Central Banks Are Going to Have to “Pull the Plug” on Stocks
It’s no secret that Central Banks have been funneling liquidity both directly and indirectly into stocks. However, what most investors don’t realize is that this liquidity pump is about to end.
Because the endless streams of liquidity (Central Banks continue to run QE programs of $100+ billion per month despite the global economy stabilizing) have unleashed inflation.
Forget the “official” date. That stuff is all propaganda. Take a look at what is happening in the bond markets which trade based on inflation in the real world.
When inflation rises, bond yields rise. And right now, sovereign bond yields are rising around the world.
The yield on the US 10-Year Treasury has broken its 20-year downtrend.
The US is not alone… the yield on 10-Year German Bunds has also broken its downtrend.
Even Japan’s sovereign bonds are coming into the “inflationary” crosshairs with yields on the 10-Year Japanese Government Bond just beginning to break about their long-term downtrend.
Because if bond rates continue to rise, many countries will quickly find themselves insolvent.
Globally the world has added over $60 trillion in debt since 2007… and all of this was based on interested rates that were close to or even below ZERO.
Central Bank cannot and will not risk blowing up this debt bomb. So they are going to be forced to “pull the plug” on liquidity and “let stocks go.”
Put simply, if the choice is:
1) Let stocks drop and deal with complaints from Wall Street…
2) Let the bond bubble blow up, destabilizing the entire financial system and rendering most governments insolvent…
Central Banks are going to opt for #1 Every. Single. Time.
On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s in terms of Fed Policy 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:
Chief Market Strategist
Phoenix Capital Research
JPMorgan Updates By-laws In Case Of "Nuclear Disaster" Or World War III
by Tyler Durden
Oct 5, 2017 10:48 PM
In the most bizarre news of the day, Bloomberg's Hugh Son noticed that in a late Thursday filing, the board of JPMorgan approved a series of revisions to the bank's by-laws, including a particularly notable one: a new section defining what constitutes a quorum in an emergency resulting from "an attack on the United States" or a “nuclear or atomic disaster.” That scenario is listed among emergencies that - understandably - might make it hard to hold a normal meeting for board members of America's largest bank.
The clause can be activated not just in case of a nuclear disaster or World War III, but also in a variety of situations including "without limitation apparent terrorist activity or the imminent threat of such activity, chemical and biological attacks, natural disasters, or other hazards or causes commonly known as acts of God."
In short, JPMorgan's Board has decided it is time to seriously consider a TEOTWAWKI scenario.
As Son notes, in such an event, any member of the board or the firm’s operating committee can call a meeting using “any available means of communication.” And, just in case everyone else on the Board happens to die, one person will be sufficient to constitute a quorum. Vacancies can be filled by a majority vote of available directors. And if none are around, then designated officers can stand in. No officer, director or employee can be held liable in such a situation, except for “willful misconduct.”
The revised Emergency By-Laws are reposted below (highlights ours):
Section 11.01. Emergency By-laws. This Article XI shall be operative during any emergency resulting from an attack on the United States or on a locality in which the Corporation conducts its business or customarily holds meetings of its Board or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe or other similar emergency condition (including without limitation apparent terrorist activity or the imminent threat of such activity, chemical and biological attacks, natural disasters, or other hazards or causes commonly known as acts of God), as a result of which a quorum of the Board or the Executive Committee thereof cannot readily be convened for action (an “Emergency”), notwithstanding any different or conflicting provisions in the preceding Articles of these By-laws, the Certificate of Incorporation or the General Corporation Law. To the extent not inconsistent with the provisions of this Article XI, the By-laws provided in the other Articles of these By-laws and the provisions of the Certificate of Incorporation shall remain in effect during such Emergency and upon termination of such Emergency, the provisions of this Article XI shall cease to be operative.
Section 11.02. Meetings. During any Emergency, a meeting of the Board, or any committee thereof, may be called by the Chairman or any other member of the Board or the Chief Executive Officer, or any member of the Corporation’s Operating Committee (each, a “Designated Officer” and collectively, the “Designated Officers”), or the Secretary. Notice of the time and place of any meeting of the Board or any committee thereof during an Emergency shall be given by any available means of communication by the individual calling the meeting to such of the directors and/or Designated Officers who shall be deemed to be directors of the Corporation for purposes of obtaining a quorum during an Emergency if a quorum of directors cannot otherwise be obtained during such Emergency, in each case, as it may be feasible to reach. Such notice shall be given at such time in advance of the meeting as, in the judgment of the individual calling the meeting, circumstances permit.
Section 11.03. Quorum. At any meeting of the Board, or any committee thereof, called in accordance with Section 11.02 above, the presence of one director shall constitute a quorum for the transaction of business. Vacancies on the Board, or any committee thereof, may be filled by a majority vote of the directors in attendance at the meeting. In the event that no directors are able to attend the meeting of the Board, then the Designated Officers in attendance shall serve as directors for the meeting, without any additional quorum requirement and will have full powers to act as directors of the Corporation for such meeting.
Section 11.04. Amendments. At any meeting called in accordance with Section 11.02 above, the Board or a committee of the Board, as the case may be, may modify, amend or add to the provisions of this Article XI so as to make any provision that may be practical or necessary for the circumstances of the Emergency.
Section 11.05. Management Contingency Plan. During an Emergency, the Corporation shall be managed by the Operating Committee under the direction of the Chief Executive Officer. In the absence of the Chief Executive Officer or his or her successor, the Operating Committee shall act under the direction of the Operating Committee member with the longest tenure with the Corporation.
Section 11.06. Liability. No officer, director or employee of the Corporation acting in accordance with the provisions of this Article XI shall be liable except for willful misconduct.
Section 11.07. Repeal or Change. The provisions of this Article XI shall be subject to repeal or change by further action of the Board or by action of the stockholders, but no such repeal or change shall modify the provisions of Section 11.06 of this Article XI with regard to action taken prior to the time of such repeal or change.
Section 11.08. Termination of Emergency. The provisions of this Article XI shall cease to be operative upon the termination of the Emergency as determined by a quorum of the Board or the Executive Committee thereof in accordance with Sections 2.06 and 3.01, respectively, of these By-laws.
Russia & China Declare All Out War on US Petrodollar — Prepare for Exclusive Trade in Gold
BY IWB · PUBLISHED JULY 16, 2017 · UPDATED JULY 16, 2017
Sharing is caring!via thefreethoughtproject:
The formation of a BRICS gold marketplace, which could bypass the U.S. Petrodollar in bilateral trade, continues to take shape as Russia’s largest bank, state-owned Sberbank, announced this week that its Swiss subsidiary had begun trading in gold on the Shanghai Gold Exchange.
Russian officials have repeatedly signaled that they plan to conduct transactions with China using gold as a means of marginalizing the power of the dollar in bilateral trade between the geopolitically powerful nations. This latest movement is quite simply the manifestation of a larger geopolitical game afoot between great powers.
According to a report published by Reuters:
Sberbank was granted international membership of the Shanghai exchange in September last year and in July completed a pilot transaction with 200 kg of gold kilobars sold to local financial institutions, the bank said.
Sberbank plans to expand its presence on the Chinese precious metals market and anticipates total delivery of 5-6 tonnes of gold to China in the remaining months of 2017.
Gold bars will be delivered directly to the official importers in China as well as through the exchange, Sberbank said.
Russia’s second-largest bank VTB is also a member of the Shanghai Gold Exchange.
To be clear, there is a revolutionary transformation of the entire global monetary system currently underway, being driven by an almost perfect storm. The implications of this transformation are extremely profound for U.S. policy in the Middle East, which for nearly the past half century has been underpinned by its strategic relationship with Saudi Arabia.
THE RISE & FALL OF THE PETRODOLLAR
The dollar was established as the global reserve currency in 1944 with the Bretton Woods agreement, commonly referred to as the gold standard. The U.S. leveraged itself into this power position by holding the largest reserve of gold in the world. The dollar was pegged at $35 an ounce — and freely exchangeable into gold.
By the 1960s, a surplus of U.S. dollars caused by foreign aid, military spending, and foreign investment threatened this system, as the U.S. did not have enough gold to cover the volume of dollars in worldwide circulation at the rate of $35 per ounce; as a result, the dollar was overvalued.
America temporarily embraced a new paradigm in 1971, as the dollar became a pure fiat currency (decoupled from any physical store of value), until the petrodollar agreement was concluded by President Nixon in 1973.
The quid pro quo was that Saudi Arabia would denominate all oil trades in U.S. dollars, and in return, the U.S. would agree to sell Saudi Arabia military hardware and guarantee the defense of the Kingdom.
A report by the Centre for Research on Globalalization clarifies the implications of these most recent moves by the Russians and the Chinese in an ongoing drive to replace the US petrodollar as the global reserve currency:
Fast forward to March 2017; the Russian Central Bank opened its first overseas office in Beijing as an early step in phasing in a gold-backed standard of trade. This would be done by finalizing the issuance of the first federal loan bonds denominated in Chinese yuan and to allow gold imports from Russia.
The Chinese government wishes to internationalize the yuan, and conduct trade in yuan as it has been doing, and is beginning to increase trade with Russia. They’ve been taking these steps with bilateral trading, native trading systems and so on. However, when Russia and China agreed on their bilateral US$400 billion pipeline deal, China wished to, and did, pay for the pipeline with yuan treasury bonds, and then later for Russian oil in yuan.
This evasion of, and unprecedented breakaway from, the reign of the US dollar monetary system is taking many forms, but one of the most threatening is the Russians trading Chinese yuan for gold. The Russians are already taking Chinese yuan, made from the sales of their oil to China, back to the Shanghai Gold Exchange to then buy gold with yuan-denominated gold futures contracts – basically a barter system or trade.
The Chinese are hoping that by starting to assimilate the yuan futures contract for oil, facilitating the payment of oil in yuan, the hedging of which will be done in Shanghai, it will allow the yuan to be perceived as a primary currency for trading oil. The world’s top importer (China) and exporter (Russia) are taking steps to convert payments into gold. This is known. So, who would be the greatest asset to lure into trading oil for yuan? The Saudis, of course.
All the Chinese need is for the Saudis to sell China oil in exchange for yuan. If the House of Saud decides to pursue that exchange, the Gulf petro-monarchies will follow suit, and then Nigeria, and so on. This will fundamentally threaten the petrodollar.
According to a report by the Russian government media, significant progress has been made in promoting bilateral trade in yuan, between the two nations, as the first step towards an even more aambitiousplan—using gold to make transactions:
One measure under consideration is the joint organization of trade in gold. In recent years, China and Russia have been the world’s most active buyers of the precious metal.
On a visit to China last year, deputy head of the Russian Central Bank Sergey Shvetsov said that the two countries want to facilitate more transactions in gold between the two countries.
In April, Sberbank expressed interest in financing the direct import of gold to India—also a BRICS member. Make no mistake that a BRICS gold marketplace could be used to bypass the dollar in bilateral trade, and undermine the hegemonic control enjoyed by the US petrodollar as the global reserve currency.
READ MORE: Country Singer With Most Famous 9/11 Song, Now Playing for Country that was Behind 9/11“In 2014 Russia and China signed two mammoth 30-year contracts for Russian gas to China. The contracts specified that the exchange would be done in Renminbi [yuan] and Russian rubles, not in dollars. That was the beginning of an accelerating process of de-dollarization that is underway today,” according to strategic risk consultant F. William Engdahl.
Russia and China are now creating a new paradigm for the world economy and paving the way for a global de-dollarization.
“A Russian-Chinese alternative to the dollar in the form of a gold-backed ruble and gold-backed Renminbi or yuan, could start a snowball exit from the US dollar, and with it, a severe decline in America’s ability to use the reserve dollar role to finance her wars with other peoples’ money,” Engdahl concludes.
Martin Armstrong-Economic Downturn Will Take World to War
Former hedge fund manager Martin Armstrong, who is an expert on economic and political cycles, says, “You have to understand what makes war even take place? It does not unfold when everybody is fat and happy. Simple as that. You turn the economy down, and that’s when you get war. It’s the way politics works.”
Join Greg Hunter as he goes One-on-One with renowned economist Martin Armstrong of ArmstrongEconomics.com.
All Links can be found on
Thank You Kent Lamberson
Rob Kirby - Money Needed For Hyperinflation Already Printed
Published on Mar 31, 2018
Forensic macroeconomic analyst Rob Kirby says “All the money needed for hyperinflation has already been printed.” Kirby contends, “It’s kind of like having a nuclear war, and people say where are the bombs going to come from? The bombs are going to come out of their silos. What people can’t believe or can’t wrap their head around is the notion and the fact that there’s $21 trillion or more that’s been ‘siloed.’ The money has been created and siloed. We know it’s been created because we know it flew through the books of the Department of Defense (DOD) and the Department of Housing and Urban Development (HUD). That’s just two government agencies. . . . We’re talking about tens of trillions of dollars. We don’t know exactly where they are or who controls them. . . . This is why you want to own some tangible stuff. This is why you want to own physical bullion, such as coins and bars, and you want to have them in your control.” Join Greg Hunter as he goes One-on-One with Rob Kirby of KirbyAnalytics.com. Donations: https://usawatchdog.com/donations/ Stay in Contact with USAWatchdog.com: https://usawatchdog.com/join/
What Was Going On With MGM Resorts In September?
October 9, 2017
On Tuesday, September 5th, 2017, the board of MGM Resorts International decided to approve a $1 billion share repurchase program. At a net worth of $17.7 billion today, the program represented a significant portion of its current market cap. By the end of the week, MGM’s CEO, James Murren, had coolly divested himself of 80% of the shares he owned in his company. The divestment came just days before the ex-dividend date on September 8th, 2017.
The sales were originally disclosed in a document filed with the Securities and Exchange Commission (SEC). Murren had previously divested 57,269 shares on July 31st and August 9th, 2017.
It’s currently unclear why Murren chose to sell when he did. To date, MGM’s stock has not experienced a significant decline in value due to the repurchasing program. As the CEO of MGM, it runs against the company’s interests to convey a sense of urgency in the selling personal stock of shares immediately after the announcement of my company’s share repurchase program. It’s also strange that the CEO of a company would sell more than half of their stake (let alone 80%) in the company that they represented.
Mr. Murren and his fellow board members were not the only speculators who were bearish on MGM’s prospects. Billionaire investor George Soros also bought $42 million worth of puts on the company, according to SEC filings from mid August.
That point being made, it needs to be asked why any profit-oriented CEO of any company would sell 80% of his personal stake in his own corporation, especially after he thought it was in the business’ best interest to initiate a massive share repurchase program which one would theoretically assume to reduce the number of shares in the company and increase the price of each share, ceteris peribus. Why would the individual with the most information about the company sell 80% of his shares immediately after the commencement of a program that most would consider positive for the stock? Shouldn’t he want to hold on to his shares? Is there something he knew, that others didn’t, that lead to so much movement in such little time? What a week!
On September 5th, 2017, 18 analysts were bullish on MGM, 1 had a hold rating, and 1 had a sell rating. Taking the events of September and October into consideration, has MGM’s picture heading forward improved, or worsened?
June 2, 2017
CFTC Finds Former Trader David Liew Engaged in Spoofing and Manipulation of the Gold and Silver Futures Markets and Permanently Bans Him from Trading and Other Activities in CFTC-Regulated Markets
CFTC Recognizes Liew’s Cooperation and Substantial Assistance in the Investigation, which Included Entering into a Cooperation Agreement with the Division of EnforcementWashington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against David Liew for engaging in numerous acts of spoofing, attempted manipulation, and, at times, manipulation of the gold and silver futures markets. Liew engaged in this unlawful conduct for more than two years while he was employed as a junior trader on the precious metals desk for a large financial institution (Financial Institution 1). The CFTC Order finds that Liew acted individually and in coordination with traders at Financial Institution 1 and with a trader at another large financial institution.
In the Order, Liew admits the facts of his manipulation and spoofing activity and acknowledges that his conduct violated the Commodity Exchange Act (CEA) and Commission Regulations.
The Order permanently bans Liew from trading commodity interests and requires him to comply with undertakings never to engage in other commodity-interest related activities, including seeking registration, acting in a capacity requiring registration, or acting as a principal, agent, officer or employee of any person registered, required to be registered or exempt from registration.
In accepting Liew’s offer of settlement, the CFTC recognizes Liew’s cooperation during the Division of Enforcement’s (Division) investigation of this matter, including his entry into a formal Cooperation Agreement with the Division, his provision of substantial assistance to the investigation, and his undertaking to continue to cooperate with the Commission, the Division and any other governmental agency in connection with the subject matter of this Order.
CFTC’s Director of Enforcement Comments
James McDonald, the CFTC’s Director of Enforcement, commented: “Today’s enforcement action demonstrates that the Commission will aggressively pursue individuals who manipulate and spoof in our markets. Today’s action also shows that while holding individuals accountable for their conduct, the Commission will give meaningful cooperation credit to those who acknowledge their own wrongdoing, enter into a Cooperation Agreement and provide substantial assistance to the Division in its investigations and enforcement actions against others who have engaged in illegal conduct.”
The Order specifically finds that from at least December 2009 through February 2012, Liew, on numerous occasions, acting individually and in coordination with other traders on the precious metals trading desk of Financial Institution 1, placed orders to buy or sell gold or silver futures contracts that he did not intend to execute at the time the orders were placed (spoof orders). Generally, Liew’s spoof orders were placed in the futures market after another bid or offer was placed on the opposite side of the same market. Liew placed his spoof orders with the intent to create the false appearance that the market interest in buying or selling was greater than the actual market interest. Liew placed such spoof orders with the intent to induce other market participants to fill Liew’s resting orders on the opposite side of the market from his spoof orders. In engaging in the spoofing conduct, Liew also intended to manipulate, and at times succeeded in manipulating the price of the relevant futures contract.
Separately, on certain occasions, Liew placed orders and executed trades with the intent of manipulating the market price of gold and silver futures contracts for the purpose of triggering customers’ stop-loss orders. Liew coordinated this trading with another precious metals trader at another large financial institution. The intent of triggering the customer stop-loss orders was to allow the traders to buy precious metals futures contracts at artificially low prices or sell precious metals futures contracts at artificially high prices.
In addition, on June 1, 2017, Liew pleaded guilty to one count of conspiracy to commit wire fraud and spoofing. (U.S. v. Liew, Case No. 17-CR-1 (N.D. Ill.).
The CFTC Division of Enforcement staff members responsible for this case are Katie Rasor, Neel Chopra, Lara Turcik, Sam Wasserman, Bryan Bughman, Brandon Wozniak, Alben Weinstein, Patryk J. Chudy, Lenel Hickson, Jr., and Manal M. Sultan.
Last Updated: June 2, 2017
Italy’s newest bank bailout cost as much as its annual defense budget
June 26, 2017
Lake Como, Italy
Two more Italian banks failed over the weekend– Banco Popolare di Vicenza and Veneto Banca.
(In other news, the sky is blue.)
The Italian Prime Minister himself stated that depositors’ funds were at risk, so the government stepped in with a bailout and guarantee package that could cost taxpayers as much as 17 billion euros.
That’s a lot of money in Italy– around 1% of GDP. In fact it’s basically as much as the 17.1 billion euros they spent on national defense last year (according to an estimate by Italian think tank IAI).
You don’t have to have a PhD in economics to figure out that NO government can afford to spend its entire defense budget every time a couple of medium-sized banks need a bailout.
That goes especially for Italy, whose public debt level is already 132% of GDP… and rising. They simply don’t have the money.
Moreover, the European Union actually has a series of new rules collectively known as the “Bank Recovery and Resolution Directive” which is supposed to prevent failing banks from being bailed out with taxpayer funds.
Here’s the thing– Italy has LOTS of banks that are on the ropes.
So with taxpayer resources exhausted (and technically prohibited), who’s going to be on the hook next time a bank goes under?
Easy. By process of elimination, the only other party left to fleece is the depositor.
Here’s how it works:
Let’s say a bank takes in $1 billion in deposits.
Naturally the bank doesn’t just keep $1 billion in cash sitting in its vault. They invest the money. They make loans. They buy assets.
So the bank’s balance sheet shows $1 billion worth of assets, and $1 billion worth of deposits that they owe to their customers.
But sometimes banks screw up when they invest their customers’ funds. Loans go bad. Borrowers default.
For example, if a bank invested $200 million in Greek government bonds, and then the government of Greece defaults, the bank would only have $800 million in assets remaining.
But they’d still owe their depositors the full $1 billion.
How can a bank with only $800 million in assets possibly honor the $1 billion worth of deposits they owe to their customers?
They can’t. And there’s a word for this: insolvency.
This is the problem with so many banks across Italy (and many other countries around the world). They owe their depositors more than their assets are worth.
Again, the taxpayers are ultimately on the hook from this weekend’s bailouts, along with some subordinated bondholders who got wiped out.
But Italy’s banking problems go far beyond two little banks. This is a systemic issue across the country’s ENTIRE banking sector. And the solution goes far beyond what the taxpayers can afford.
So next time around it could very well be the depositors who end up losing money.
Even if not, it hardly seems worth taking the chance.
By the way, I’m not just talking about Italy here.
You know how they say “time heals all wounds?” Well, not in banking. Some wounds never heal.
And there are countless banks and banking systems around the world that never fully recovered from the 2008 crisis.
This raises the question– why hold money at a shaky bank in a country where the government is in debt up to its eyeballs? Especially when there are so many better options.
Most people never think twice about where they hold their savings, typically opening accounts based on some irrelevant anachronism like geography.
It’s 2017. Why trust all of your savings to a financial institution simply because it’s across the street?
If you run a website, you wouldn’t necessarily choose a web hosting company because it’s located in your home town. You’d find the best company with the best service and best uptime.
If you want to buy a new mobile phone, you wouldn’t just go to a local retailer. You’d probably shop online and find the best deal, even if it’s from a company across the planet.
Why should money be any different?
The world is a big place with LOTS of options and opportunities.
And there are plenty of places where the banks might have MUCH stronger fundamentals, located in jurisdictions with minimal debt.
But if this is too exotic, you could also consider physical cash.
With an at-home safe, you effectively become your own banker, eliminating the middle man and eliminating the risk to your savings.
This is all part of a great Plan B.
Clearly there are risks in a number of banking systems, including most of the West where the majority of governments are themselves insolvent.
Perhaps those risks are never realized.
But it’s hard to imagine you’ll be worse off for holding a little bit of physical cash… or to consider the option of holding a portion of your savings in a bank that’s conservative, well-capitalized, and located in a country with zero debt.
Even if nothing bad ever happens, there’s no downside in having taken these steps.
But if these risks do pan out, your Plan B will end up being the best insurance policy you’ve ever had.
BREAKING – Major Employer Takes Stand Against Anti-Trump California, LEAVES State
California has led the way in the attacks against Trump, with several of its representatives openly defying the president… and major companies are starting to take notice.
After several other companies already left the state, Nestle USA has announced it is packing its bags and moving its headquarters and roughly 1,200 jobs across the country to Rosslyn, Virginia, via Investors.
This means more jobs are leaving an already fiscally challenged state, and there will likely be many more.
Big business is finally realizing California is not exactly business-friendly.
Two of the last three governors of the state are Democrats, and now the state is paying the price for liberal rule, especially under Governor Jerry Brown.
He has openly supported the far-left policies supporting illegal immigrants and refugees, and it is costing the state big time.
Even with all of its glitz and glamour, the state has a long history of struggling financially, and many experts blame the tax system Brown is using.
Christopher Thornberg, the founding partner of Beacon Economics, stated, “We have an enormous budget problem, and that’s because of the structure of our revenue system, not because of the fundamentals of the California economy,” via CNBC.
Add the mismanagement of the budget with the cost of supporting illegals and refugees, and you have a recipe for disaster. The money has to come from somewhere, and it does in the form of some of the highest taxes in the country, with more increases expected.
The result of this is businesses closing their doors in California and moving to greener pastures even if they have to go all the way across the country to do it. California’s loss, however, has been a boom for states like Texas, Arkansas, and Virginia, which offer much friendlier financial benefits for business owners.
If you look across the map, with few exceptions, blue states are not exactly booming these days. We can expect to see a lot more business defections in the coming months, especially if these Democrats continue to take hardline stances against Trump.
This, of course, bodes well for Trump and the Republicans as liberal business owners will be forced to realize their bottom line is being affected by the horrible mismanagement of their chosen representatives.
When they see how businesses in red states are booming and what Trump does for the economy overall, I think we will see more defections not only in businesses moving, but also in people leaving the Democrat party and going to a party that actually looks after their well-being rather than that of people who should not even be in this country.
Believe it or not, for every minute that goes by, our federal government’s financial sinkhole grows deeper by about $10 million! The U.S. public needs to know the current and future issues concerning the U.S.’s finances.
Social Security Requires A Bailout That's 60x Greater Than The 2008 Emergency Bank Handout
by Tyler Durden
Aug 11, 2017 9:25 PM
Authored by Simon Black via SovereignMan.com,
A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning:
Social Security is running out of money.
Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news…
… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone.
But that didn’t happen.
The story was hardly picked up.
It’s astonishing how little attention this issue receives considering it will end up being one of the biggest financial crises in US history.
That’s not hyperbole either– the numbers are very clear.
The US government itself calculates that the long-term Social Security shortfall exceeds $46 TRILLION.
In other words, in order to be able to pay the benefits they’ve promised, Social Security needs a $46 trillion bailout.
That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy.
Moreover, it’s nearly SIXTY times the size of the bailout that the banking system received back in 2008.
So this is a pretty big deal.
More importantly, even though the Social Security Trustees acknowledge that the fund is running out of money, their projections are still wildly optimistic.
In order to build their long-term financial models, Social Security’s administrators have to make certain assumptions about the future.
What will interest rates be in the future?
What will the population growth rate be?
How high (or low) will inflation be?
These variables can dramatically impact the outcome for Social Security.
For example, Social Security assumes that productivity growth in the US economy will average between 1.7% and 2% per year.
This is an important assumption: the higher US productivity growth, the faster the economy will grow. And this ultimately means more tax revenue (and more income) for the program.
But -actual- US productivity growth is WAY below their assumption.
Over the past ten years productivity growth has been about 25% below their expectations.
And in 2016 US productivity growth was actually NEGATIVE.
Here’s another one: Social Security is hoping for a fertility rate in the US of 2.2 children per woman.
This is important, because a higher population growth means more people entering the work force and paying in to the Social Security system.
But the actual fertility rate is nearly 20% lower than what they project.
And if course, the most important assumption for Social Security is interest rates.
100% of Social Security’s investment income is from their ownership of US government bonds.
So if interest rates are high, the program makes more money. If interest rates are low, the program doesn’t make money.
Where are interest rates now? Very low.
In fact, interest rates are still near the lowest levels they’ve been in US history.
Social Security hopes that ‘real’ interest rates, i.e. inflation-adjusted interest rates, will be at least 3.2%.
This means that they need interest rates to be 3.2% ABOVE the rate of inflation.
This is where their projections are WAY OFF… because real interest rates in the US are actually negative.
The 12-month US government bond currently yields 1.2%. Yet the official inflation rate in the Land of the Free is 1.7%.
In other words, the interest rate is LOWER than inflation, i.e. the ‘real’ interest rate is MINUS 0.5%.
Social Security is depending on +3.2%.
So their assumptions are totally wrong.
And it’s not just Social Security either.
According to the Center for Retirement Research at Boston Collage, US public pension funds at the state and local level are also underfunded by an average of 67.9%.
Additionally, most pension funds target an investment return of between 7.5% to 8% in order to stay solvent.
Yet in 2015 the average pension fund’s investment return was just 3.2%. And last year a pitiful 0.6%.
This is a nationwide problem. Social Security is running out of money. State and local pension funds are running out of money.
And even still their assumptions are wildly optimistic. So the problem is much worse than their already dismal forecasts.
Understandably everyone is preoccupied right now with whether or not World War III breaks out in Guam.
(I would respectfully admit that this is one of those times I am grateful to be living on a farm in the southern hemisphere.)
But long-term, these pension shortfalls are truly going to create an epic financial and social crisis.
It’s a ticking time bomb, and one with so much certainty that we can practically circle a date on a calendar for when it will hit.
There are solutions.
Waiting on politicians to fix the problem is not one of them.
The government does not have a spare $45 trillion lying around to re-fund Social Security.
So anyone who expects to retire with comfort and dignity is going to have to take matters into their own hands and start saving now.
Consider options like SEP IRAs and 401(k) plans that have MUCH higher contribution limits, as well as self-directed structures which give you greater influence over how your retirement savings are invested.
These flexible structures also allow investments in alternative asset classes like private equity, cashflowing royalties, secured lending, cryptocurrency, etc.
Education is also critical.
Learning how to be a better investor can increase your investment returns and (most importantly) reduce losses.
And increasing the long-term average investment return of your IRA or 401(k) by just 1% per year can have a PROFOUND (six figure) impact on your retirement.
These solutions make sense: there is ZERO downside in saving more money for retirement.
But it’s critical to start now. A little bit of effort and planning right now will pay enormous dividends in the future.
Almost all bankrupt governments eventually realize this. And it’s great for us.
July 27, 2017
Eighteen centuries ago in the year 212 AD, the Roman Empire was in dire financial straits.
Emperor Caracalla had nearly bankrupted the treasury spending lavishly on his personal proclivities, waging pointless wars, and executing some of Rome’s most productive citizens.
We’re talking about a guy who murdered his brother (Geta) in order to become Emperor, and then had Geta’s name stricken from every official record.
Caracalla made it a capital crime for anyone to even mention his brother’s name.
Then he killed Geta’s friends and business partners. He killed Geta’s advisors and generals. He even killed Geta’s concubines.
He also killed anyone he suspected of being disloyal.
As Edward Gibbon describes in his seminal work, Decline and Fall of the Roman Empire:
“[Under Caracalla,] it was a sufficient crime. . . to be descended from a family in which the love of liberty seemed a hereditary quality.”
The only people who prospered under Caracalla were soldiers.
The emperor paid them extremely well to buy their loyalty, and he happily looked the other way as the army pillaged and plundered everywhere they pleased.
This drained Rome’s finances.
Ancient Roman historian Lucius Cassius Dio recounts a famous conversation between Caracalla and his mother Julia, in which Julia says…
“There is no longer any source of revenue, either just or unjust, left to us.”
The emperor responded, “Be of good cheer, mother. For as long as we have this [pointing to his sword], we shall not run short of money.”
Caracalla doubled Rome’s already debilitating taxes. He debased the currency, slashing the silver content of the Roman denarius coin.
He even introduced a new coin called the antoninianus, which was legally worth two denarius coins despite containing only 50% more silver.
Yet despite trying nearly every dirty trick in the book to restore the treasury, Caracalla was still driving Rome to bankruptcy.
So in 212 AD the Emperor issued an edict called the Consitutio Antoninana, effectively granting universal citizenship to all free men living within the Roman Empire.
This was a big deal– Roman citizenship had once been a highly coveted prize that was rarely granted.
For Caracalla, citizenship was merely another tool to enlarge his tax base.
This was one of the first instances in history of a desperate, bankrupt government using residency or citizenship to boost the economy and tax revenue.
We see many more examples of this today.
Here in Europe, both Malta and Cyprus now have ‘citizenship by investment’ programs, whereby a foreigner (quite often wealthy Chinese) can invest a sum of money in exchange for citizenship.
In Malta the required investment is 650,000 euros, plus fees. In Cyprus it’s 2 million euros, plus fees.
Cyprus and Malta really need the money.
Cyprus is so broke that its entire banking system went bust in 2013, and the government had to resort to freezing EVERYONE’S bank account.
And Malta has racked up severe, unsustainable budget deficits for 19 out of the last 20 years.
In fact, last year was the FIRST year in two decades that Malta’s government ran a budget surplus, totaling 101 million euros.
Given that the Maltese government approved 214 citizenship-by-investment applications last year at 650,000 euros each, they collected at least 139 million euros from the program.
In other words, Malta’s citizenship-by-investment program is the ONLY reason its government ran a budget surplus last year.
A number of other bankrupt European countries have “Golden Residency” programs, whereby foreign investors receive residency in exchange for purchasing real estate.
Spain and Portugal are two of the more popular golden residency destinations, and those programs have both been very successful in attracting affluent foreigners.
[Sovereign Man: Confidential members: see our Black Paper from earlier this month on Golden Residency programs.]
And a few months ago here in Italy, the government created a “non-domicile” tax regime to attract wealthy foreigners.
Under these new rules, foreigners can earn unlimited income worldwide (subject to a few conditions), yet pay a flat tax to the Italian government of just 100,000 euros.
100,000 euros might sound like a lot of tax to pay.
But if you’re earning, say, 1 million per year, this amounts to an effective tax rate just 10%… as opposed to the 50% tax rate that someone might be paying in Germany or California.
Plus you get to live la dolce vita on Lake Como.
(Italy also created easy paths to residency for startup entrepreneurs, investors, etc.)
US citizens have an even better option: Puerto Rico.
You’ve probably heard that Puerto Rico is miserably, hopelessly broke.
And a few years ago amid rapidly deteriorating economic conditions, Puerto Rico’s government passed some exciting tax incentive laws to attract affluent foreigners (primarily from the US mainland).
The two most famous incentive laws are Act 20 and Act 22.
Act 20 allows certain businesses to pay just 4% corporate tax, while Act 22 gives investors 100% tax relief on investment income (like dividends, interest, and capital gains) subject to a few conditions.
These tax incentives are incredible deals, especially for US citizens, due to the way that the IRS exempts certain Americans from paying US tax.
In other words you can legally escape the IRS by becoming a Puerto Rican tax resident. And under current rules you don’t even have to live on the island full time.
What’s really interesting is that, even though Puerto Rico has now effectively declared bankruptcy, the government is doubling down on these incentive programs.
They know the only way out is to attract talented, productive people.
This is the bright side of record debt and government insolvency.
Eventually, a desperate, bankrupt government has no choice but to roll out the red carpet for energetic value creators.
Plenty of great options already exist. And we’ll probably see more to follow.
Do you have a Plan B?
Nine years later, Greece is still in a debt crisis…
March 22, 2017
Sometimes you have to marvel at the absurdity of the financial universe in which we live.
On one side of the Atlantic, we have the United States of America, which triggered yet another debt ceiling disaster last Thursday when the US government’s maximum allowable debt reset to just over $20 trillion.
Of course, the US national debt is pretty much already at $20 trillion.
(That’s roughly $166,000 per taxpayer in the Land of the Free.)
This means that Uncle Sam is legally prohibited from ‘officially’ borrowing any more money.
But far be it from the US government to start living within its means. Sacrilege!
These guys have zero chance of making ends meet without going into debt.
Just last year, according to the government’s own financial report, their annual net loss totaled $1 TRILLION, and the national debt increased by $1.4 trillion.
And that was in a relatively stable year. There was no major war or financial crisis to fight. It was just business as usual.
This year isn’t going to be any different.
So, cut off from their normal debt supply (the bond market), the Treasury Department is resorting to what they call “extraordinary measures.”
They’re basically pillaging government employee retirement funds, and will continue to do so until Congress raises the debt ceiling.
It’s a repeat of what happened in 2015. And 2013. And 2011.
Pretty amazing to consider that the “richest” country in the world has to plunder retirement funds in order to keep the lights on.
Former US Treasury Secretary Larry Summers said it perfectly when he quipped “How long can the world’s biggest borrower remain the world’s biggest power?”
Then, of course, on the other side of the Atlantic, we have Greece, which is now in its NINTH YEAR of a major debt crisis.
Greece has had nine different governments since 2009. At least thirteen austerity measures. Multiple bailouts. Severe capital controls. And a full-out debt restructuring in which creditors accepted a 50% loss.
Yet despite all these measures GREECE IS STILL IN A DEBT CRISIS.
Right now, in fact, Greece is careening towards another major chapter in its never-ending debt drama.
Just like the United States, the Greek government is set to run out of money (yet again) in a few months and is in need of a fresh bailout from the IMF and EU.
(The EU is code for “Germany”…)
Without another bailout, Greece will go bust in July– this is basic arithmetic, not some wild theory.
And this matters.
If Greece defaults, everyone dumb enough to have loaned them money will take a BIG hit.
This includes a multitude of banks across Germany, Austria, France, and the rest of Europe.
Many of those banks already have extremely low levels of capital and simply cannot afford a major loss.
(Last year, for example, the IMF specifically singled out Germany’s Deutsche Bank as being the top contributor to systemic risk in the global financial system.)
So a Greek default poses as major risk to a number of those banks.
More importantly, due to the interconnectedness of the financial system, a Greek default poses a major risk to anyone with exposure to those banks.
Think about it like this: if Greece defaults and Bank A goes down, then Bank A will no longer be able to meet its obligations to Bank B. Bank B will suffer a loss as well.
A single event can set off a chain reaction, what’s called ‘contagion’ in finance.
And it’s possible that Greece could be that event.
This is what European officials have been so desperate to prevent for the last nine years, and why they’ve always come to the rescue with a bailout.
It has nothing to do with community or generosity. They’re hopelessly trying to prevent another 2008-style meltdown of the financial system.
But their measures have limits.
How much longer do Greek citizens accept being vassals of Germany, suffering through debilitating capital controls and austerity measures?
How much longer do German taxpayers continue forking over their hard-earned wages to bail out Greek retirees?
After all, they’ve spent nine years trying to ‘fix’ Greece, and the situation has only become worse.
For a continent that has been at war with itself for 10 centuries and only managed to play nice for the last 30 or so years, it’s foolish to expect these bailouts to last forever.
And whether it’s this July or some date in the future, Greece could end up being the catalyst which sets off a chain reaction on both sides of the Atlantic.
Do you have a Plan B?
The Economic Collapse: Are You Prepared For The Coming Economic Collapse And The Next Great Depression?