HERE THE 1ST MANIFESTO
for REV in AMERICA
MUST READ IT!
Hugo Adan
5/31/20
….
Presenting
the most diabolical feedback loop of modern monetary policy and economics.
Several years ago, when
conventional wisdom dictated that to push inflation
higher and jumpstart lethargic economies, central banks have to push rates so
low as to make saving punitive and force consumers to go out and spend their
hard earned savings, several central banks including the ECB, SNB and
BOJ crossed into the monetary twilight zone by lowering overnight rates
negative.
Then, year after year, we would
hear from the likes of Kuroda and Draghi how the BOJ
and ECB will continue and even extend their insane monetary policy, which now
includes the purchase of 80% of all Japanese ETFs...
SEE CHART:
Why was this happened if rates were negative? Why were consumers not
taking their money out of the bank and spending it, pushing inflation higher?
Nobody had an answer, until in late
2015, we
offered a glimpse into what was structurally flawed with this
"model": using a report by Bank of America,
we showed that not only had
household savings rates not declined in countries with negative rates, they had
in fact risen.
There was a simple reason for this, as the
BIS had highlighted: ultra low rates may perversely be
driving a greater propensity for consumers to save as retirement income
becomes more uncertain.
SEE CHARTs
What logically followed from this
is that inflation would also track rates lower, resulting in a crushing blow to
economic orthodoxy where the only weapon central banks had left to spark an
economic - read inflationary - recovery was to ease monetary conditions
even more in hopes that eventually they would drop low
enough to spark the long-awaited recovery.
SEE CHARTS
It never happened, even though
amusingly it was all the way back in 2015 that we predicted - correctly in
retrospect - just WHAT THE MONETARY ENDGAME IS:
FEAR NOT: when even
"moar" QE and NIRP do not work, and the economists of the ECB admit
the "monetary twilight zone" was a disaster, there is one last "tool" they can
and will use - helicopters.
Because when it comes to printing money, whether in digital
reserve format, or physical paper format, there is literally no limit how much
can and will be created to achieve what is the endgame of the current monetary
dead end: the total
destruction of fiat as a store of wealth in order to preserve the global equity
tranche while wiping away a few hundred trillion in debt.
Thanks to covid-19, we have now moved beyond
merely the "twilight" and are now in the "helicopter" zone.
But what about the relationship between rates
and savings, and by extension inflation? After all that is the topic of this post.
Well, we can now confirm that our intuition from 2015 that negative rates are not only not inflationary but outright
deflationary, and encourage consumers to save even more, was correct all along.
Below we post a chart from the latest Research
Investment Committee report by BofA titled
"Stagnation, stagflation or elevation",
which with just one image blows up everything that is flawed with monetary
policy.
It shows that while lower rates indeed
stimulate spending and lead to lower savings, this effect peaks at around 4%
and then goes negative. IN FACT, the lower
yields - and rates - drop below 4% - not to mention to 0% or below - the lower
the propensity to spend and the higher the savings rate!
SEE CHART:
Lower yields force households to save more
There is another reason why this chart of such
epic importance: it confirms what so many have known but were afraid to voice
as it ran against decades of flawed economic theory: it
demonstrates without a shadow of doubt, that hyper-easy monetary policy is not
inflationary but is deflationary.
Which is catastrophic for central
banks, who publicly state that the only reason they are
pursuing ultra easy monetary policy which includes QE and negative rates, is
not to goose the market higher (even though by now we all know that's the real
reason) but to stimulate inflation.
This is how Bank of America summarizes this
stunning observation:
As low growth & inflation make
low-risk-asset income scarce (e.g. from government bonds), households are
forced to reduce consumption and increase savings in order to meet retirement
goals.
Forced saving further depresses demand in a
vicious cycle.
This means that the
lower (and more negative) central banks push rates, the lower (not higher) the
spending, the higher (not lower) the savings rate, the lower the inflation, the
higher the disinflation (or outright deflation), which in turn
forces central banks to cut rates even more, to add QE, yield curve
control, buy junk bonds, buy ETFs, or pursue any of a
host of other monetary policies that are even more devastating to consumer
psychology, forcing even more savings, resulting in even more
disinflation, causing even more intervention by central banks in what is WITHOUT
DOUBT THE MOST DIABOLICAL FEEDBACK LOOP OF MODERN MONETARY POLICY AND ECONOMICS.
Said otherwise, monetary easing is deflationary. Let that sink in.
In effect, what the chart above shows, is that once trapped by NIRP, there is no way out, and
the more central banks pursue inflation to offset deflation via monetary
policy, the more pronounced the deflationary outcome resulting in even more
central bank deflationary "stimulus"!
Meanwhile, as central banks spark even more
deflation with their policies, the one place where all
those trillions in liquidity they conjure out of thin air ends up in, is
what was once known as the "market" and is now, in the words of BofA
the "FAKE MARKET" or as DB calls it
"administered
markets", leading to ever higher fake asset
prices, and ever greater wealth and income inequality, WHICH
ULTIMATELY TEARS THE FABRIC OF SOCIETY ITSELF.
In fact, just look at what's happening to America
right now: rioting, looting, pillaging, Americans fighting other Americans and
while the media is spinning self-serving narratives that frame the bad guy as
Trump, or China, or Russia, or this political party, or that, or some social
movement, the truth is that the culprit behind the
upcoming collapse of the US is just one, the same one that Thomas Jefferson warned the brand new nation about
more than two centuries ago:
I believe that banking
institutions are more dangerous to our liberties than standing armies. The
issuing power of currency shall be taken from the banks and restored to the
people, to whom it properly belongs.
If the American people ever allow private
banks to control the issue of their currency, first by inflation, then by
deflation, the banks and corporations that will grow up
around them will deprive the people of all property until their children wake
up homeless on the continent their Fathers conquered."
And sure enough, looking at what's happening
in any major city today, we see a lot of homeless and
desperate people. And as a further reminder, the Fed - as the Bank of
England was so kind to remind us - was and remains a private
institution, no matter its claims otherwise.
SEE CHART:
Now if only someone could explain to all those
millions of angry Americans that the source of
virtually all of society's ills is to be found in the building below (which
just happens to house an unknown amount of freshly printed dollar bills), it
would be a much-needed to START THE RESET of THE US so desperately need it TO AVOID COMPLETE DESTRUCTION.
[ In
our language: START A SOCIALIST REV ]
….
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