The Germans and most of the world no longer trust us. Rather, the Germans no longer trust the Federal Reserve, our political or economic elite and leaders — why should they?
The United States has held the world’s reserve currency status since 1971 when Nixon took on the gold standard after Charles DeGaulle demanded that any transfer payments between the US and France be in gold. After that, the world accepted us as reserve currency, and the dollar became the gold standard. Along with London and the Swiss, the United States became a financial empire as well as a military and political empire.
Since 1971, most trading between countries has been done in dollars; however, that situation is changing as the US began to squander it’s reserve status in foolish schemes and dreams, derivatives and financialization of the US economic system.
In recent years, the world’s countries have looked furtively at one another wondering what the world’s crazy uncle – the US – will do next. Meantime, our once large and thriving Middle Class is shrinking and a nation that was once a producer/saver has gone nuts – spending itself both publicly and privately into massive debt. From producers and savers we have become consumers of junk from the rest of the world; using our McMansions as giant ATM machines and producing very little of importance – derivatives and drones don’t count. The world’s crazy uncle chopped off various body parts and fed them to the wolves.
We gutted our manufacturing, imported millions from the Third World, shut down our productive capacity, closed off resources to any good use, went nuts doing regime change around the world, kept military in over 100 countries, and built a giant police state and prison system. We pretended we could spend and tax ourselves into being king of the world forever. Our entire economic system became one of debt junkies on a private and public level gone off on a wild spending spree. Meanwhile, in the REAL economy, the Middle Class went into free fall and no one seems to care, let alone know what to do about it.
The Middle Class is on the ropes for many reasons and we are not in Kansas anymore. According to Pew Research Center:
“In 2011, this middle-income tier included 51% of all adults; back in 1971, using the same income boundaries, it had included 61%. The hollowing of the middle has been accompanied by a dispersion of the population into the economic tiers both above and below. The upper-income tier rose to 20% of adults in 2011, up from 14% in 1971; the lower-income tier rose to 29%, up from 25%. However, over the same period, only the upper-income tier increased its share in the nation’s household income pie. It now takes in 46%, up from 29% four decades ago. The middle tier now takes in 45%, down from 62% four decades ago. The lower tier takes in 9%, down from 10% four decades ago.”
As I recently told my grown children, this is not your father’s United States anymore – not even close. The world knows that we are over-extended geopolitically. Our own finances and economic system have become a big Ponzi scheme as we spend too much and produce too little. For all intents and purposes, we are bankrupt. Fiscal cliff and debt ceiling make nice theater but signify hype that someone is an adult and in charge.
Nevertheless, US politicians as well as central banks and most corporate entities continue to act as if it were 1948 and we were sitting on top of the world dictating terms. A half dozen major and minor wars later, the United States indulged in “guns and butter” to an insane degree. The giant boondoggle called the “War on Poverty” and various wars on drugs or terrorism have left the United States broke and printing it’s way out of trouble.
The US has turned on itself, eating its own leg off as the moral and economic capital we once had has been squandered recklessly and with an arrogance that is breathtaking. It took generations to accumulate our capital and build our system and only one generation to bring it down.
We are broke or broken in every significant way: monetarily, fiscally, spiritually, economically, politically and culturally. All squandered in a binge of empire building and and trying to become the world’s policeman, its banker and increasingly its bully.
The world knows we are busted like some genteel southern lady living in grand style but who can’t pay the light bill. We can’t seem to stop with the empire building. It was recently announced that the US military will be going into 35 African countries. The president offers bread and Obama-phones when we owe trillions and servicing the debt is going to eat up most of the money we take in through taxes. Our leaders do not seem to care – but the world notices and cares. The bill has come due and we can’t pay it. We continue to write rubber checks to cover it, but that only works until no one accepts them any longer – as in the case of the German Bundesbank. We have bounced one too many checks and the world no longer trusts us.
Recently, the German Bundesbank decided to begin repatriating its gold from the US Federal Reserve in New York, as well as the gold held in trust in Paris. Germany is worried about the socialists and empire builders in both countries. Germans are concerned and rightly so. The country does not want its gold to be used to prop up either country as they implode from debt and stupidity.
In fact, Germany’s gold might not be in the Fed in New York. I would hazard a guess and say it is gone – long gone. Likely, the Fed has loaned out Germany’s gold, which was then sold to different entities in the giant Ponzi that is now the globalized economic system. Scrooge McDuck probably has more gold in his imaginary vault than the Fed does in theirs.
In any event, the official statement from Bundesbank includes:
“By 2020, the Bundesbank intends to store half of Germany’s gold reserves in its own vaults in Germany. The other half will remain in storage at its partner central banks in New York and London. With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short space of time.
To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by 2020.
The withdrawal of the reserves from the storage location in Paris reflects the change in the framework conditions since the introduction of the euro. Given that France, like Germany, also has the euro as its national currency, the Bundesbank is no longer dependent on Paris as a financial center in which to exchange gold for an international reserve currency should the need arise.”
Gold guru Jim Sinclair writes in his latest newsletter:
Basically the Germans – if they go through with repatriation of their gold – is one of the most significant events in monetary history – at least in the last hundred years.
Charles De Gaulle was the first person in modern history to call the hand of the USA on its then obligation to convert French held dollar reserves into gold. I was a senior trader at the time.
History will look back on this salvo fired across US war financing as being the beginning of the end of the US dollar as the reserve currency of choice.
The reaction on the part of the US was to cut the tie between the dollar and convertibility. This again raises the question of the USA having fungible gold to the degree that is claimed without 3rd party audits or any viewing publicly whatsoever.
He knows, I know, and most people know, the gold that belongs to Germany is likely not in a bank in New York or, as the song says, Beverly Hills either. In order to comply with Germany’s request to get it’s gold returned, the Federal Reserve will have to shut the Germans out or give them an I.O.U that is not worth the paper it won’t be printed on. The Fed may take gold stores from someone else and give it to Germany.
What may happen is that The Bernanke, Helicopter Ben, will tell the Germans – “If you repatriate that much gold from us it will implode the entire world economy, the markets will go down, and we will be left with lots of egg on our face and have to shut our doors because everyone else will want their gold too.”
A few years ago, crazy man dictator of Venezuela, Hugo Chavez simply demanded his gold from the Federal Reserve then sent it to Russia for safe keeping. Given that the Federal Reserve is playing fast and loose with the US and world monetary and financial system – Chavez may not have been crazy after all. Putin is renowned for calling US leaders nuts – he is right; they are nuts and are so arrogant they believe the scam they have been pulling for 30 years or so will continue.
So what is the end game in this momentary madness? Sinclair seems to think it’s a game the banks are playing.
Jim Sinclair clarified his beliefs that the end-game for gold in this global debt/fiat/derivatives crisis will be a virtual reserve currency linked to gold, that is tradable by central banks only.
What does all this mean for the United States, the American people, the Middle Class? It means we are in for a very rough ride. It means that the US government, Federal Reserve and central banks will continue to play fast and loose with our economic future. It means your children and grandchildren will have less of a future, band e slaves to debt mostly incurred by dumb policies from the government and central banks. It means we are on our own to rethink the system. The one we currently have is broken beyond reform. It also means the end game is a world currency or one currency or a basket of currencies consisting of various groups backed by gold.
The answer? Be prepared.
Think preparation. Think in terms of what you can do for your family, community and state. The federal government and central banks have ruined us. It is likely we will have to act outside their notice and start over again. In addition, be ready for a one-world-fits-all economic system – and that is what this entire crazy bubble and process was about from the beginning.
Trump Says Economy ‘Roaring Back’ in June As 4.8 Million Jobs Added
The economy added back 4.8 million jobs last month, according to the government’s June jobs report released yesterday. That handily beat the 3.7 million jobs forecasted by economists and dropped the unemployment rate down to 11.1%.
After the report was released, President Trump said the economy was “extremely strong” and “roaring back” after the country has regained more than 7.5 million jobs in the last two months. Trump added that the economy will keep growing unless voters elected Democrat Joe Biden in November. He said Biden would raise taxes and hurt the economy and the stock market would “drop down to nothing.”
Of the jobs added back in June, bars and restaurants hired – or rehired – 1.48 million workers. This comes as many reopened for outdoor dining in the early phases of the reopening. They brought back a similar number of workers in May. It happened after shedding more than 6 million jobs due to the pandemic.
The retail sector regained 740,000 jobs, healthcare added back 358,000 workers, and manufacturing saw 356,000 jobs added.
The energy sector continues to be battered by low oil prices amidst the economic slowdown. Additionally, that industry shed an additional 10,000 jobs last month.
The return of lower-paying jobs like those found in the restaurant and hospitality industry dragged down the average hourly wages for the second straight month.
Many are cautioning against reading too much into reports like average hourly wages while the economy is in such turmoil.
Stephen Stanley, chief economist of Amherst Pierpont Securities, says, “The wage figures will be pretty much useless for a long while until the labor market gets back to some semblance of normality.”
Andrew Chamberlain, chief economist of the job site Glassdoor, also gave an explanation. He added, “Today’s positive jobs report does provide a powerful signal of how swiftly U.S. job growth can bounce back and how rapidly businesses can reopen once the nation finally brings the coronavirus under control — a reason for optimism in coming months.”
Unfortunately for many of the workers recently rehired to work in bars and restaurants, the recent spike in new coronavirus cases could lead to those jobs quickly being lost for a second time. Bars in many states are being shut down again in an effort to curb the growing number of cases.
The unemployment rate fell for the second straight month. However, the Bureau of Labor Statistics is trying to fix a reporting error that, if corrected, would increase the unemployment rate by 1%.
The problem is how households respond to the monthly survey that is used to calculate the unemployment rate. The jobless rate would have been 1 point higher if not for continued problems in how respondents answer the question about their employment status.
What many consider the “real” unemployment rate, which is the U6 rate, includes workers who can only find part-time jobs. It also includes those who’ve become too discouraged to look for jobs because so few are available. Using that measurement, the unemployment rate stands at 18% in June, down from 21.2% in May.
Trump Favors Larger Stimulus Checks, Says ‘Tremendous’ Market Crash if Biden Wins
In a wide-ranging interview with Fox Business News, President Trump mentioned his support for another round of stimulus checks and says should Joe Biden win the election in November, we should expect the stock market to crash “a tremendous amount.”
On Stimulus Checks
Speaking with Blake Burman, the president says he is in favor of another round of stimulus checks, but wants to make sure that there is a financial incentive for Americans to return to work.
“I support it, but it has to be done properly. I support actually larger numbers than the Democrats, but it’s got to be done properly. We had something where it gave you a disincentive to work last time. And it was still money going to people, and helping people, so I was all for that. But we want to create a very great incentive to work.”
Trump also mentioned he wants the checks to arrive quickly and spent quickly, without the Democrats adding complications.
“I want the money getting to people to be larger so they can spend it, I want the money to get there quickly and in a non-complicated fashion. And they wanted to make it too complicated, also it was an incentive not to go to work,” said Trump.
Returning to work is what hard-working Americans are looking forward to, says Trump, and he wants there to be a financial incentive to do so.
“You’d make more money if you don’t go to work. That’s not what the country is all about. And people didn’t want that. They wanted to go to work but it didn’t make sense because they make more money if they didn’t… we want people to get out and we want to create a tremendous incentive for people to want to go back to work.”
On Biden and Taxes
When asked about Joe Biden’s recently announced plans to raise corporate taxes if he becomes President, Trump said “You’re going to crash the market. 401(k)s will be down the tubes, the wealth of the country will be down.”
He added “That will kill the market. It will kill everything we are doing, it will kill jobs, and it will be very bad. Frankly, the stock market is doing well, but it’s an overhang. If he got elected, and they say this, that’s an overhang over the market, because the market would crash. Would absolutely crash.”
When asked what he means by crash, Trump responded, “Markets would go down by tremendous amounts. He’d raise taxes, he’d raise regulations. Look, one of the biggest things I’ve done is I’ve cut regulations more than any President in history. We still have regulations, but they’re much less. His people, the people around him (Biden) are radical left. They’re going to raise taxes, they’re going to raise regulations, and they’re going to put everyone out of business. It would be a disaster.”
Fed to Keep Rates At Zero, Worried About Market Crash Later This Year
The Federal Reserve will keep rates at near zero percent for the foreseeable future. Also, a few members feel worried about a second wave of the coronavirus crashing the markets later this year. These are according to the minutes of the June 9-10 meeting.
Federal Open Market Committee members voted to keep the benchmark short-term borrowing rate in a range of 0%-0.25%. They also said that, until the economy “had weathered recent events,” they would keep it there. Without providing specifics, the notes also mention that “a number” of members believe there is a high probability of additional “waves of outbreaks” of the coronavirus.
This worry over additional outbreak waves and the economic damage it could bring led the FOMC committee to downgrade their economic outlook from the April meeting. The said meeting had predicted a more benign baseline forecast.
The members also indicated that they will begin providing the markets with stronger guidance about future interest rate moves. However, Fed watchers don’t expect the committee to begin providing this guidance any earlier than the September meeting.
“In particular, most participants commented that the Committee should communicate a more explicit form of forward guidance for the path of the federal funds rate and provide more clarity regarding purchases of Treasury securities and agency [mortgage-backed securities] as more information about the trajectory of the economy becomes available,” the minutes said.
Milestones and Metrics
The committee also discussed what milestones they will use to determine an appropriate time to start raising interest rates. When they did, the metrics proposed has split the committee.
In 2012 for example, the Fed said it would keep rates at zero until the unemployment rate fell below 6.5%. Alternatively, they also said it would keep zero rates until the inflation goes above 2.5%.
In June’s meeting, a “number” of members said any interest rate increases should be tied to the Fed’s 2% inflation target. Meanwhile, a “couple” favored using the unemployment rate. A “few” members suggested the committee set a specific date.
The FOMC also released its expectations for GDP over the next few years. The median GDP projection for 2020 was a contraction of 6.5%. A 5% increase in 2021 and a 3.5% in 2022 will follow this. However, they acknowledged “that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook.”
Trump on Powell
Meanwhile, there’s a bit of good news for Federal Reserve chairman Jay Powell. It appears he has slowly won over his most vocal critic, President Trump.
During an interview on Fox Business News, Trump said Powell has “stepped up to the plate” and he’s happy with Powell and Treasury Secretary Steve Mnuchin for the work they’ve done to help the economy recover.
“I would say that I was not happy with him at the beginning, and I’m getting more and more happy with him, I think he’s stepped up to the plate. He’s done a good job, he’s had to liquify a little bit, let us liquify, put out the money that you needed, and I would say over the last period of 6 months he’s really stepped up to the plate.
“I can tell you I’m very happy with his performance, and Steve Mnuchin, I think they’ve both done a very good job, they’re working together very closely.”
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