Tuesday, January 17, 2017

Gold World News Flash

Gold World News Flash


Keith Neumeyer: Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions”

Posted: 17 Jan 2017 07:05 AM PST

It is my privilege now to bring in Keith Neumeyer, founder and CEO of First Majestic Silver Corp, one of the top silver mining companies in the world. Keith has an extensive background in the resource and finance sectors and has also been an outspoken voice about the manipulation that has been occurring in the futures market pricing of silver.

The Almighty Dollar – Revisited

Posted: 17 Jan 2017 07:01 AM PST

Donald Trump is elected President of the United States of America last year on a populist platform and the dollar($) takes off like it's nobody's business on the sales pitch America is back in business with a true business man at the helm. Right-wingers would point out Trump's failures throughout the years in an effort to dispel this belief, however in fact his track record is impressive, with only four bankruptcies out of some 400 incorporations.

Damage Inflicted by Precious Metals Manipulation

Posted: 16 Jan 2017 11:01 PM PST

From Money Metal Exchange Listen to the Podcast Audio: Click Here Mike Gleason (Money Metals Exchange): It is my privilege now to bring in Keith Neumeyer, founder and CEO of First Majestic Silver...

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Anonymous Threat To Trump's Presidency & The Russian Border

Posted: 16 Jan 2017 09:00 PM PST

No doubt Putin is laughing at this little assembly of nothing at his border. NATO is done as is the UN. Where is George Soros and the enlightened inbred illuminati? The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative...

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Keith Neumeyer: Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions”

Posted: 16 Jan 2017 07:25 PM PST

Mike Gleason (Money Metals Exchange): It is my privilege now to bring in Keith Neumeyer, founder and CEO of First Majestic Silver Corp, one of the top silver mining companies in the world. Keith has an extensive background in the resource and finance sectors and has also been an outspoken voice about the manipulation that has been occurring in the futures market pricing of silver.

Gold Price Forecast 2017 Update - Video

Posted: 16 Jan 2017 07:16 PM PST

The gold price bottomed on the 15th of December 2016 at $1124.30 since which entered an uptrend that has taken the precious metal to its recent high of $1207, apparently catching many gold bugs asleep at the wheel, many of whom had publically thrown in the towel due to the failure of Gold to perform post Trump, but most recently have been busy scrambling to play catch up as the price homed on on $1200.

This Is What Venezuela's New, Vertical, Banknotes, Now With Added Zeros Look Like

Posted: 16 Jan 2017 06:18 PM PST

We've all been eagerly waiting to see them: Venezuela's crisp,brand new yet soon to be hyperinflated with many more zeros banknotes, and finally, after various failed attempts to deliver the new bills to Caracas (which according to Maduro were at least partially aborted due to pesky CIA meddling) they have arrived. And they are vertical.

A new bank note of 500 Bolivars held outside a bank in Caracas. Jan. 16, 2017.


A new bank note of 5,000 Bolivars outside a bank in Caracas. Jan. 16, 2017.

Eager to get their hands on the new currency, AP writes that Venezuelans stood in long ATM lines Monday to take out new, larger-denominated bills "that President Nicolas Maduro hopes will help stabilize the crisis-wracked economy." Of course, they will do no such thing as the pieces of paper in circulation have absolutely no bearing on the underlying economy, or its hyperinflation, but it will take at least several more shipments of new banknotes before the Maduro figures this out.

As a reminder, in taking a page out of the Indian demonetization playbook, Maduro last month said he was scrapping circulation of the most used bill, the 100-bolivar note, and replacing it with new bills ranging from 500 to 20,000 bolivars. 

The local were appalled. Residents in Caracas expressed shock at seeing bills with so many zeros — a sign of how worthless the bolivar has become amid triple-digit inflation and a collapse in foreign exchange reserves that has led to severe food shortages.

Our advice: get used to it - the fun is only just starting. Ask Zimbabwe.

"I never thought I'd have such a big bill in my hands," Milena Molina, a 35-year-old sales clerk, said as she inspected crisp, new 500-bolivar notes she had just withdrawn. "But with the inflation we're suffering, the notes we had weren't worth anything and you always had to go around with huge packages of bills."

The Weimar Republic agrees.

Monday's rollout of the first batch of imported notes came weeks later than the government had originally promised. Maduro last month ordered the 100-bolivar note to be withdrawn from use well before the replacement bills were ready, leading to widespread chaos as Venezuelans rushed to spend the bills before they were taken out of circulation. With cash running out, looting and protests were widespread - although they were widespread before the currency exchange too, so there wasn't much of a difference - and Maduro had to backtrack. On Sunday, he extended for the third time, until Feb. 20, the deadline for the 100-bolivar note to remain legal tender.

While the new denominations should make cash transactions easier the relief may be short-lived: since the largest, 20,000-bolivar note is worth less than $6 on the widely used black market, Maduro already has to order a fresh batch with at least one more zero. With inflation forecast by the International Monetary Fund to hit four digits this year, few economists expect the currency to rebound any time soon.

Seeking to combat the black market, the government on Monday inaugurated four currency exchange houses near the border with Colombia where Venezuelans will be able to purchase Colombian pesos at a favorable exchange rate of 4 pesos per bolivar. The bolivar currently is worth just a quarter of that amount at exchange houses over the border in Colombia.

And while on the surface this risk-free arbitrage guaranteeing 400% returns would be a slam-dunk trade, there are two problems.

First, while Gov. Jose Vielma Mora of Tachira state said the Venezuelan central bank has at its disposal a large amount of pesos to meet what is expected to be strong demand for hard currency, purchases would be capped at between $200 and $300. A second, and bigger proble, is that it was hard to find anyone Monday who had managed to buy pesos.

Opponents of Maduro said that in trying to set an exchange rate for pesos, authorities are paving the way for corruption, saying only certain individuals and companies close to the government will be able to purchase them at the official rate. They are, of course, right.

China To Trump Prepare For War

Posted: 16 Jan 2017 05:30 PM PST

If China called in all the debt it is owed by the US, America would be bankrupt in a heart beat thats why the zionist centeral banksters want a war to avoid paying what they owe. Eventually it's going to be us the USA or China leading the world . China is taking over the dollar as the one world...

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Hugo Salinas Price: The further decline in international reserves

Posted: 16 Jan 2017 04:58 PM PST

7:58p ET Monday, January 16, 2017

Dear Friend of GATA and Gold:

Noting the continuing decline in the international reserves of central banks, Hugo Salinas Price, president of the Mexican Civic Association for Silver, writes today that credit contraction is likely to follow, along with deflation, unemployment, currency devaluation, and political instability. His analysis is headlined "The Further Decline in International Reserves" and it's posted at the association internet site, Plata.com.mx, here:

http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=3...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org



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Cyberpunk 2020 - Vee's Resurrection

Posted: 16 Jan 2017 04:30 PM PST

Place your bets now on how long till Vee is pregnant!! The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers , Whistelblowers , truthers and many more

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2017 – Spectacular For Gold And Silver But Disaster For Bonds And Stocks

Posted: 16 Jan 2017 03:54 PM PST

Matterhorn AM

Markets Shudder Under Threat of Hard Brexit

Posted: 16 Jan 2017 02:59 PM PST

This post Markets Shudder Under Threat of Hard Brexit appeared first on Daily Reckoning.

Theresa May has been the conservative leader and Prime Minister of the UK for just over 6 months following the Brexit vote in June of last year.  Since then, the discussion over just how the UK might go about the Brexit from the European Union has left markets, the pound sterling and multinationals focused on trade in the dark.

That is all about to change.

The Prime Minister will meet in front of a scattered mix of government members, press and European diplomats at London's Lancaster House to outline Brexit priorities going forward on Tuesday.  The house was once the location in which the UK signed over independence to Zimbabwe (then Rhodesia), Malaya and began negotiations with South Africa to become a republic — so it is only fitting that such a public speech would take place in front of the London mansion.

Prior to the scheduled speech, Mrs. May had only given one major public address covering Brexit and expectations, while standing in front of her fellow conservative party members. There she announced that she would be working toward EU migration controls and directly working toward the legalities surround the European Court of Justice.

PM May has then signaled that by March, less than ten weeks time, she plans to trigger the EU's article 50 that would formally begin the UK's exit from its European commitments with the Union.

Currently, an estimated 44% of the UK's goods and services sector are being exported to the EU, while an astonishing 53% of imports to the UK come from the EU.

On Sunday, British newspaper The Telegraph reported, "sources familiar with the prime minister's thinking" suggest that PM May would select a "hard Brexit" in direct contrast to possible protections of the economy.

After the commentary the British pound sterling has has an all time 31-year low against the U.S dollar, with the exception of last October and the flash crash experience.  The separation between the UK and the 27 remaining UK member states could extend beyond currency triggers and levy devastating impacts on the private sector and global markets.

While the pound sterling has taken a dive, gold has experienced an 8-week high with investors spooked with uncertainty regarding what the anticipated Brexit speech might reveal. This move in gold comes at a time when trade and jobs from the UK are under wide uncertainty.

Hard Brexit

Jim Rickards noted at the end of last year, "Brexit is certain to impose large costs on the UK economy mostly in the form of reduced trade with the EU, tariffs, and an exodus of jobs and capital from the City of London as major banks move their offices to Frankfurt, Amsterdam, Dublin or Paris."

The "muddled thinking" that outgoing British ambassador to the UK publicly denounced earlier this month regarding Brexit methods are widely anticipated to be clarified in the Prime Minister's speech.  The British people, and to an even wider extent the rest of the EU, will be watching this speech for greater specifics  – even if that means a hard brexit discussion is more likely.

The three likely outcomes from the UK giving up its membership to the EU market are worth considering.

First, it could establish that London would be able to trade with the European Union under the guise of the World Trade Organization, while also having to meet specific export and import requirements with WTO tariffs.

Secondly, London could establish a "free trade" memorandum with Brussels, the European de-facto capital, that would allow for trade involving as many products and services as it deems appropriate.

Third, the UK could negotiate an agreement in which tariffs be arranged within the EU customs union – ultimately allowing minimal disruptions to trade with continental Europe.

These options were only further affirmed when the UK's chief financial minister told a German editorial over the weekend that, "If Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term."

While all options on the table, the current government could approach any mixture of approaches – but leaving the market and current its trading partners in the dark is an uncertainty that both the UK nor EU cannot afford.

As Nomi Prins noted in her financial outlook for 2017, "The sterling fell 14% in 2016, due to Brexit and anxiety over what form it will eventually take.  Despite a year-end dead-cat bounce, uncertainty can only mount once negotiations truly begin."

The signals from PM May showing the setup for a hard Brexit or otherwise will all be worth watching and adjusting for. While one speech, and even the enabling of the Article 50 to separate from the EU will be an evolving process, the precedent set will offer a clear picture to those Eurozone members also considering a split.

The outcomes of how the UK and the EU negotiate an exit will be monitored closely by those Euroskeptic groups considering a departure of their own governments. Divorces are never easy things, the romance between the UK and the EU was never going to be a pretty ending – even if it is an "it's not you, it's me" Brexit split.

Regards,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

The post Markets Shudder Under Threat of Hard Brexit appeared first on Daily Reckoning.

China May Soon Shock the Market

Posted: 16 Jan 2017 02:35 PM PST

This post China May Soon Shock the Market appeared first on Daily Reckoning.

Is China preparing to devalue its currency again? The fate of the market may hang on the answer…

China last devalued between December 2015 and January 2016. The result? U.S. stocks kicked off the year to their worst start ever. And that was only a 2% devaluation.

China previously devalued 4% in August 2015. That was enough to send the Dow plunging 508 points in one session — the Dow's eighth-worst single-day crash in its history. It looked like it may have led to "the big one" so many have been expecting.

But the Fed managed once again to yank another rabbit out of its hat. The day of reckoning was averted — or at least postponed.

Could the Fed pull it off again if China devalues? But why would China devalue… when the last two occasions sparked massive financial panics?

The answer: It might have to in order to defend its domestic economy…

The muscular U.S. dollar has hung China on the hooks of a dilemma. It's true China wants a weak currency to spark its export economy. Weak, yes. But not too weak…

A freefalling yuan sucks the lifeblood from the Chinese economy. Literally. Capital's already fleeing China in buckets, heading for the safer and greener (literally) vistas of the U.S. dollar. That sets in train a vicious cycle. More capital flight out of China leads to more weakness as investors dump yuan for dollars.

So China must put a floor under the yuan to end the capital flight.

That means the Chinese central bank been dumping dollars to steady the yuan. But here's Catch-22: To defend the yuan, it's been selling dollars at such a gait… that it's burned a gaping hole through its dollar reserves. It's unsustainable.

China’s reserves fell nearly $320 billion last year, to $3.01 trillion. That's piled on top of a record loss of $513 billion in 2015. $3 trillion in reserves may sound like a lot. But for China, it's less than you might think…

In fact, Jim Rickards says China's going flat broke

"China is going broke. This statement comes as a shock to those who have heard over and over that China is a rising economic superstar and will soon be the greatest economy on Earth, surpassing the U.S. in the No. 1 role."

How can China be going broke? Jim peeks beneath the surface:

China started 2015 with about $4 trillion in hard currency reserves. About $1 trillion fled the country in 2015 and 2016 based on fears of yuan devaluation. That's classic capital flight.

Another $1 trillion is relatively illiquid, including direct investments in mines and natural resources through sovereign wealth funds such as China Investment Corp. That's wealth, but it's not money that can be used in a liquidity crisis.

Finally, $1 trillion has to be held as a precautionary reserve to bail out China's insolvent banks and Ponzi-style "wealth management products." Failure to bail out the banks… could lead to social unrest that would topple Communist rule, so that won't be allowed.

"That," says Jim, "leaves only $1 trillion of the original $4 trillion in liquid form." And if it keeps jettisoning dollars at this rate, "China will be devoid of useable liquid assets by late 2017."

Those are the stakes. Which brings us back to another possible devaluation…

China's recently enacted regulations limiting the ability of individuals and businesses to move money out of the country — capital controls, in other words — while denying they were capital controls.

But capital controls, admitted or not, can only go so far. If folks are bent on getting their money out, they'll find a way They might even make things worse.

As Jim explains, "History shows that weak capital controls may be worse that no controls because they send a message of 'no confidence' while not really stopping the outflows."

So… If the yuan's going to depreciate anyway and capital controls are shams, how does China manage the problem without further depleting its dollar reserves?

Devaluation.

Just flat out devalue the yuan. That way they don't have to keep torching dollars to try to prop it up. It's a wasting asset regardless. It might hurt in the short run but it's better to get it over with and have done.

As Reuters explains it, "If [China] continues to burn through reserves at a rapid rate, some strategists believe China’s leaders may have little choice but to sanction another big 'one-off' devaluation like that in 2015, which would likely roil global financial markets."

Yes, it might roil global financial markets. But answer this question: Is China's leadership more concerned with the U.S. stock market… or its domestic economy, social stability and thus its own rule? The question answers itself, no?

Finally Jim gives a foretaste of what could be next: "Yuan devaluation is happening in baby steps, but that may soon turn into a one-time 'maxi-devaluation' of 30% or more to stop the bleeding."

The last times China devalued 2% and 4% the stock market practically collapsed. What happens if it devalues 30%? And what if the Fed can't pull another rabbit out of that tired old hat?

What if, indeed? But it would sure send Trump a message: "You want a trade war? You've got one. Happy Inauguration Day!"

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post China May Soon Shock the Market appeared first on Daily Reckoning.

IT'S OFFICIAL: New World Order Announced for 2030! Wake Up America! EVIDENCES! (2017)

Posted: 16 Jan 2017 02:00 PM PST

US SOLDIER exposes TRUMP and NWO! How to protect your money! Important News!! How to survive on 2017 event! Gold Tips! Very important Information! Please take a look and Share... Share... because this video must be shared with max number of people! make your part now, please share it! Because...

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In The News Today

Posted: 16 Jan 2017 12:01 PM PST

Jim Sinclair's Commentary Sounds perfectly correct to me John Hathaway – China Is Preparing To Radically Reprice Gold Higher As Demise Of The COMEX & LBMA AcceleratesJanuary 12, 2017 January 13 (King World News) – Gold rose 8.5% for the year while gold-mining stocks (XAU – Philadelphia Gold and Silver Index stocks) rose 75%. On... Read more »

The post In The News Today appeared first on Jim Sinclair's Mineset.

Physical Gold Market Will Trump Paper Gold

Posted: 16 Jan 2017 10:22 AM PST

John Hathaway of Tocqueville Funds says the physical gold market will defeat the paper gold market leading to a much higher price for the monetary metal in the coming months and years in his Tocqueville Gold Strategy Investor Letter (Fourth Quarter 2016 Investor Letter):

A Hint of Gold Backwardation

Posted: 16 Jan 2017 08:15 AM PST

Last month, we noted that there could be a trend change in progress. Not only are the prices of the metals rising (which is just a mirror-image of the dollar falling, from 27.6 milligrams of gold just before Christmas to currently under 26mg). But the scarcity of gold as we measure it, using the spread between the price of gold in the spot and futures markets, has been rising.

7 Federal Reserve Tools and Why They’re All Flawed

Posted: 16 Jan 2017 08:09 AM PST

This post 7 Federal Reserve Tools and Why They're All Flawed appeared first on Daily Reckoning.

[Ed. Note: Jim Rickards latest New York Times best seller, The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis (claim your free copy here) transcends politics and the media to prepare you for the next crisis] 

In recent decades, the Fed has engaged in a series of policy interventions and market manipulations that have paradoxically left it more powerful even as those interventions left a trail of crashes, collapses and calamities.

The following is a survey of seven Federal Reserve tools in the Fed toolkit to stimulate the economy if recession or deflation gains the upper hand and why their toolkit is flawed.

Helicopter Money

The image of the Fed printing paper money, and dumping it from helicopters to consumers waiting below who scoop it up and start spending is a popular, but not very informative way to describe helicopter money. In reality, helicopter money is the coordination of fiscal policy and monetary policy in a way designed to provide stimulus to a weak economy and to fight deflation.

Helicopter money starts with larger deficits caused by higher government spending. This spending is considered to have a multiplier effect. For each dollar of spending, perhaps $1.50 of additional GDP is created since the recipients of the government spending turn around and spend that same money on additional goods and services. The U.S. Treasury finances these larger deficits by borrowing the money in the government bond market.

Normally this added borrowing might raise interest rates. The economic drag from higher rates could cancel out the stimulus of higher spending and render the entire program pointless.

This is where the Fed steps in. The Fed can buy the additional debt from the Treasury with freshly printed money. The Fed also promises to hold these newly purchased Treasury bonds on its balance sheet until maturity.

By printing money to neutralize the impact of more borrowing, the economy gets the benefit of higher spending, without the headwinds of higher interest rates. The result is mildly inflationary offsetting the feared deflation that would trigger helicopter money in the first place.

It's a neat theory, but it's full of holes.

The first problem is there may not be much of a multiplier at this stage of the U.S. expansion. The current expansion is 90 months old; quite long by historical standards. It has been a weak expansion, but an expansion nonetheless. The multiplier effect of government spending is strongest at the beginning of an expansion when the economy has more spare capacity in labor and capital.

At this point, the multiplier could actually be less than one. For every dollar of government spending, the economy might only get $0.95 of added GDP; not the best use of borrowed money.

The second problem with helicopter money is there is no assurance that citizens will actually spend the money the government is pushing into the economy. They are just as likely to pay down debt or save any additional income. This is the classic "liquidity trap." This propensity to save rather than spend is a behavioral issue not easily affected by monetary or fiscal policy.

Finally, there is an invisible but real confidence boundary on the Fed's balance sheet. After printing $4 trillion in response to the last financial crisis, how much more can the Fed print without risking confidence in the dollar itself? Modern monetary theorists and neo-Keynesians say there is no limit on Fed printing, yet history says otherwise.

Importantly, with so much U.S. government debt in foreign hands, a simple decision by foreign countries to become net sellers of U.S. Treasuries is enough to cause interest rates to rise thus slowing economic growth and increasing U.S. deficits at the same time. If such net selling accelerates, it could lead to a debt-deficit death spiral and a U.S. sovereign debt crisis of the type that have hit Greece and the Eurozone periphery in recent years.

In short, helicopter money, which both Trump and the Fed may desire, could have far less potency and far greater unintended negative consequences than either may expect.

Negative Real Rates Achieved Through Financial Repression

Another form of stimulus in the Fed's toolkit is negative real interest rate policy achieved through financial repression.

Negative real rates exist when nominal interest rates are lower than the rate of inflation. A simple example would be a 2.5% yield on ten-year Treasury notes and inflation of 3.0%. That would produce a negative real interest rate of -0.5% (2.5% – 3% = -0.5%).

A negative real rate is an encouragement to borrow and invest because the borrower can repay the lender in cheaper dollars. Negative real rates also cause a fall in the exchange value of the dollar since capital will flow to other currencies with positive real returns.

A lower dollar is inflationary in itself because it increases the costs of imported goods. The U.S. has a persistent trade deficit and is a net importer so such increased costs feed through supply chains and result in higher prices.

The Fed can achieve negative real rates by using financial repression, also called fiscal dominance. The Fed can encourage inflation by keeping nominal short-term rates low, while negating higher long-term rates with bond purchases.

Negative real rates and financial repression have been used in the past to erode the real value of government bonds and reduce the U.S. debt-to-GDP ratio over time. The period from 1946 to 1970 is a classic case during which the U.S. debt GDP ratio declined from 100% to 30% before gradually going up again (today the ratio is 104%).

The difficulty is that in the 1950s and 1960s the economy had an inflationary bias due to a rapidly growing consumer population bumping up against capacity constraints. Today the situation is the opposite with an aging demographic and numerous deflationary forces from debt deleveraging and technology.

The Fed may want to engineer a mild form of negative real rates using financial repression, but it is not clear the Fed can actually do so given deep-seated deflationary trends. The Fed's failure to hit its inflation targets for the past four years suggests this particular stimulus tool may not be availing.

Interest Rate Cuts in a Recession

Although the nominal Fed funds target rate is low, just 0.50% currently, it is still positive. The Fed could announce two 0.25% rate cuts at two successive FOMC meetings if it so chose.

This is unlikely at the moment because the Fed has announced its intention to increase rates three times in 2017. However, each rate hike can be viewed as adding one bullet to the Fed's revolver, giving the Fed more ammunition to fire if the U.S. economy goes into a recession.

Historically, it takes 300 to 400 basis points of rate cuts to steer the U.S. economy out of recession. Fed policy today can be understood as a desperate race to get the fed funds rate to 3.5% before the next recession hits without actually causing a recession in the process.

The Fed is unlikely to achieve its goal because it may take until the end of 2019 to raise rates that much and the economy is likely to go into recession before then. Still, the Fed will raise rates as much as it can, whenever it can in order to cut them again when a recession emerges.

Savers Save More When Facing Negative Interest Rates

Negative interest rates were first viewed as an extension of interest rate cuts after the policy rate hit zero. If a central bank had a policy rate of 1%, it could implement four 0.25% rate cuts before hitting zero. At that point, the central bank could cut rates further by pushing the policy rate into negative territory.

This can be done by paying a premium above par for non-interest earning Treasury bills that mature at par thereby "earning" a negative total return on the bills. The original view was that negative rates were just more of the same from the perspective of rate cuts.

However, empirical evidence from negative rate experiments in Japan and Europe suggests that negative interest rates are not just more of the same from a rate cut perspective. Negative rates are designed to stimulate lending and spending. Yet, certain behavioral reactions produce the opposite of the effects intended.

Savers facing negative rates actually save more to compensate for lost interest. Consumers interpret negative rates as a deflation signal and defer purchases in anticipation of lower prices. Negative rates actually produce more saving and deferred spending.

While negative interest rate policy remains in the Fed's policy toolkit, there are high hurdles to its use based on unsatisfactory results to date.

Market Manipulation and QE

Forward guidance is the technical name for Fed propaganda or market manipulation through its choice of words in The Federal Open Market Committee (FOMC) statements, press conferences and speeches. It is used to signal future Fed policy without tying the Fed to specific dates and policy rates.

Forward guidance is one of the Fed's favorite tools because it can be used ambiguously and can easily be reversed when the Fed wants to signal a change.

Forward guidance was used extensively in conjunction with quantitative easing (QE) from November 2008 to March 2015. The Fed executed three programs of QE called QE1, QE2 and QE3.

QE1 lasted from November 2008 to June 2010 and involved the purchase of $600 billion of mortgage-backed securities.

QE2 lasted from November 2010 to June 2011 and involved the purchase of $600 billion of mostly intermediate term Treasury securities.

QE3 started in September 2012, and was initially indefinite as to an end-date and the amounts to be purchased. QE3 involved both Treasury securities and mortgage-backed securities. Actual purchases reached $80 billion per month until December 2013 when a "taper" program began that reduced purchases monthly until they reached zero on Oct. 29, 2014.

The Fed's goal was to suppress rates so that market participants would bid up the price of riskier assets such as stocks, real estate, and corporate debt.

Many purchases of risky assets are made on a leveraged basis with funds borrowed in short-term money markets such as repurchase agreements or floating rate notes.

In order to work as intended, market participants needed some assurance that the Fed would not suddenly change course, and raise rates. This would cause huge losses on the leveraged portfolios. The Fed provided this assurance by forward guidance.

Initially the guidance was provided by specific dates and intentions such as keeping rates at zero for an "extended period," or "for some time," or "at least through 2015" etc. Later the forward guidance took the form of expressions of intent such as "patient" with regard to rate hikes.

The meaning of words like "patient" was supplied by Fed insiders to friendly reporters like Jon Hilsenrath at the Wall Street Journal who dutifully passed the information along to readers and the market as a whole.

It was understood that some time would elapse between the end of forward guidance and the beginning of a rate hike cycle. This was designed to allow market participants time to unwind leveraged bets or arrange longer-term financing in an orderly way. Any market participants who missed the signals or read the tea leaves incorrectly were on their own.

Forward guidance officially ended in March 2015 when the FOMC removed the word "patient" from their policy statements. The first rate hike took place nine months later in December 2015.

Forward guidance worked exactly as planned in the sense of channeling investors into stocks and real estate instead of artificially low yielding Treasury notes. But, it is not clear what if any impact this "portfolio channel effect" had on economic growth.

It is more likely that the combination of QE and forward guidance created asset bubbles in stocks and real estate that are in danger of bursting or that will need to be unwound in the next liquidity crisis.

Forward guidance can be used independently of QE as it was in the brief period from November 2014 (after the taper) until March 2015 (the end of forward guidance). This is likely to be the case in future.

If the economy begins to show signs of a recession in 2017, the Fed will not only pause in its rate hikes, but will use forward guidance to indicate it does not intend to resume rate hikes soon.

Any future use of forward guidance will be a strong indication that rate cuts may be coming next. In an economic downturn, the likely sequence of events will be a pause in rate hikes (signaled by forward guidance), then actual rate cuts, then more forward guidance signaling that rates will remain at zero, and then finally a new round of quantitative easing, QE4.

Whether negative rates are added to this monetary science experiment remains to be seen. If negative rates are used, they are likely to be presaged by their own unique form of forward guidance.

Using Currency Wars to Stimulate the Economy

Reducing the foreign exchange value of the dollar, also known as a currency war, is another means of trying to stimulate the U.S. economy. This can be done by coordinating rate policy with foreign central banks.

If the Fed pauses in its tightening cycle while the European Central Bank persists in its current taper of asset purchases, the net result is likely to be a decline in the USD/EUR cross-rate.

Currency wars can also be fought by direct market intervention, although this is rare and is usually reserved for cases of disorderly market movements in exchange rates.

The problem with currency wars is that any beneficial impact of exchange rate devaluation is strictly temporary as trading partners on the losing side tend to cheat and try to devalue their own currencies in a sequence known as beggar-thy-neighbor. The end result of currency wars is usually inflation in the form of higher import prices, rather than real growth through higher exports.

The Nuclear Option — Gold

The final weapon in the Fed's arsenal is the financial equivalent of nuclear war. The Fed could instantly create inflation and achieve nominal if not real growth by massively devaluing the dollar when measured as a unit of gold.

This was last done in 1933–34 and was highly successful. Stocks rallied and commodity prices boomed in the middle of the Great Depression (1929–1940). This boom was not sustained because the Fed and Treasury prematurely tightened monetary policy and fiscal policy in 1937, which put the U.S. economy back into a severe technical recession from 1937–1938.

The Fed could use this nuclear option by coordinating with the Treasury to make a two-way market in gold using printed money. This would work exactly like quantitative easing, except the Fed would buy or sell gold instead of Treasury bonds.

The Fed would set an arbitrarily high fixed price for gold such as $5,000 per ounce. The Fed would make that price stick by offering to buy gold from any seller at $4,900 per ounce and selling gold to the market at $5,100 per ounce. This amounts to a 4% band or spread around the target price, a classic pegging technique.

Gold could be removed from or added to the U.S. hoard at West Point, NY, and money would be created by or destroyed by the Fed in order to make the target price stick.

If, for example, the price of gold was $1,300 per ounce before the operation, the effect would be to devalue the dollar from 1/1,300th of an ounce of gold to 1/5000th of an ounce of gold, a 75% devaluation of the dollar. This devaluation would not take place in isolation.

A 75% dollar devaluation in gold would signal devaluation in all other goods and services and result in $100 per ounce silver, $200 per barrel oil, etc.

This is obviously an extreme measure and would only be used in the face of strong persistent deflation.

Yet, the fact that that technique exists and has been used in the past is one reason to conclude that deflation will not in fact persist beyond certain limits because the Fed and Treasury have the ability to stop it as they did in 1933.

This review of  7 Federal Reserve tools in their toolkit consisting of interest rate hikes to fight inflation, and a litany of tools to fight deflation, shows that the Fed will be fully engaged in manipulating the U.S. economy for an indefinite period of time.

Kind regards,

Jim Rickards
for The Daily Reckoning

The post 7 Federal Reserve Tools and Why They're All Flawed appeared first on Daily Reckoning.

The Greatest Secret Of This Century And Why The Price Of Gold Is Headed Above $6,000

Posted: 16 Jan 2017 03:56 AM PST

The Greatest Secret Of This Century And Why The Price Of Gold Is Headed Above $6,000
By Egon von Greyerz

 

Please click here to see my latest KWN interview.

Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG
matterhorn.gold
goldswitzerland.com… Read the rest

Breaking News And Best Of The Web

Posted: 16 Jan 2017 01:37 AM PST

US markets closed; European stocks fall on approach of Brexit. Gold rising. Earnings season starting well for banks and miners. Global debt continues to soar, especially in China. US retaliates against alleged Russian hacking. Fake news debate rages. Trump holds first press conference since election.   Best Of The Web Why the stock market has […]

The post Breaking News And Best Of The Web appeared first on DollarCollapse.com.

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