end of that year was down near zero again – as stocks kept falling.

The real weakness of this first “conundrum”, however, is revealed in the labor market. It was, as had become by 2004 a campaign issue in the Presidential election that year, the second major “jobless recovery” to affect a member of the Bush family running for the White House. It’s the economy stupid somehow still resonated despite everything in the 1990’s. The final two “rate cuts” the FOMC voted (the penultimate one for 50 bps in late 2002; and the final for the last 25 bps in June 2003 to get down to a then-record low of 1%) make some orthodox sense in this context though they were executed long after the official recession end.

The Fed by that time openly worried about both stocks as well as the failure of recovery to ignite – even though by all convention “stimulus” was abundant, even enormous. The word “deflation” was used several times over the course of internal policy discussions, including the last one in June 2003, as it was brought up in the mainstream on a few occasions.

It has been Federal Reserve tradition to greatly fear a stock crash, and here was one that was as undeniable as it was lengthy. Owing to how the Crash of 1929 was viewed, stocks were given monetary importance that in this circumstance produced a puzzle. Why didn’t the Greenspan put work on stocks, while at the same time why didn’t the stock crash lead to a far greater economic calamity?

An enterprising believer in Greenspan might surmise that the federal funds “stimulus” was actually quite powerful, and that it merely counterbalanced in the real economy the building negative forces of the stock crash; a monetary standoff of sorts. The two opposing sides were largely canceled out until the natural progression of the business cycle took over. Good luck, as it was described by the economists who would later coin the phrase the Great “Moderation.”

A simpler and more consistent explanation follows the labor trail, and ends up with eurodollars.

The primary reason for the jobless recovery was very simple – Ross Perot’s 1992 prediction had come to pass. On the surface, there was no reason whatsoever that US manufacturing would respond so harshly to what was, particularly for consumers, such a mild contraction. And yet, the level of manufacturing jobs in the US during this very crucial period, what otherwise would have been a more natural recovery, utterly collapsed. Between the peak in July 2000 and the FOMC’s last “rate cut” in June 2003, an astounding 16% of all manufacturing jobs disappeared.

And they would not stop being destroyed for years thereafter. This decimation of manufacturing would continue on until the depths of the Great “Recession”, and would be recorded by a number of economic accounts including domestic factory orders.

Americans didn’t stop buying goods, or services for that matter, they instead stopped buying, at the margins, American goods. As would become common, throughout the period following the dot-com recession US import volumes would explode.

It was eventually and officially included in the second “conundrum” of the middle 2000’s, as well as lead to the ridiculous “global savings glut” hypothesis that “saw” these eurodollars while trying so very hard to deny their existence.

In order for offshoring to occur, foreign producers needed investment in order to be able to produce. They already had the necessary (cheap) labor, what was lacking since Ross Perot was the finance and global monetary flexibility that could put it all together. The maturation of the eurodollar system in the late 1990’s, particularly after the repeal of Glass-Steagall that finally allowed depository institutions to get their balance sheets into the shadows, was the final ingredient setting the US manufacturing up for this domestic conflagration. The dot-coms were merely the spark.

And if the eurodollar system was rapidly growing through all of this, as we know that it was, that would further explain why the stock bust never created the economic catastrophe of depression. In 1929, stocks were intimately related and intertwined with money through the NYC call market and correspondence system. In 1999, that just wasn’t the case, as eurodollars were a parallel monetary system all its own, disconnected from the price or collateral nature of stocks.

Eurodollars supplied money to the real economy here and elsewhere so that the stock bust would be of limited downside in effective monetary terms, but ironically that the upside would also be limited at least in this country as it greased the wheels of US manufacturing destruction. From the perspective of various EM economies by contrast, the dot-com recovery was instead so many “miracles.” Judged instead by the whole global economy, there was no inconsistency in money that was, after all, itself global.  

The Fed was largely a bystander in all of it, confused as always though at least for the first time Greenspan was openly contradicted, and by everything.

Any legitimate questions or doubts were soon forgotten, though, as the housing mania subsumed all attention – and was again attributed to monetary policy rather than the by-then exploding, parabolic eurodollar. Though Greenspan was by this time slightly tarnished by reputation, he was still held in high regard, at least until his final act produced the second conundrum disconnecting monetary policy more completely (in the opposite direction than the first) from actual and effective global money conditions.

The final failure of eurodollars in 2007 proved the categorical differences between money and Federal Reserve policy for good, but by then nobody much cared about the first instance(s) of Fed failure; there were, and sadly remain, bigger problems to be concerned about.

It is, however, all connected; the monetary history (including eurodollars) of the 21st century comes out very different than the monetary policy (eurodollars don’t matter) history of the same period. The latter leads to drug addicts and Baby Boomers as an eventual excuse for how QE and ZIRP performed about as well as monetary policy in 2001, 2002, and 2003. The former leads us to answers.

Why The 21st Century Sucks – Turtles All the Way Down

Authored by Bonner & Partners" Bill Bonner via Acting-Man.com,

A Truly Sucky Century

BALTIMORE – What an awful century! Worst we’ve ever seen. Household incomes are down. Employment is down, with 7 million people in the U.S. of working age without jobs. Productivity growth is down. GDP growth is down – to only about 0.5% per capita last year. Even life expectancies are down. Drug overdoses are up. Suicides are up. One out of every eight children lives in a family getting food stamps. One of out every eight adults takes psychoactive drugs .

Death from drug overdoses is back in fashion – big time.  Club of Rome Malthusians can only dream of such effective population control. The picture to the right illustrates the the adventurous lifestyle of many 21^st century junkies. Contrary to many of their contemporaries, these young men are not weighed down by a great many possessions, and they do get a lot of fresh air. Before you decide on a career change to join these rugged outdoorsmen though, you should consider that they do have a bit of a life expectancy problem – click to enlarge.

Half of all families get money from the feds. Half have less than $500 available for emergencies. Two-thirds aren’t saving for retirement. More than half cannot afford their own homes. And 49 million live in poverty.

What’s to blame for such a sucky century? In addition to declining health and declining standards of living – as well as declining standards of decency – we also have wretched art, music, and architecture… unwinnable wars against poverty, drugs, and terrorism… $20 trillion of national debt… and overpriced assets that leave little of interest to the sober investor or desperate retiree.

We find much of modern art more funny than wretched actually, such as this Barnett Newman painting called Anna’s Light which recently sold for $105 million. It is often confused with his very similar looking work Vir Heroicus Sublimus, which has a differently placed white stripe and a black stripe as well! There’s also the almost exactly similar looking “Who’s afraid of Red, Yellow and Blue?”, which sports a blue stripe on the left hand side, and a tiny yellow stripe on the right hand side. Given that so much more is going on in the latter painting, it would probably trade at a premium over Anna’s Light. We see the prices paid for modern art as a very telling inflation signal. Rich people seem to be almost in a Weimar-like panic to get rid of their cash balances. Incidentally, Barnett Newman ran for NY mayor in 1930 as an “anarchist” (of the leftist variety, we presume).

And don’t get us started on the feds! Meanwhile, the signs of another debt crisis – like a flash mob at a political rally – are growing.

The stock market has been going up far too long without a correction. The economy is overdue for a recession.  Federal Housing Administration mortgage delinquencies are rising. Student debt defaults are rising. Auto-loan repayments are slipping.

How did we get in such a lamentable state of affairs? Sayeth Alan “Bubbles” Greenspan, now Alan “Hard Money” Greenspan [miraculous transmogrification! PT]:

“We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.”

He’s right. And when money gets out of line, everything gets out of line. For all we know, the Dow is on its way to 30,000. But it will have to go on without us. We can’t take that much excitement.

2005: Alan Greenspan gets adorned with presidential bling. If he gets too gold-buggish, he might have to give it back.

Besides, we continue to guess that the premise behind this great rally is false. It imagines that stocks were fairly priced on November 8th, and now Mr. Trump will be able to pass a major tax cut, paid for with tax increases.

And it imagines that somehow this will lead to such a boom that will double GDP growth rates. “Treasury Secretary Steven Mnuchin Sees Tax Overhaul by August,” reads a Wall Street Journal headline.

Fantasy Turtles

In the 19th century, when the wonders of science and engineering were even more flabbergasting than they are today, Thomas Henry Huxley (grandfather of Brave New World author Aldous and evolutionary biologist Julian) traveled around Britain giving speeches on agnosticism.

Science, he argued, not mysticism or superstition, was the wave of the future. He further informed the often-benighted yokels that the Earth was a ball and that it revolved around the sun.

“Not so fast, Mr. Huxley,” an old woman challenged him. “The Earth is flat.”

The scientist, seeing an easy foil, probed: “Then, madam, upon what does this flat Earth rest?”

“Why, a turtle, of course.”

“And upon what does the turtle rest?”

“Another turtle.”

“Well, surely that turtle must stand upon something. What?”

“Oh, you don’t understand, Mr. Huxley. It’s turtles all the way down.”

In today’s economy, we see fantasy turtles all the way down, too.

Here’s the proof: turtles all the way down! Of course, as every reader of Discworld knows, the first layer on which our flat earth rests consists of elephants that stand on the uppermost turtle.

Crony Grab Bag

The stock market, for example, was way overpriced in November and now rests on delusions about a coming tax cut (funded by a tax increase) and more federal spending (funded by more debt).

First, the plan will not pass Congress – not without so many exceptions, jiggers, and collusion that it turns into another grab bag for crony lobbyists. And second, even a real  tax cut, unaccompanied by a spending cut, merely shifts federal funding to a less obvious source.

The resulting hotchpotch “reform” won’t reduce the win-lose deals ruining the economy. Nor will it boost corporate earnings by allowing businesses to make more win-win deals with suppliers and consumers and learn faster.  Instead, all they will learn is how to adapt to the new tax system.

Stock buybacks vs. net income. If one adds S&P 500 dividends to buybacks, the total has actually exceeded net income for several years. In other words, companies have to amass more and more debt in order to “return money to shareholders” (as the next chart shows, that is indeed what they are doing). Note that net income has ultimately gone nowhere for years – click to enlarge.

Meanwhile, much of the reason for current stock prices can be found on the back of another imaginary turtle: stock buybacks. In 2016, for example, S&P 500 companies spent more buying their own shares back (and then canceling them) than they did on dividends and research and development combined.

Where do they get the money? They borrow it. Money is made available to the biggest companies so cheaply that, after factoring in inflation, it is practically free.

US non-financial corporate debt, total (bonds + bank loans combined). It is interesting that this figure has gone “parabolic” right after the great financial crisis (GFC). One could see it as companies making up for lost time, after all it is apparently “normal”  for corporate debt to roughly double every ten years in the modern fiat money era. Let’s not forget though, two of the four most severe bear markets since 1929 have taken place  since 2000 (and the next one is waiting in the wings). The recent acceleration in corporate borrowing is a bit worrisome, especially in light of the fact that accounting profits reported during a major credit and asset bubble are in many cases illusory and simply mask capital consumption. People tend to be oblivious to this fact until the next bust unmasks it – click to enlarge.

Fed Fraud

Beneath that one, there’s another turtle snapping at investors. It is the fraud that they can invest alongside the insiders on Wall Street by simply buying “the market” and profit as stocks become more valuable. And it even seems to be true…

Over the last six years, stock market earnings have been basically flat. So stock prices should be flat, too. After all, the underlying businesses are worth only what they can earn, right? Instead, stock prices are up 80%. Go figure.

Below this carapace is the famous “put option” pioneered by Alan Greenspan while still in his “Bubbles” phase as Fed chairman and left to his successors at the Fed.

Now investors feel they cannot lose because if there is ever another major sell-off, the Fed will again rush to the rescue with another “put” – more rate cuts and more QE – even actively intervening to buy stocks to push up prices to trigger a “wealth effect.”

It’s been a fun ride, but one day officer Bear will catch them…

Cartoon by Bob Rich

And even further down is the feds’ fake money, which carries the whole shebang on its back. This is the real reason for much of the grief that is the 21st century.

It brings fake interest rates, phony stock market performance, globalization,  financialization, fiscal recklessness, a $20 trillion pile of debt… and many of the other follies and delusions that have turned this century into such a disgraceful loser.

Turtles – all the way down!

Alan Greenspan: Ron Paul Was Right About The Gold Standard

As John Rubino eloquently puts it, "when the history of these times is written, former Fed Chair Alan Greenspan will be one of the major villains, but also one of the greatest mysteries. This is so because he has, in effect, been three different people." Greenspan started his public life brilliantly, as a libertarian thinker who said some compelling and accurate things about gold and its role in the world. An example from 1966: "This is the shabby secret of the welfare statists" tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists" antagonism toward the gold standard."

Yet everything changed a few decades later when Greenspan was put in charge of the Federal Reserve in the late 1980s, instead of applying the above wisdom, for example by limiting the bank"s interference in the private sector and letting market forces determine winners and losers, he did a full 180, intervening in every crisis, creating new currency with abandon, and generally behaving like his old ideological enemies, the Keynesians. Predictably, debt soared during his long tenure.

Along the way he was also instrumental in preventing regulation of credit default swaps and other derivatives that nearly blew up the system in 2008. His view of those instruments:

The reason that growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risks. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it. This unbundling improves the ability of the market to engender a set of product and asset prices far more calibrated to the value preferences of consumers than was possible before derivative markets were developed. The product and asset price signals enable entrepreneurs to finely allocate real capital facilities to produce those goods and services most valued by consumers, a process that has undoubtedly improved national productivity growth and standards of living.

In the aftermath of the dot com crisis Greenspan cut interest rates to near-zero in the early 2000s, igniting the housing bubble, which neither he nor anyone else at the Fed was able to detect along the way. He even made it into the dictionary, as the "Greenspan put" became the term for government bailing out its Wall Street benefactors. From this the leveraged speculating community learned that no risk was too egregious and no profit too large, because government - that is, the Fed - had eliminated all the worst-case scenarios. Put another way, under Greenspan profit was privatized but loss was socialized.

Then, another metamorphosis took place: after Greenspan retired from the Fed in 2006 he began morphing back into his old libertarian self. A cynic might detect a desire to avoid the consequences of his past actions, while a neurologist might suspect senility. But either way the transformation has been breathtaking.

Consider Greenspan"s latest public address. In an extended interview published in the World Gold Council’s Gold Investor February issue, Greenspan repeated his now standard warning about the risk of coming stagflation, which would send the price of gold higher: "The risk of inflation is beginning to rise...Significant increases in inflation will ultimately increase the price of gold." As such, "investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.”

Going back to his libertarian roots, it was the idea of returning to a gold standard that Greenspan focused on: a gold standard that he said would help mitigate risks of an “unstable fiscal system” like the one we have today.

“Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today, we would not have reached the situation in which we now find ourselves,” he said.“[T]here is a widespread view that the 19th Century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn’t the gold standard that failed; it was politics.”

And the punchline: “We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.” 

To be sure, this is something we discussed exactly two years ago, when we showed a chart showing the sudden end of prosperity for the "bottom 90%" of US earners at the time Nixon ended the US Gold Standard in August 1971, unleashing what ultimately would be the "Great Moderation", an unprecedented increase in US debt, and the stagnation of real incomes and net worth for all but the "top 1% of earners."

As we said then, in retrospect it is no wonder "why the 1% hates the gold standard" and added that the chart above, "should also clarify just why to the "1%", including their protectors in the "developed market" central banking system, their tenured economist lackeys, their purchased politicians and their captured media outlets, the topic of a return to a gold standard is the biggest threat conceivable."

As for Greenspan"s repeated attempts to undo the past by admitting his mistakes, the jury is out. As Rubino concludes, "one of the nice things about the information age is that public figures leave long paper trails and can"t therefore easily escape their pasts. Greenspan"s past, being perhaps the best documented of any central banker in history, will haunt him forever."

That said, at least Greenspan is going out a gold bug.

* * *

Below are the key excerpts from his Gold Investor interview:

Q. In recent months, concerns about stagflation have been rising. Do you believe that these concerns are legitimate?

We have been through a protracted period of stagnant productivity growth, particularly in the developed world, driven largely by the aging of the ‘baby boom’ generation. Social benefits (entitlements in the US) are crowding out gross domestic savings, the primary source for funding investment, dollar for dollar. The decline in gross domestic savings as a share of GDP has suppressed gross nonresidential capital investment. It is the lessened investment that has suppressed the growth in output per hour globally.

Output per hour has been growing at approximately ½% annually in the US and other developed countries over the past five years, compared with an earlier growth rate closer to 2%. That is a huge difference, which is reflected proportionately in the gross domestic product and in people’s standard of living.

As productivity growth slows down, the whole economic system slows down. That has provoked despair and a consequent rise in economic populism from Brexit to Trump. Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!

At the same time, the risk of inflation is beginning to rise. In the United States, the unemployment rate is below 5%, which has put upward pressure on wages and unit costs generally. Demand is picking up, as manifested by the recent marked, broad increase in the money supply, which is stoking inflationary pressures. To date, wage increases have largely been absorbed by employers, but, if costs are moving up, prices ultimately have to follow suit. If you impose inflation on stagnation, you get stagflation.

* * *

Q. As inflation pressures grow, do you anticipate a renewed interest in gold?

Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.

I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.

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Q. Although gold is not an official currency, it plays an important role in the monetary system. What role do you think gold should play in the new geopolitical environment?

The gold standard was operating at its peak in the late 19th and early 20th centuries, a period of extraordinary global prosperity, characterised by firming productivity growth and very little inflation.

But today, there is a widespread view that the 19th century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn’t the gold standard that failed; it was politics. World War I disabled the fixed exchange rate parities and no country wanted to be exposed to the humiliation of having a lesser exchange rate against the US dollar than it enjoyed in 1913.

Britain, for example, chose to return to the gold standard in 1925 at the same exchange rate it had in 1913 relative to the US dollar (US$4.86 per pound sterling). That was a monumental error by Winston Churchill, then Chancellor of the Exchequer. It induced a severe deflation for Britain in the late 1920s, and the Bank of England had to default in 1931. It wasn’t the gold standard that wasn’t functioning; it was these pre-war parities that didn’t work. All wanted to return to pre-war exchange rate parities, which, given the different degree of war and economic destruction from country to country, rendered this desire, in general, wholly unrealistic.

Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. We cannot afford to spend on infrastructure in the way that we should. The US sorely needs it, and it would pay for itself eventually in the form of a better economic environment (infrastructure). But few of such benefits would be reflected in private cash flow to repay debt. Much such infrastructure would have to be funded with government debt. We are already in danger of seeing the ratio of federal debt to GDP edging toward triple digits. We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.

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Finally, buried at the very end of the interview was perhaps the most interesting statement by Greenspan : the former Fed Chair"s implicit admission that Ron Paul was right all along:

Q. Against a background of ultra-low and negative interest rates, many reserve managers have been large buyers of gold. In your view, what role does gold play as a reserve asset?

When I was Chair of the Federal Reserve I used to testify before US Congressman Ron Paul, who was a very strong advocate of gold. We had some interesting discussions. I told him that US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency. In that regard, I told him that even if we had gone back to the gold standard, policy would not have changed all that much.

For those unfamiliar, here is Ron Paul "s explanation of his plan for monetary freedom and a return to a gold standard.

Full Greenspan interview below
(link)

The Three Lives Of Alan Greenspan... And Why The Third Won't Redeem The Second

Submitted by John Rubino via DollarCollapse.com,

When the history of these times is written, former Fed Chair Alan Greenspan will be one of the major villains, but also one of the greatest mysteries. This is so because he has, in effect, been three different people.

He began public life brilliantly, as a libertarian thinker who said some compelling and accurate things about gold and its role in the world. An example from 1966:

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other…

…In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold [in 1934 under FDR]. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

Awesome, right? But when put in charge of the Federal Reserve in the late 1980s, instead of applying the above wisdom — by for instance limiting the bank’s interference in the private sector and letting market forces determine winners and losers — he did a full 180, intervening in every crisis, creating new currency with abandon, and generally behaving like his old ideological enemies, the Keynesians. Not surprisingly, debt soared during his long tenure.

Along the way he was instrumental in preventing regulation of credit default swaps and other derivatives that nearly blew up the system in 2008. His view of those instruments:

The reason that growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risks. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it. This unbundling improves the ability of the market to engender a set of product and asset prices far more calibrated to the value preferences of consumers than was possible before derivative markets were developed. The product and asset price signals enable entrepreneurs to finely allocate real capital facilities to produce those goods and services most valued by consumers, a process that has undoubtedly improved national productivity growth and standards of living.

He cut interest rates to near-zero in the early 2000s, igniting the housing bubble – which he was unable to detect along the way. He even made it into the dictionary, as the “Greenspan put” became the term for government bailing out its Wall Street benefactors.

From this the leveraged speculating community learned that no risk was too egregious and no profit too large, because government – that is, the Fed – had eliminated all the worst-case scenarios. Put another way, under Greenspan profit was privatized but loss was socialized.

Greenspan retired from the Fed in 2006 and, miraculously, began morphing back into his old libertarian self. A cynic might detect a desire to avoid the consequences of his past actions, while a neurologist might suspect senility. But either way the transformation is breathtaking. Consider this from yesterday:

(Kitco News) – It would be best not to be short-sighted when it comes to gold; at least that is what one former Fed chair says.

“[T]he risk of inflation is beginning to rise…Significant increases in inflation will ultimately increase the price of gold,” noted Alan Greenspan, Federal Reserve chairman from 1987 to 2006, in an interview published in the World Gold Council’s Gold Investor February issue.

“Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.”

However, it is really the idea of returning to a gold standard that Greenspan focused on — a gold standard that he said would help mitigate risks of an “unstable fiscal system” like the one we have today.

“Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today, we would not have reached the situation in which we now find ourselves,” he said.

“We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.”

To Greenspan, the reason why the gold standard hasn’t worked in the past actually has nothing to do with the metal itself.

“[T]here is a widespread view that the 19th Century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable!” he said. “It wasn’t the gold standard that failed; it was politics.”

One of the nice things about the information age is that public figures leave long paper trails and can’t therefore easily escape their pasts. Greenspan’s past, being perhaps the best documented of any central banker in history, will haunt him forever.

But hey, at least he’s going out a gold bug.

Kyrgyzstan's Central Bank Urges Citizens To Own Gold

"Gold can be stored for a long time and, despite the price fluctuations on international markets, it doesn’t lose its value for the population as a means of savings," Kyrgyzstan’s Central Bank Governor Tolkunbek Abdygulov said, "I’ll try to turn the dream into reality faster."

A landlocked nation perched between China and Kazakhstan is embarking on an experiment with little parallel worldwide: shifting savings from cattle to gold. As Bloomberg reports,

One of the first post-Soviet republics to adopt a new currency and let it trade freely, Kyrgyzstan’s central bank wants every citizen to diversify into gold. Governor Tolkunbek Abdygulov says his “dream” is for every one of the 6 million citizens to own at least 100 grams (3.5 ounces) of the precious metal, the Central Asian country’s biggest export.

In the two years that the central bank has offered bars directly to the population, about 140 kilograms of bullion have been sold, Abdygulov, 40, said by phone from the capital, Bishkek.

“We are hopeful that our country’s population will learn to diversify its savings into assets that are more liquid and -- more importantly -- capable of retaining their value,” he said. In rural areas, cattle is still the asset of choice for investors and savers, according to Abdygulov.

What makes Kyrgyzstan unique is the central bank’s effort to win converts by providing infrastructure for safe-keeping and investment. The central bank produces bars of different sizes, varying in weight from 1 to 100 grams.

The central bank governor believes his plan is realistic, even though it means the population would own about 600 tons of gold, equivalent to 30 times the nation’s current annual output. Abdygulov declined to specify the timeframe for when his goal of 100 grams per person can be met.

“For Kyrgyzstan, gold is an alternative instrument of investment,” Abdygulov said. “The National Bank has ensured liquidity for gold -- we aren’t only selling, but also buying back gold bars that we produced and sold.”

These somewhat blasphemous words from a central banker echo the thoughts of no lesser elite than Alan Greenspan...

TETT: Do you think that gold is currently a good investment?

GREENSPAN: Yes... Remember what we"re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can macth it.

GREENSPAN: ...remember, we had that first tapering discussion, we got a very strong market response. And then we reassured everybody to have no -- remember, tapering is still (audio gap) of an agreement that the central banks have made -- European central banks, I believe -- about allocating their gold sales which occurred when gold prices were falling down (audio gap) has been renewed this year with a statement that gold serves a very important place in monetary reserves.

And the question is, why do central banks put money into an asset which has no rate of return, but cost of storage and insurance and everything else like that, why are they doing that? If you look at the data with a very few exceptions, all of the developed countries have gold reserves. Why?

TETT: I imagine right now, it"s because of a question mark hanging over the value of fiat currency, the credibility going forward.

GREENSPAN: Well, that"s what I"m getting at. Every time you get some really serious questions, the 50 percent of the gold price determination begins to move.

TETT: Right.

GREENSPAN: And I think it is fascinating and -- I don"t know, is Benn Steil in the audience?

TETT: Yes.

GREENSPAN: There he is, OK. Before you read my book, go read Benn"s book. The reason is, you"ll find it fascinating on exactly this issue, because here you have the ultimate test at the Mount Washington Hotel in 1944 of the real intellectual debate between the -- those who wanted to an international fiat currency which was embodied in John Maynard Keynes" construct of a banker, and he was there in 1944, holding forth with all of his prestige, but couldn"t counter the fact that the United States dollar was convertible into gold and that was the major draw. Everyone wanted America"s gold. And I think that Benn really described that in extraordinarily useful terms, as far as I can see. Anyway, thank you.

TETT: Right. Well, I"m sure with comments like that, that will be turning you into a rock star amongst the gold bug community.

*  *  *

Of course, as a reminder, here is Ben Bernanke putting people straight on Gold...