Thursday, June 30, 2016

The Economy: "Janet Yellen Warms Up The Helicopters"

"Janet Yellen Warms Up The Helicopters"
Introduction by Brian Maher

“You never want a serious crisis to go to waste.” That deathless phrase of Rahm Emanuel, former Obama stooge and current Chicago mafia boss, could soon be vindicated. Enter Brexit, the crisis du jour… Gold bug, tireless pessimist and Gloom, Boom & Doom Report editor Marc Faber was on Bloomberg yesterday. Here’s what he had to say about Brexit and not letting a serious crisis go to waste: “Global growth has contracted... growth rates have been reduced and many countries are in recession already. That has nothing at all to do with Brexit.” But here’s the meat: “If Brexit is used as an excuse, the central banks will print more money [and] QE4 in the U.S. is on the way.”

Whoa! Could Faber be right? Will the Fed take another handsome fling at quantitative easing, using Brexit as an excuse? (Added bonus: They could point at Brexit voters and sputter, “Look what you ninnies made us do! It’s all your fault!”)

Maybe it is coming. Morgan Stanley just hiked their odds of a global recession within the next 12 months to 40%. But unlike Faber, the folks at Morgan Stanley are not sold on another round of QE. The central banks are out of rope. And now populist movements are seizing territory in Europe and the U.S. So they think politicians might start trying to spend their people into prosperity: “Such a step would fit with the fact that monetary policy is very close to its limits and that most populists are promising to bring back a bigger government sector.”

On that note, our friend Chuck Butler raised an interesting point in this morning’s Daily Pfennig that hasn’t gotten a lot of attention: "This was something that slipped under the radar screens this week, and is just now being talked about… The Federal Reserve “might legitimately consider” using public money creation in “extreme circumstances,” when there is “very weak growth” or “deflation,” Fed Chairwoman Janet Yellen said earlier this week at a press conference."

“Public money creation.” En Anglais: “helicopter money.” Continue, Chuck: "Public money creation, using central bank money to directly finance spending in the real economy, has been taboo for over 50 years. In accepting that the central bank of the world's biggest economy might have to create money to stimulate the real economy, Yellen is implicitly suggesting that central banks might need to update their tool kits. Uh-oh."

Uh-oh is right: When a central banker "mentions something," they do it to grease the tracks. At some point down the road, the Fed is going to implement helicopter money (they won't call it that, but we all will know what it really is). And when they do, Yellen will be able to say, "Well, I told you several months ago that we could use this if we needed to. And we need to."

Jim Rickards already ran that flag to the top of the mast. He’s been saying for months that helicopter money is coming. Will Brexit be the catalyst? Below, Michael Covel shows you why Janet Yellen is already warming up the helicopters. Read on..."

"Janet Yellen Warms Up the Helicopters"
By Michael Covel

"Look, up in the sky! It’s a bird! It’s a plane! No, it’s… it’s… Janet Yellen in a helicopter with bags of cash. No kidding. That’s the Fed’s plan when the next recession hits. The Fed’s Dear Leader coming to the rescue with airdrops of free cash for everyone. What could possibly go wrong?

At a recent press conference, Federal Reserve Chairwoman Yellen admitted that the Fed would consider using “helicopter money” in an extreme downturn. What’s “helicopter money”? It’s a phrase used to describe when governments print massive sums of money and then “drop” them on the economy… hoping for the best. Sound insane? It is. But they’re just trying to help by “stimulating” the economy… or what you could call their “Friends and Family Plan.”

But doesn’t economic growth come from savings and investment? Silence. Today, you can supposedly create real economic growth right out of thin air. Just print the money and start giving it away for free. It’s fake money of course, but we pretend it’s real. See how easy it is to hoodwink the masses?

To comfort the proletariat, Yellen said that “helicopter money” would only happen in “abnormal” circumstances. Kind of like the “abnormal” zero interest rates (soon to be negative) that we’ve had for an “abnormally” six-plus years. Abnormal is clearly the norm now. In other words, count on it. Helicopter money is coming the moment the S&P 500 takes a serious downturn.

Ever since the dotcom bubble, the Fed and other central banks have tried to force banks to lend more to spur economic growth coming out of financial crises. What if the growth is fake or unsustainable? No matter. Pay for it another decade. They started with zero interest rate policy (ZIRP). But that money hasn’t gone out into the real economy. It’s remained with the banks. And what a great deal for them! They borrow for zero then use the cash to make billions scalping every day using high-frequency trading.

When ZIRP didn’t force people to invest in Timbuktu condos, central banks in Europe and Japan moved to negative interest rate policy (NIRP). The thinking goes that NIRP would surely force people to borrow, spend and buy those Timbuktu condos instead of paying interest on their savings. Think about how crazy all this is. Force average citizens to choose between paying interest on their savings or investing in casino investments engineered by the central banks to collapse at any moment. But none of this is working — whatever the hell “working” means to people like Yellen.

Savings rates in NIRP countries are actually going up. And in Japan, fearful citizens have started hoarding cash. The Japanese are buying safes in record numbers? You bet. So what do you think people will do when Yellen makes like Santa Claus and starts handing out free money? Do you think that will instill confidence in consumers to spend more as opposed to saving for what they instinctively know is a coming meltdown? Do you think the Fed’s actions will encourage companies to make additional capital investments in their businesses instead of hunkering down for the collapse they also know is coming?

“Helicopter money” is the Fed signaling to the world: “Yeah, we’ve lost control. We have no idea what the hell we’re doing.”

Since the financial crisis in 2009, central banks have printed $12.3 trillion of money and made 654 interest rate cuts to support the global economy. What do we have to show for it? Well, it’s obviously been great for Wall Street billionaires and stock indexes. But the rest of the experiment has been a huge bust. It’s devastated those who rely on interest income for survival. Plus, we now have $200 trillion in worldwide debt, asset bubbles galore and stagnant global economic growth. Usually, when the sink is overflowing, smart people turn off the faucet. But the Fed is looking to increase the water flow.

And if the Fed doesn’t come up with a new scheme to artificially goose the economy after NIRP failure, what’s the alternative? A massive deleveraging of credit, a stock market collapse and a prolonged recession. A clearing out of the excesses of the business cycle used to be normal. But do you think Yellen & Co. are going to let “normal” happen on their watch? As soon as the U.S. economy slips into recession, it’s only a matter of time before the debasement of paper money will continue unabated. And more people will be looking for the safety of gold as they have in recent months. Gold surged to a three-year high last week.

I don’t prefer chaos. But if it’s going to happen, you should be ready… long before you hear the sound of helicopters in the sky.”

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