Jim Willie: Still Baffled After All These Years
Remnant Review
I begin with a chart of Federal Reserve monetary policy. Since October 2014, the FED has pursued the longest period of monetary stability in the last 30 years.
Let's look at this chart from October 2014 until today.
This reveals deflation, not inflation. This is not what is euphemistically referred to as "QE," or quantitative easing. This is QS -- quantitative squeezing.
Any economic analyst who does not begin with these two charts ought to be in another line of work.
JIM WILLIE: AN ANALYST WHO IGNORES THESE CHARTS
Jim Willie is a pro-gold writer. Sadly, he does not understand economics, monetary theory, monetary policy, bonds, stocks, or gold. Other than this, he is A-OK.
He a master of bombast: lots of exclamation points, wild exaggerations, and bold facing for emphasis rather than clarity.
He does not understand Austrian School economics. He does not understand commercial banking. He does not understand the Treasury debt market. But he pontificates as if he did.
I have called his bluff in the past. In September 2013, he predicted a collapse in the Treasury bond market within a year. I said he was dead wrong. I wrote this:
My prediction: None of this will happen in the next 12 months.My advice is this: ignore his italics, his bold facing, his capitalized words, and his exclamation points. Their only function is to emphasize hype-driven conclusions that are drawn from analytical and conceptual mistakes.
Economically unsophisticated readers love bold facing, italics, and exclamation points. "This must be important," they think. "I mean, the type face looks really scary." What is scary is that Jim Willie is taken seriously.
Ignore him. He doesn't know what he is talking about.
He may decide to respond to my article. I welcome the opportunity to reply. This is like shooting fish in a barrel.
His subscribers will send him links to my article. They will beg him to respond, to show I've got it all wrong. I recommend the following to him: "When you're in a deep hole, stop digging." The wise strategy would be to pretend I never wrote it. He can hope that most of his subscribers don't see it, or else they forget about it.
My article is here: //www.garynorth.com/public/11593.cfm
He soon responded to my article with verbal flatulence -- and no link to my original article for his readers to read. He attempted wit:
"It is always hard to make a solid rebuttal against small elderly figures. . . ."
As I responded, I'm 6 feet tall.
I ended my brief response with this:
I have said my piece. He does not understand bonds, monetary theory, and the Federal Reserve System. For a guru of gold, he is at a real disadvantage.
You can read my response here: //www.garynorth.com/public/11623.cfm
So, I bided my time. I waited one year from his original article. At that point, T-bonds were up in price. There had been no collapse. I went into print to remind my readers of his preposterous prediction a year earlier. You can read my 2014 response here: //www.garynorth.com/public/12941.cfm.
He never responded as far as I know. I hardly blame him. What could he say?
I remind you of all this because, once again, he is predicting a collapse of T-bonds.
An unwound clock is right twice a day. But Jim Willie isn't.
The Golden Jackass -- his website's name -- brays again.
"IT'S ALL GOING TO COLLAPSE!!!!"
He begins as follows:
The big US banks are dead, as in giant hollow reeds. Such has been the Jackass refrain for eight straight years. They are insolvent monsters and destroyers of wealth and capital. They are massive criminal enterprises. Events prove the case well. The Too Big to Fail policy has instead assured the wreckage and destruction of the USEconomy. Save the big banks, but ruin the capital base. The USGovt under the management of the banker cartel since the 9/11 event, which they orchestrated in a bold move, has systematically brought down the macro business sector, permitted the USDollar platforms to decay completely, and rigged the financial markets in every conceivable arena. The central bankers are running scared. The Jackass wishes they would all depart in exile, locate on a lovely Polynesian island, and eat each other, with the winners wearing their bones and teeth.
All of this has applied to the biggest commercial American banks ever since 1914. In principle, they have always been hollow shells. All fractional reserve commercial banks are hollow shells. The Federal Reserve System was set up to protect the biggest of these hollow shells. It has never failed.
The biggest commercial banks did not collapse in the Great Depression or in any recession since then. (Note: Lehman Brothers was not a commercial bank. It was an investment bank. It did not take deposits from customers. It was not protected by the FDIC or the Federal Reserve. It was allowed to go bust in September 2008 by the ex-CEO of its main rival, Goldman Sachs, the then-Treasury Secretary Hank Paulson. Warning: Jim Willie refers to its failure as if it were a case study in commercial banking. Do not fall for this bait-and-switch argument.)
He writes that Federal Reserve policy "has systematically brought down the macro business sector." But the S&P 500 has more than doubled since 2009.
He writes that the FED has "permitted the USDollar platforms to decay completely." On the contrary, the dollar is up against all major currencies.
Rhetoric is supposed to match reality. This has long been a problem with Jim Willie's rhetoric.
USTREASURY BOND BLACK HOLE SEWERThe growing fear about the global banking system has driven the 10-year USTreasury Bond yields to all-time record lows as a safe haven. Investors might perceive the powerful Western Economic recession, provided they are not of low intellect.
I have been predicting this decline in rates -- rise in bond prices -- for two years. I am not of low intellect.
The USTBond Black Hole is drawing capital from the US land mass and the global centers, just in time for the new currency launch with devaluation.
Why is it drawing capital? Why are rates falling? Why is the dollar rising? Simple: the Federal Reserve has not inflated for two years. It has adopted a wise policy: monetary stability. But Jim Willie never cites Federal Reserve statistics. They prove the opposite of what he predicts.
Second, there is no new currency in the works. The old currency is working just fine. Americans can buy things with it. It is rising in value against foreign currencies.
The wealth loss will be magnficent for all the dopey clumsy mindless investors who believed the bond market offered safe haven. No security can be offered by a bond market with almost no legitimate buyers, an annual $1 trillion deficit (huge supply), and deep dependence upon the Interest Rate Swap derivative contract which produces artificial bond demand at zero cost.
When someone dismisses buyers who are buying with real money as "illegitimate," you know he is grabbing at straws.
Folks, there are no "illegitimate buyers" in a free market. There are only buyers. If they buy a lot, prices go up. Simple.
The international currency markets are the most liquid, largest, and least capable of being manipulated of all capital markets. The dollar is not up because of manipulation by the FED. It is up because the FED has not inflated for two years.
The free ride comes as a result of the Zero Interest Rate Policy, which will never change. The entire bond market depends upon it. The truly remarkable fact is that millions of investors believe the USTBond market is a safe haven. Let Darwin do his work, and remove them from the scene, along with their wealth, which is mostly phony anyway.
This guy has been wrong about the T-bond market for at least three years. But his bombast never ends.
What will drive long rates up in a recession? Fear of default? Will that fear begin in the US T-bond market or in the Eurozone? Obviously, the Eurozone. Is the FED adhering to a good monetary policy, compared to the Bank of Japan or the People's Bank of China? Yes. But Jim Willie never reports on actual FED policy, so he cannot see this.
The U.S. Treasury market is the largest lifeboat in a world of sinking monetary ships.
Meanwhile, they might enjoy a little more gains as the TNX sets sights on 1.0% flat on the yield. The risk is acute from a list of dangers. a) The derivative machinery might break down. b) The actual price inflation might be published, as well over 6% or 7%. c) The pension funds across the United States might be forced into new Special Treasury Bonds, and thus tarnish the pristine USTBonds. d) The New Scheiss Dollar might be launched, with a devaluation, casting a bad light on the protected USTBond toilet paper. e) Narcotics might be revealed as holding up the entire US banking system nucleus, namely Wall Street banks. f) As new gold-backed currencies arrive on the financial tables, the USDollar might be recognized as a Third World currency with nearly $20 trillion in debt to default.
And pigs might fly.
Don't tell us about "might." Tell us about what is provably true. Then explain why this is significant.
There is not a shred of evidence regarding a new gold-backed currency. There hasn't been any such sign since Bretton Woods in 1944. Nixon shut it down on August 15, 1971.
Now he offers some irrelevant statistics. He has been wrong for at least three years. If his statistics meant anything, he would not have been wrong for three years.
The TNX reached lows of 1.35% in recent bond trading. The rebound will face resistance with the pair of declining moving averages. The captive range for around a full year was 1.75% to 2.45%, showing a 7.0% range. Subtract the potential to arrive at an intermediary target of 1.05%, which due to the psychological factor can be called a 1.0% target. Loud gongs and alarms will go off when the target is reached, not if but when. To claim an economic expansion is in place is one of the greatest economic lies ever told. The nation is gripped in its eighth consecutive year of recession.
This is gibberish to impress his readers, who understand none of it -- nor does he. Ignore it.
Here is the significant factoid, drawn from historical records. New history is being made.
New history is always being made. That's what the present does to history, 24 hours a day.
USTreasury yields during the Great Depression were notably higher than today, which should warrant a serious dialogue on the reckless monetary policy stuck in place by the US Federal Reserve.
This was not true of short-term T-bill rates, which were close to zero during the Great Depression's early years. Long-term Treasury rates fell in the second half of the 1930's and remained in the 2% range for 15 years. There was no collapse. There was a legendary economic boom after 1945. Low T-bond rates as such prove nothing. You need economic theory to explain them. Jim Willie has no identifiable economic theory.
Meanwhile, the FED for two years has not been reckless. On the contrary, it has not expanded the monetary base -- its holdings of debt. It has actually contracted it. But remember: Jim Willie never looks at the FED's statistics for the monetary base. He lives in a la-la land of gibberish statistics, not the world you and I live in.
They are conducting ruinous experiments with Quantitative Easing which have driven out legitimate bond investors.
No, they are not.
They claim reinvestment of principal gains on a $4.5 trillion Fed balance sheet.
This peaked in October 2014 -- at about $4.1 trillion, not $4.5 trillion. It has since moved downward. It is about $3.8 trillion today.
Yes, they If truth be known, the USFed is sitting on the largest toxic waste paper basket in history. Its only close rival is the Euro Central Bank, which has over $3.0 trillion in its toxic paper vat. They each act as buyer of last resort, of garbage. They will each be declared bankrupt entities, a process well along in stages.
This is true of all central banks. So what? Is "toxic paper" so much worst than IOU's from the U.S. Treasury? Paper is not toxic if the FED holds it. Any asset is as good as any other, once the FED buys it. With the exception of gold, all the FED's assets are toxic. This is true of all central banks.
This does not threaten the dollar more than it threatens all other currencies. It threatens the dollar the least.
BIG US BANKS ON THE BRINKThe Wall Street bank stock selloff was powerful from July 2015 to February 2016. The rebound has been pushed surely by the USFed easy money channels.
Again, the FED is running the tightest monetary policy on earth.
The central bank has no authority to buy stocks, but it does so via its bank cohort accomplices.
How does the FED do this? We are not told. In what way would the FED be threatened by a decline in the value of stocks held by commercial banks? We are not told.
The declines have put the big US banks in the danger zone. Their selloff will resume soon, as the moving averages for the Bank Stock Index BKX are in a downward slide, and the downtrend line is strong in resistance. Their monetary policy has undermined the safety and soundness of behemoth banks that constitute the core of the US financial system. Attention could be given to the broken banks and the decidedly errant heretical policy. A risk stands for the big US banks to be suddenly booted from the revered Dow Jones Industrial Index, the marquee stock index. They are insolvent hollow reeds, steeped in criminal activity. Their profit is from bond carry trade and accounting gimmickry.
So, what else is new? This has been true ever since 1914.
The inescapable truth is that the big US banks are deeply insolvent and dependent upon casino activity and narcotics money. They have been perverted beyond all recognition in the last two decades.
I see. The big five banks get their a significant percentage of their profits from narcotics. If only it were true. That is one of the most stable and profitable markets in the United States.
The Jackass maintains that a major systemic Lehman event is in progress, with the collapse of several national banking systems. The risk is ripe for bank failure in contagion. Italy and Germany are in focus.
If this happens, you had better have a lot of your money in 30-year T-bonds or FDIC-insured 5-year CD's. The dollar will soar. There will be a mad rush for liquidity and safety. Long rates will fall. When the crisis hits in Europe, Europeans will buy the dollar, meaning US Treasury bonds.
Jim Willie never mentions this: first Europe, then Japan, then China, then the dollar. He does not think sequentially: "First this, then that." He therefore does not see the profit opportunity of T-bonds in comparison to the other currencies.
These ships may well sink, but not all at once.
The on again off again USFed rate hike talk in 2013, 2014, and 2015 has worked against the big US banks.
There has been one rate hike of the excess reserves rate since December of 2008: from 0.25% to 0.5%. This is the rate that the FED pays to commercial banks not to lend money into the general economy. That increase took place on December 16, 2015.
The hint or threat of a rate hike sends their stock values down.
Sometimes the market goes up before these non-events.
At the same time, the next in the endless series of fraud investigations (never criminal for the exceptional players) also works to send their stock values down.
Such investigations have no effect on stocks or interest rates.
They had to absorb $280 billion in just fines and penalties from bond fraud in the last few years. Then tack on the credit portfolio losses, most recently suffered in the energy sector.
Bank stocks are down. This does not mean a collapse of T-bonds is imminent. It means the opposite: T-bonds will be a port in the storm.
With QE to Infinity stuck in place, and lending to business put on hold due to endless chronic economic recession, the big US banks look vulnerable to a systemic breakdown.
What QE to Infinity? The FED has pursued stable money for two years. The phrase is utter nonsense. There has been no QE to infinity in the industrial West above the equator since 1923 in Germany, a defeated nation. (I do not count the State of Israel, 1983-85.) It is time to stop invoking the hyperinflation hobgoblin of 1923.
Nothing describes better the systemic Lehman event heralded by the Jackass than the BKX Bank Index and $750 trillion in derivatives on the verge of blowing up.
The size of this derivatives market is unknown, but it has been estimated as high as $1.2 quadrillion. There is nothing new here.
MONEY VELOCITY CONTINUES DOWNNothing displays the failure of modern central bank monetary policy better than the falling Money Velocity chart. They speak of stimulus, when the only benefit is to big banks in redeeming worthless bonds. They puff up the bond market, even the stock market. They neglect the muni bond market. They send wrecking balls into the pension fund system and the insurance company sector, which cannot possibly cope with the nil interest rate yield. No stimulus is given to the USEconomy by sustaining dead insolvent criminal enterprises call the big US banks. The QE monetary policy is destroying capital, seen in the mass of corporate job cuts. The USEconomic recession rivals the Great Depression, in all but recognition.
There is nothing new here. In any case, falling money velocity is deflationary if it is anything. That puts pressure downward on T-bond rates. I have been saying this for three years. It is the case for T-bonds, contrary to Jim Willie.
The proof is in the pudding, the money velocity defined as the number of annual round trips for existing money within the system.
The proof is in the accuracy of his predictions, which is nil.
If truth be told, and it never is by the big banks or their agents running the USGovt, the USEconomy has been mired in recession since 2007. The gray shaded area should extend all through 2007 and in every year since. However, the Fascist Business Model rules dictate that any desciption of economic performance must place an adjective before the word RECOVERY. The favorite is the sluggish recovery. Mine is the fierce economic recession that qualifies easily as a depression.
Anyone who thinks that we are in the equivalent of the Great Depression -- the only one in the U.S., ever -- should stop snorting what he says that the banks are selling.
DESPERATE MONETARY POLICY MEASURESMany are the desperate monetary policy measures. It has been over three years since Bernanke admitted that the USFed had exhausted its standard tools. It has had to resort to non-standard tools since that time. Each policy item is fraught with risk, danger, and a deeply destructive element certain to undermine the wrecked monetary system to yet another level of degradation. The high risk desperate policies are racking up, adding to the risk, worsening the central bank integrity. If some professor had been asked in the 1970 decade about current modern day policies, the response would have been that none could possibly be installed, since all are insane, destructive, and counter-productive. Yet they are all in place, and more might be soon proposed. They are necessary to sustain the broken system. Consider the list of truly mind-boggling insanity in monetary policy.
Yada, yada, yada. Fact: T-bonds have gone up, year after year, contrary to Jim Willie's predictions.
1) Zero Percent Interest Rate: It causes distortions in asset allocation. It wrecks the pension system and insurance sector. It offers no reward to savers. It acts like a wet blanket on the entire economy. It makes a mockery of the entire credit system. However, it is required to fuel the Interest Rate Swap derivatives which make artificial bond demand, from the feeder tubes.
All true. But a zero percent interest rate is not the present policy of the FED, unlike other central banks. The FED is pursuing stable money. It has remained close to neutral for longer than at any time since the end of World War II.
Quantitative Easing & Bond Purchase: It redeems worthless bonds owned by the Wall Street banks, providing them with urgently needed liquidity and capital.
It did this in 2008. Then it stopped.
It prevents big US bank failures.
It has done this ever since 1914. Nothing new here.
It has been exported to the BLICS nations as secondary buyers of USTreasury Bonds.
Monetary policy cannot be exported across any national border. National monetary digits are not exported anywhere. They reside in computers. They remain inside the jurisdiction of each central bank. Ownership of digital money is exchanged, not digital money across national borders. Digits do not move. Foreign central banks buy and sell IOU's of several major nations. They always have. There is nothing new here.
It forces hedging, thus raises the entire cost structure, resulting in lost profit margins. The result is killed capital, shut down in businesses, and job cuts. The experiment has failed, since no stimulus is evident within the chronic recession and decline in Money Velocity.
Employment is up since 2009. The U.S. economy is weak, but it is functioning. The dollar is up. No crisis yet. But Jim Willie predicts crises endlessly. His story never changes. He sells fear. There is a continuing market for fear.
3) Negative Interest on Savings: It will encourage departure of money held in banks, and soon cause widespread bank runs. It will push investors into the Gold market. It is possibly required in order to maintain a constant spread on the bonds, from long-term to short-term. It is a banker elite tax on the entire system, like vultures.
This man does not understand the #1 fact of modern banking: only marginal quantities of money can leave the banking system. There is only one way to get money out of a banking system: withdraw currency. But only small depositors can do this. There is no way -- and has not been -- for anyone to get $100,000 in currency out of a bank, except for paying ransom money. Local banks are not obligated legally to provide large amounts of currency. There is no way for big bank account holders to get their money out of the system as a whole. In any case, as soon as someone spends currency, it gets deposited in a local bank.
Jim Willie abuses the privilege of being economically ignorant about money and banking. He does not understand the basics of commercial banking, but he never stops pontificating about it.
4) Bail-in on Private Accounts: It is a powerful threat on confiscation. Banks require 50 to 100 times more funds than private accounts, in order to be rescued from derivative losses. It is a nationalized poverty step imposition. More risk of bank runs from threat of loss in accounts. More banker desperation and tax.
There has always been a bail-in risk for large accounts. The FDIC does not protect joint accounts over $500,000 -- chump change for the total economy. Again, nothing has changed since 1934, the year that the FDIC went into operation. There has been no bank run that has not been solved over a weekend since 1934.
It is time to stop invoking hobgoblins -- in this case, a deflationary hobgoblin.
More gibberish. You cannot explain any of this to your mother. Neither can he. He lives in la-la land. If the banks die all at once -- really, truly go bust -- then 80% of the West's population dies. The division of labor collapses. Now he goes into all-caps mode. This is where he starts selling subscriptions full-bore. THE CHINESE FINANCE OFFICIALS AND THE BASEL-BASED BANK FOR INTERNATIONAL SETTLEMENTS ARE NEGOTIATING A GLOBAL REFORM OF ALL BILATERAL CONTRACTS. THEY STRIVE TO ALTER USDOLLAR-BASED CONTRACTS, AND CHANGE THE CONTRACT TERMS TO GOLD SETTLEMENT. THEY ARE WORKING ON A GLOBAL CONTRACT AT THE $5000 GOLD PRICE IN CONTRACT CONVERSION. CHINA REPRESENTS EASTERN INTERESTS, WHILE BASEL REPRESENTS WESTERN INTERESTS. It is not yet clear what will happen to commodity price mechanisms. He offers no evidence. That is because there isn't any. And if there were, he would not have access to it. It is not going to happen. No central bank favors it. No university economics department favors it. No politician favors it. There is no constituency for a gold-backed currency. Central bankers want 100% control over monetary policy. That is why they abandoned the gold coin standard in late 1914. The fiat money game will go on. It's the name of the much larger game. The USA has been running huge trade deficits for about 20 years. Nothing new here. He continues: It's possible. But that would be an act of desperation -- the end game. The dollar will soar and T-bonds will soar long before this. There is an old rule in sports: "If a play wins, keep using it." The anti-gold play has worked since 1914. Don't invest too much in terms of the coaches' scrapping the playbook. CONCLUSION Jim Willie does not know what he is talking about. You can safely ignore him. He will be tempted to respond when he reads this. He may attempt to refute me with a mixture of gibberish and exclamation points. If he does, watch carefully for this: will he at last explain the two charts at the beginning of this article in terms of his endless chatter about QE? Fact: There is no QE. There is QS. If he says, "We just can't trust Federal Reserve charts," he will have lost the debate. He can't beat something with nothing.
6) Helicopter Money Dispensation: It is lunacy. The effect would be fleeting. The prices would rise immediately, then return to the previous levels. Nothing spells central bank stupidity and recklessness more than helicopter money drops on households. Its administration might be a nightmare, since those receiving the funds probably would see it from tax rebates. The lower class might not see anything hit their lawns. The fuse again might light the Gold market. Any helicopter drops would mean the end of the central bank franchise system. Bring it on!
BIG NEW DEVELOPMENT ON GLOBAL FRONT
If and when the global contract reform is completed, all bilateral contracts will be shifted into Gold settlement, no longer USD settlement.
The result will be the USGovt is then made free to launch a domestic-only new USDollar, called disrespectfully the New Scheiss Dollar by the Jacksass for the last two years. It will resemble a Third World currency, and be subjected to a sequence of devaluations. A $500 billion trade deficit will require several years to overcome.
If reduced by 50% in five or six years, it will be a miracle. The $1 trillion federal deficit has a different solution in mind. The USGovt plans to commandeer pension funds, forcing investment in the Special USTreasury Bond. It will not be a confiscation, but rather forced conversion with all the disadvantages of currency devaluation that come.