• 10 Facts The Mainstream Media Won’t Tell You About The War In Syria

  Submitted by Darius Shahtahmasebi via TheAntiMedia.org,

  Corporate media regularly attempts to present Bashar al-Assad’s regime in Syria as solely responsible for the ongoing conflict in the region. The media does report on events that contradict this narrative — albeit sparingly — but taken together, these underreported details shine a new light on the conflict.

  10: Bashar al-Assad has a higher approval rating than Barack Obama

  Despite Obama’s claims Assad is illegitimate and must step down, the fact remains that since the conflict erupted in 2011, Assad has held the majority support of his people. The elections in 2014 – which Assad won by a landslide with international observers claiming no violations – is a testament to the fact that although Assad has been accused of serious human rights violations, he continues to remain reasonably popular with the Syrian people.

  Obama, on the other hand, won elections in 2012 with a voter turnout of a mere 53.6 percent of the American public; only 129.1 million total were votes cast. This means approximately 189.8 million American people did not vote for Obama. His current approval rating sits at about 50 percent.

  9: The “moderate” opposition has been hijacked

  There is no longer such a thing as “moderate” opposition in Syria – if there ever was. The so-called Western-backed Free Syrian Army (FSA) has been dominated by extremists for years. The U.S. has known this yet has continued to support the Syrian opposition, despite the fact the New York Times reported in 2012 that the majority of weapons being sent to Syria have been ending up in the hands of jihadists. A classified DIA report predicted the rise of ISIS in 2012, stating:

  “If the situation unravels, there is the possibility of establishing a declared or undeclared Salafist principality in eastern Syria… and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime.”

  Further, an FSA commander went on record not only to admit his fighters regularly conduct joint operations with al-Nusra (al-Qaeda in Syria), but also that he would like to see Syria ruled by Sharia law.

  Apparently, moderate can also mean “al-Qaeda affiliated fanatic.”

  8: Assad never used chemical weapons on his own people

  A U.N. investigation into the first major chemical weapons attack committed in early 2013 — an atrocity the West immediately pinned on Assad — concluded the evidence suggested the attack was more likely committed by the Syrian opposition. A subsequent U.N. investigation into the August 2013 attack never laid blame on anyone, including Assad’s forces. In December 2013, Pulitzer prize-winning journalist Seymour Hersh released an article highlighting deficiencies in the way the situation was handled:

  “In the months before the attack, the American intelligence agencies produced a series of highly classified reports…citing evidence that the al-Nusra Front, a jihadi group affiliated with al-Qaida, had mastered the mechanics of creating sarin and was capable of manufacturing it in quantity. When the attack occurred al-Nusra should have been a suspect, but the administration cherry-picked intelligence to justify a strike against Assad.”

  7: Toppling the Syrian regime was part of a plan adopted shortly after 9/11

  According to a memo disclosed by 4-star General Wesley Clark, shortly after 9/11, the Pentagon adopted a plan to topple the governments of seven countries within five years. The countries were Iraq, Lebanon, Libya, Somalia, Sudan, Syria, and Iran.

  As we know, Iraq was invaded in 2003. American ally Israel tried its hand at taking out Lebanon in 2006. Libya was destroyed in 2011. Prior to this intervention, Libya had the highest standard of living of any country in Africa. In 2015, alone, it dropped 27 places on the U.N. Human Development Index rating. U.S. drones fly over Somalia, U.S. troops are stationed in South Sudan — Sudan was partitioned following a brutal civil war — and Syria has been the scene of a deadly war since 2011. This leaves only Iran, which is discussed below.

  6: Iran and Syria have a mutual defense agreement

  Since 2005, Iran and Syria have been bound by a mutual defense agreement. The Iranian government has shown they intend to fully honor this agreement and has provided the Syrian regime with all manner of support, including troops, a $1 billion credit line, training, and advisement. What makes this conflict even more dangerous, however, is the fact Russia and China have sided with Iran and Syria, stating openly they will not tolerate any attack on Iran. Russia’s military intervention in Syria in recent months proves these are not idle threats – they have put their money where their mouth is.

  Iran has been in the crosshairs of the U.S. foreign policy establishment for some time now. George W. Bush failed to generate the support needed to attack Iran during his time in office — though not for lack of trying — and since 2012, sanctions have been the go-to mantra. By attacking and destabilizing Iran’s most important ally in the region, the powers that be can undermine Iranian attempts to spread its influence in the region, ultimately further weakening Iran.

  5: Former Apple CEO is the son of a Syrian refugee

  The late Steve Jobs, founder of Apple, was the son of a Syrian who moved to the United States in the 1950s. This is particularly amusing given the amount of xenophobia, Islamophobia, racism and hatred refugees and migrants seem to have inspired — even from aspiring presidents. Will a President Donald Trump create the conditions in which future technological pioneers may never reach the United States? His rhetoric seems to indicate as much.

  4: ISIS arose out of the U.S. invasion of Iraq, not the Syrian conflict

  ISIS was formerly known as al-Qaeda in Iraq, which rose to prominence following the U.S.-U.K. led invasion of Iraq in 2003. It is well-known that there was no tangible al-Qaeda presence in Iraq until after the invasion, and there is a reason for this. When Paul Bremer was given the role of Presidential Envoy to Iraq in May 2003, he dissolved the police and military. Bremer fired close to 400,000 former servicemen, including high-ranking military officials who fought in the Iran-Iraq war in the 1980s. These generals now hold senior ranking positions within ISIS. If it weren’t for the United States’ actions, ISIS likely wouldn’t exist.

  ISIS was previously known by the U.S. security establishment as al-Qaeda in Iraq (AQI), but these fighters ultimately became central to Western regime change agendas in Libya and Syria. When the various Iraqi and Syrian al-Qaeda-affiliated groups merged on the Syrian border in 2014, we were left with the fully-fledged terror group we face today.

  3: Turkey, Qatar, and Saudi Arabia wanted to build a pipeline through Syria, but Assad rejected it

  In 2009, Qatar proposed a pipeline to run through Syria and Turkey to export Saudi gas. Assad rejected the proposal and instead formed an agreement with Iran and Iraq to construct a pipeline to the European market that would cut Turkey, Saudi Arabia, and Qatar out of the route entirely. Since, Turkey, Qatar, and Saudi Arabia have been staunch backers of the opposition seeking to topple Assad. Collectively, they have invested billions of dollars, lent weapons, encouraged the spread of fanatical ideology, and helped smuggle fighters across their borders.

  The Iran-Iraq pipeline will strengthen Iranian influence in the region and undermine their rival, Saudi Arabia — the other main OPEC producer. Given the ability to transport gas to Europe without going through Washington’s allies, Iran will hold the upper-hand and will be able to negotiate agreements that exclude the U.S. dollar completely.

  2: Leaked phone calls show Turkey provides ISIS fighters with expensive medical care

  Turkey’s support for hardline Islamists fighting the Syrian regime is extensive. In fact, jihadists regularly refer to the Turkish border as the “gateway to Jihad.” In May 2016, reports started emerging of Turkey going so far as to provide ISIS fighters with expensive medical treatment.

  Turkey is a member of NATO. Let that sink in for a moment.

  1: Western media’s main source for the conflict is a T-shirt shop in Coventry, England

  This is not a joke. If you follow the news, you most probably have heard the mainstream media quote an entity grandiosely called the “Syrian Observatory for Human Rights” (SOHR). This so-called “observatory” is run by one man in his home in Coventry, England — thousands of miles away from the Syrian conflict — yet is quoted by most respected Western media outlets (BBC, Reuters, The Guardian, and International Business Times, for example). His credentials include his ownership of a T-shirt shop just down the road, as well as being a notorious dissident against the current Syrian president.

  *  *  *

  Despite the fact much of the information in this article comes from mainstream outlets, those circulating it refuse to put all of the storylines together to give the public an accurate picture of what is going on in Syria.

  Assad may be brutal — and should face trial for allegations of widespread human rights abuses — but this fact alone does not make the other circumstances untrue or irrelevant. People have the right to be properly informed before they allow themselves to be led down the road of more war in the Middle East, and consequently, more terror attacks and potential conflicts with Russia and China.

  

  

• Money Supply Arguments Are Flawed

  by Keith Weiner

   

  It goes without question, among economists of the central planning mindset, that if a central bank can just set the right quantity of dollars[1], then the price level, GDP, unemployment, and everything else will be right at the Goldilocks Optimum. One such approach that has become popular in recent years is nominal GDP targeting.

  How does a central bank affect the quantity of dollars? In discussing a nominal income targeting, Wikipedia gives the usual laundry list of how to do their magic: “…interest rate targeting or open market operations, unconventional tools such as quantitative easing or interest rates on excess reserves and expectations management…”

  Other than expectations management—which is just telling the market “blah blah blah”—managing an income aggregate is about manipulating one interest rate or another.

  In the real economy, people don’t factor the quantity of dollars into their economic calculations. If you are in the grocery store to buy apples, you do not think about M0 money supply. Whether you are a farmer or miner, whether you operate a factory or trucking company, or even a bank or insurer, the money supply is irrelevant to you.

  By contrast, the interest rate figures in every economic calculation in the economy. How much to borrow, how much to save, and how to assess the tradeoff between consumption and investment are all dependent on interest. The rate of interest is a factor in every price and the relationship between all prices in the economy.

  For example, to grow apples you need land and you must plant trees. Then you have to wait for the trees to mature before they bear fruit. This requires an investment up front, in expectation of earning a return in the future. How high does this return need to be? It depends on the interest rate.

  This decision, made by thousands of current and potential apple farmers, determines the price of apples in the grocery store. And this, in turn, determines the decisions of consumers to buy apples, to buy something else, or to do without fruit if they cannot afford it.

  Whether the interest rate is manipulated upwards, whether it is forced downwards, or whether it is artificially locked in stasis, every price in the economy is affected and everyone’s decisions are altered by the rate of interest. I have written a lot on the perverse incentives caused by interest rate manipulation, but today I want to focus on a different aspect of the problem.

  So, let’s perform a little thought experiment. Suppose a business must pay 20% interest on its capital. If it somehow manages to eke out a 21% rate of profit, it forks over 95 percent of what it earns to its lenders. If it can’t earn at least 20 percent, then it ends up feeding its capital to its creditors.

  

  Now consider a perverse world where enterprises can borrow at -5 percent. They literally repay investors less capital than they borrow. This case is the opposite of the one above; Lenders feed their capital to enterprises.

  If interest is too high, the Fed is sacrificing entrepreneurs to investors. If interest is too low, then investors are sacrificed to entrepreneurs. Either way, our monetary planners pervert lending into a win-lose deal.

  So what’s the right rate of interest?

  Only a market to determine that. Central planners have never gotten it right, are not right now, and will never get it right. They do, however, inflict collateral damage.

  Market Monetarism—the idea of central planning of credit based on a GDP target—promises improved outcomes over what would happen in a free market. However, it’s no better than conventional Keynesianism or Monetarism.

  We should not be debating different approaches to central planning. We should be rediscovering the idea of a free market in money and credit.

  ---

  [1]
  Most commonly this is called money supply. However, there are two problems with this. One, the dollar is credit not money. Two, it is not a supply in the sense of flows—e.g. corn supply or oil supply. It is a measure of stocks, Unlike corn or oil, dollars are not consumed in a transaction.

  

• The Social Justice Cult Should Blame Itself For The Rise Of Trump

  Submitted by Brandon Smith via Alt-Market.com,

  I have not been writing much concerning the U.S. election this November, and with good reason – elections are always a distraction from tangible solutions.  They are an anathema to honest debate; a circus of delusions and prefabricated talking points.  They offer the illusion of choice in order to placate the masses.  They are a theater of false hopes.

  That said, elections do accomplish one thing very well — they are great for mobilizing large numbers of people into opposing camps and pitting them against each other over ideologies and political celebrities.  Sometimes, these elections can lead to internal war.  This is where we stand in 2016.

  In my article Will A Trump Presidency Really Change Anything For The Better, published in March, I outlined why I believed that the election of 2016 would revolve around a Trump vs. Hillary free-for-all.  The two sides are perfectly diametrically opposed.  At least, as far as public image is concerned, one is the exact antithesis to the other, and I don’t think this is a coincidence.

  Over the course of the past century social instability and outright internal conflicts have in most cases been the product of a specific catalyst — namely various flavors of Marxism and communism.  That is to say, communists attempt to socially or economically sabotage conservative or free market based systems with civil unrest and political chicanery, and in response, nations are either overrun by color revolution or they swing to the other side of the collectivist spectrum and resort to fascism.

  This is often by design.  As I have examined in detail in numerous articles in the past, it is the financial elite that tend to play BOTH sides of this modern battle between the communists and the “nationalists,” usually promoting or supporting groups with communist leanings, radicalizing them and exploiting them to drive normally level headed conservatives to respond with anger and totalitarianism to keep them at bay.  Of course, these totalitarian regimes also end up under the control of the establishment.  It is the best way to hijack and co-opt a conservative population.

  Today, we have a similarly pervasive communism in the West funded by the same kinds of elites, only in the form of a more frantic style of cultural Marxism.  One need only examine the cash infusions by billionaires like George Soros and his Open Society Institute into Black Lives Matter as well as other “social justice” organizations.

  Under the guise of philanthropy, global financiers exploit mindless followers and the entitlement mob like a heavy bludgeon, swinging them wildly at any cultural mainstay that represents the bedrock of the target nation.  Apparently, the irony is completely lost on the social justice warriors, who completely ignore the fact that rich white guys are bankrolling their battle against… rich white guys.

  It is important to note that while the financial establishment is the very CORE of the problem and the primary instigator and manipulator of the public psyche (they have this down to a science), their success in these endeavors would not be as frequent without so many mindless followers and academic idiots to perpetuate the momentum of chaos.  These groups share almost as much blame as the elites in the destruction of civility and prosperity.

  In this age of unstable economies and societies, there are many people who are desperate to be told what to do rather than lead themselves.  However, none are quite as horrifying as the social justice cultists.

  These people are, in my view, nearly the pinnacle of the communist ideal.  They are die hard collectivists, and are willing to rationalize almost any action as long as they believe it is being done in the name of the “greater good.”  Usually, this greater good is based on entirely arbitrary determinations rather than any inherent moral code, making it vaporous and easily changeable.  A “greater good” without principles based in inherent conscience or natural law can be shifted on a whim to suit any evil imaginable.

  They believe fervently in the purity of their world view.  Most of them are not open to even the slightest question or concern over their ethos.  Their blind faith is unshakeable, even in the face of extensive empirical evidence and superior logic.  Such people are the ultimate cannon fodder for the elites.

  Social justice cultists act on the assumption that history is on their side, and that they will one day be seen as heroes for their deeds.

  They not only seek to promote and spread their ideology — this would merely make them a new form of religion.  No, they are not just evangelists, they also want their own version of a caliphate; an all dominating cult that crushes any embers of dissent and destroys its philosophical opponents trapped within its ever expanding borders.

  A recent and starling example of this mentality can be found in the following video of a BBC show called “The Big Questions.”  The subject of the debate — “Does social media reveal men’s hatred for women?”  Milo Yiannopoulos faces off with a crowd of mouth breathing true-believers and barely gets a word in edgewise as they do what cultural Marxists do best:  use the mob to shout down their opponent and attack the person’s character rather than confront his arguments and evidence:

  Though this show is produced out of the U.K. and not the U.S., I am using it to shed light on the inevitable end game of all social justice cultists regardless of where they live — to dominate all discussion and erase conservative thought from society.  The attitudes displayed by the feminists and the rather pathetic members of the audience are truly frightening. Not only do they argue that Yiannoupoulos has no right to even be dignified  with time to respond, they are at bottom also claiming the right to assert force of law to ban ideas they disagree with and even to imprison the people that argue those ideas.

  Instead of simply ignoring or blocking the people who offend them like rational adults, or participating in a free exchange, they want the power of government to silence opposition. If their ideas were truly superior in merit then they would have no need to use force to silence or imprison their opponents.  They want to turn the whole of the web, the whole of the WORLD, into a federally enforced “safe space” for their ideology and their ideology alone.

  It is this kind of zealotry that leads to outright totalitarianism and collectivism. This is the kind of evil that is done in the name of the so-called “greater good.”

  The fact is, their feelings are irrelevant. They do not matter.  Most rational people don’t care if SJWs are offended, or afraid or disgusted and indignant. Their problems are not our problems.  Our right to free expression and freedom of association is far more important than their personal feelings or misgivings.  We do not owe them a safe space.  If they want a safe space, then they should hide in their hovels or crawl back to the rancid swamps from whence they slithered.

  A backlash is building against the social justice cult that will be unleashed sooner rather than later, and so far it is accelerating at the height of the election frenzy under the banner of Donald Trump.

  Social justice warriors seem to find themselves befuddled at the rise of Trump, but as I predicted in March, a Trump vs. Hillary face-off was inevitable.

  For conservatives, Hillary is the ultimate representation of political hell spawn.  She is a proven elitist puppet, with a criminal record that reads like a transcript from the Nuremberg trials.  She is also a part of an ongoing trend of dynasties in U.S. politics.  Americans have grown tired of the Bushes and the Clintons.  We have grown tired of the endless reign of neo-cons and neo-liberals.  We are looking something different, or what we hope is something different.  Trump at first glance at least looks like a candidate outside of the establishment norm.

  Beyond this increasing aversion to the status quo, though, is the growing American contempt for the social justice cult.  This will be a primary driver of the U.S. election.

  While many in the cult had thrown their support behind Bernie Sanders for a time, Bernie showed his true colors by bowing down to the Clinton machine.  This is typical of socialists, who regularly forgo their proclaimed principles in the name of “unity” and “victory” under a single collectivist umbrella.  Many in the social justice crowd have quickly jumped on Hillary’s bandwagon, as her campaign now rides solely on the disposition of her own sexual organs.

  That is to say, Clinton is now the new mascot for the SJW crowd, even though many of them don't really like her.

  I’m not so sure the “vote for me because I’m a woman” theme is going to go over quite as effectively as Obama’s “vote for me because I’m black” theme.  The Hillary campaign symbol, looking strangely like a warped version of the arrowed symbol for “Male” and Mars, is emblazoned on worshipful feminist posters and cartoons everywhere.  A nice touch was the cringe-worthy display of Clinton’s giant head on the DNC mega-screen bashing through photos of past male presidents as if “shattering” the proverbial glass ceiling.  Set aside the fact that over half of American voters are women, and that there is no glass ceiling preventing women from being voted into office by other women if being a woman rather than a decent candidate was all that mattered.

  The theater of the feminist absurd aside, this election is going to tumble about wildly on all sorts of carnival sideshows.

  The so called “controversy” over comments made by Trump against the parents of a Muslim soldier killed in U.S. service in Iraq is just the beginning of the circus.  To be fair to Trump, the sheer hypocrisy of Hillary Clinton, a warmonger of the highest degree and a participant by-proxy in the death of the soldier in question, using his parents as fuel for a campaign controversy goes so far into the realm of the disturbing that I might be shocked if I didn’t understand that the whole thing is a mind game.  These kinds of distractions are meant to fuel the flames and I predict they will become frequent and overwhelming by November.

  To reiterate, it is clear that the Clinton campaign is going the route of pandering to the SJWs.  This is the script, and I as I said after the Brexit referendum vote, I believe that the script ends with a Clinton failure and a Trump victory.  Pandering to SJWs rarely leads to success.  And, a faltering economy blamed on Trump would be far preferable to one blamed on Clinton.

  My regular readers know well that I personally do not have much faith in the Trump campaign; I’ve seen too many constitutional inconsistencies and too many meetings with elitist representatives so far to give him the benefit of the doubt.  If he turns out to be a true constitutionalist, then I will be pleasantly surprised and happy to admit I was wrong.

  That said, I do understand why the public is rallying around Trump.  They see him not as a candidate, but as a vehicle to push forward a fight against a social justice juggernaut that has gone unanswered for far too long.  They don’t much care about him as a man, which is why the character attacks by the social justice cult and the media have fallen flat again and again.  They only care that he might not be the status quo.  They are looking for something radical to counter the radicalism of cultural Marxists.

  I am not here to argue over which candidate is “better,” or preferable or the “lesser of evils.”  None of this matters.  I realize that I am not going to convince anyone to vote in anyway different than how they have already decided to vote.  In fact, I am certain that most people decided exactly how they were going to vote as soon as the candidates were publicly finalized.

  The zealotry will be evident on both sides.  Democrats will accuse me of being biased in favor of Trump because I outline in articles the endless parade of horrors surrounding Clinton's career.  Republicans will accuse me of "secretly working for the Democrats" because I refuse to throw full blind faith behind Trump.  That's just how elections work – follow my mascot or you are my enemy.

  I really couldn't care less.  I'm on the side of liberty and individualism and I'll fight on this side alone if I have to.

  I will say that I KNOW exactly what will happen under Hillary Clinton – despotism in the name of "equality", leading to outright civil war.  I only SUSPECT according to what I have seen so far that Trump is not a constitutional candidate.

  The danger is that in our search for the counterbalance to social justice despotism and Hillary Clinton's evident communist addictions, we conservatives will fall into the old historical paradigm of fascism in the name of defeating communism, helping the elites instead of dethroning them.  The danger is that we get so caught up in trying to destroy the social justice mob that we forget our principles.

  If a President Trump shows any indications of being anti-constitution, even in the name of our own “greater good,” conservatives MUST stand by our ideals and stand against him, or we become no better than the SJW psychopaths we seek to stop.  No man, no woman, no president is more important than the liberties and heritage of this nation and its citizenry.

  As far as social justice activists are concerned, if they really want to change this country for the better, then they should consider dropping out of their little cult and finding something productive to do.  Stop spending your parents’ money on garbage gender studies classes.  Become scientists and engineers.  Become doctors and inventors. Create a better planet through ingenuity rather than manic ideology.  Make yourselves useful or something.  You're not only wasting your own time wreaking havoc with your collectivism, you are also wasting our time, because now we have to spend it working to stop you and the elites that fund you.

  Become self sufficient instead of begging for handouts or feeding off your family and their savings accounts.  Add to the world instead of bleeding it dry.  Help people through personal action instead of trying to micro-manage their lives and their speech and their thoughts through force of government.

  Otherwise, all you are is more gasoline on a fire that will result in inevitable conflict; a conflict which you will lose.  A conflict which may only serve the interests of the very elites which you think you are fighting against.  Remember, whatever happens, it was the social justice cult that helped to create the conditions by which such a conflict became unavoidable.  Without the cultural Marxists, there would be no rationale for any division.  If they would simply leave us all alone to think and say what we feel, to choose our associations without interference or invasive conquest of “spaces” and to live in a functioning society based on merit rather than victimhood and artificial fear, there would be no fertile ground for an election circus of this magnitude.

  And finally, if EVERYONE relied less on political celebrities, if everyone stopped waiting for a knight on a white horse, or a feminist icon, or a crusade to fight, or a social justice mob to join and started determining their own futures; if everyone began looking far more carefully at the people behind the curtain, then perhaps we could finally see a change in humanity not seen in thousands of years.  Not a collectivist change, but an individualist change, which is the only kind of change everlasting or worth a damn.

  

  

• Full BOE Preview, And A Look At What UK Corporate Bond QE Will Look Like

  After several prominent central bank disappointments over the past few weeks, culminating with last week’s BOJ fiasco, earlier this week the RBA finally did as it was expected by both the market and a majority of analysts, when it cut rates by 25 bps to a record 1.50%, even if the reaction was unexpected, sending the AUD sliding briefly then soaring as the accompanying statement suggesting far less dovishness would follow.

  Which brings us to tomorrow’s Bank of England decision, where as of this moment the OIS market shows that a 25bps rate cut is 100%  priced in. But a plain vanilla rate cut may be just the tip of the Iceberg: as the WSJ writes, piggybacking on an analysis by BofA’s Barnaby Martin, investor bets are rising that Mark Carney could “start snapping up” corporate bonds as part of the stimulus plan to be announced tomorrow. 

  As a reminder, the BoE previously bought corporate bonds between 2009 and 2012. As BofA writes, the purchase numbers were not headline-grabbing (£2.1bn) but the aim of the programme back them was a lot different to what we could envisage now. Using the ECB’s template to create a £ CSPP equivalent, the BoE would end up with an eligible universe of £128bn (44% of the Sterling credit market), and could possibly grow it to £211bn if they bought Euro-denominated bonds (as suggested in ‘09). With a universe this big, the BoE should be able to sustain around £2bn of corporate purchases a month.

  But before we look in depth into the possibiliy of a British CSPP, here is a detailed breakdown of what to expect, and what Wall Street believes will happen, courtesy of RanSquawk:

  * * *

  • Bank of England are widely expected to cut rates to 0.25% with a 25bps rate reduction fully priced in OIS markets.
  • The central bank is also touted to announce further stimulus measures including the potential restart of its QE program (APF currently stands at GBP 375BN) and the Funding for Lending Scheme.
  • 2017 GDP growth forecast is likely to see a significant downgrade amid early signs of a deterioration in the UK economy, while GBP depreciation is likely to support 2017 Inflation forecasts.

  BACKGROUND

  The Bank of England will reconvene for the second time since the UK’s decision to leave the EU, whereby they are widely expected to ease monetary policy. This view is supported by the fact that at the last meeting the MPC said that most officials saw the need to adjust policy in August. Furthermore, Governor Carney himself has already announced that the central bank will probably need to take action in the summer, which leaves Thursday as the remaining option.

  POST-BREXT DATA/COMMENTARY

  Heading into the meeting the BoE has had little (Brexit exposed) economic data to act on. Most notably the PMI figures for July, in which Mfg. and Composite readings contracted to 41-month and 87-month lows, respectively, while the key Services figure saw its largest decline in 7-yrs. Given that services accounts for 79% of the UK economy, a severe contraction in this sector has obvious consequences for GDP and jobs moving forward. Allied with this, tier-2 data points (which would not normally garner significant attention) have also showed sharp declines in business confidence and as such contributed to the heightened uncertainty regarding the UK economy, reinforcing the case that policy adjustments are needed.

  Against that backdrop, several MPC members have recently stated that they are willing to ease policy, with BoE’s Haldane stating that this meeting will likely see material easing while there has also been a shift in some of the more hawkish members. In particular BoE’s Weale, who in a sudden U-turn from his usual stance shifted his view in favour of easing.

  POSSIBLE MEASURES

  In terms of touted measures, OIS markets have fully priced in a 25bp rate cut while there is also a small chance priced in for a 50bps rate reduction. However, a cut in interest rates will likely weigh on GBP which would be somewhat of an undesirable effect at present, given that the currency is already hovering at more than 30-yr lows, while it would also lead to damaging import price inflation. Additionally, with Governor Carney previously stating that he does not believe that rates “too low” (or negative) could have positive outcomes, this would suggest that there is little room to manoeuvre.

  At the last meeting, the central bank’s minutes stated that the MPC had an initial exchange of views on the various possible packages of measures. Consequently, this alludes to the fact that the BoE is looking for further measures other than cutting rates. In turn, this has raised the possibility that the bank could re-launch the Funding for Lending Scheme which would ensure ample liquidity by allowing commercial banks to borrow funds cheaply in order for this to be passed on in the form of cheap loans to firms. Analysts at Nordea Bank note that the central bank could enhance the FLS either by broadening its scope to include household lending or by improving the terms of liquidity provision.

  Moreover, some participants expect the BoE to implement a new QE programme (Asset Purchase Facility which currently stands at GBP 375bn) with analysts noting that Gilts are likely to account for the majority of the new asset purchases with also the inclusion of corporate bonds. Previous expansions to the QE programme have seen holdings rise in GBP 50-75b1n increments.

  INFLATION AND GROWTH FORECASTS

  The MPC will also arm themselves with the latest set of inflation forecasts, which they have stated that will act as an important guide as to the magnitude and calibration of stimulus measures. Additionally, the July meeting minutes stated that the depreciation in GBP (Trade Weight fallen around 12%) has put upward pressure on inflation with BoE’s Haldane commenting that inflation could overshoot its 2% target, in turn inflation forecasts may be upgraded with some suggesting 2017 inflation may be over 2% (Prey. 1.5%). On the other hand, with economic indicators showing early signs that the UK economy is weakening significantly, GDP outlook is likely to see sharp downward revisions. Prior to the Brexit vote, the BoE forecast GDP growth for 2017 at 2.3%, with the consensus amongst analysts now at 0.6% (Prey. 2.1%) while some are expecting growth to be slashed to 0.0%.

  MARKET REACTION

  In terms of market reaction, given that OIS markets have fully priced in 25bps rate cut, this alone may be met with disappointment and as such see some initial upside in GBP. A similar reaction may be seen in GBP if the vote split is deemed too tight (5-4) with also a flattening of the UK curve. While a unanimous 9-0 in favour of a cut might suggest that a follow up move is on the table leading to potential pressure in GBP. Additionally, if a plethora of measures are utilised by the central bank involving a potential restart to its QE programme allied with a rate reduction and credit easing, may lead to upside in equities. While Gilt yields could also post fresh record lows as many analysts note that a restart to QE will likely include the purchase of Gilts.

  SELECTED ANALYST EXPECTATIONS

  • BofAML expects the BoE to cut interest rates by 25bps, alongside a GBP 50bIn expansion in the APF and credit easing package.
  • Goldman Sachs forecasts an increase in asset purchases of over GBP 100bIn over the next 6 months, with a mix of sovereign and corporate bonds.
  • HSBC states that the central bank will cut rates by 25bps, coupled with an announcement of measures to support credit to the real economy.
  • Nordea Bank sees a 25bps cut to 0.25% with a GBP 100bIn increase in the APF over the next few months.

  * * *

  Which brings us back to the all too real possibility that the BOE will, in a few hours, unveil its own CSPP program, copying what the ECB did back in March.

  Here is BofA’s Barnaby Martin, laying out “the case for a £ CSPP”

  Despite the benign backdrop for yields and spreads, we do feel that there is a strong case to be made for the Bank of England pursuing another corporate QE programme for the Sterling credit market. To be clear, market dysfunction in not the problem. Yes, uncertainty is high after the Referendum outcome, but the Sterling credit market is clearly not shut given the three recent new issues over the last week (BAT, Brown-Forman and Santander UK).

  But in a post-Brexit world, if the UK is to flourish on its own then it must have a vibrant and deep credit market underlying it, especially if the ability of the UK banking sector to lend becomes challenged amid a backdrop of lower interest rates and rising delinquencies. Building a “super competitive-economy” with low corporation tax and investment from China, for instance, requires a £ credit market where the ability to issue bonds and raise capital is not in doubt.

  But the reality is that the Sterling credit market – in its current form – is far from this. In our view, it looks to have been suffering a “slow death” of sorts over the last few years. Chart 7 shows that issuance of £ corporate bonds has been dwindling since 2013. This year, there has been only £4bn of non-financial IG issuance in the Sterling credit market, and by year-end it is unlikely to get anywhere near the lofty levels of issuance seen in 2012 (£33bn).

  But we don’t think the dwindling in £ issuance reflects the risk-averseness of UK companies. On the contrary. We believe the explanation is simply that the ECB’s extraordinary monetary policies of the last few years have pulled UK (and global) funding capital into the Euro credit market. Chart 8 makes this point. In 2009, 53% of UK corporates’ liabilities were denominated in Sterling. Today, the figure is just 29%.

  The allure of negative yields in Euros and the market-pacifying impact of the ECB’s CSPP have driven UK companies to fund more and more in Euros (and prior to this the $ credit market, helped by the attractive basis swap).

  

  But the selling point for greater investment in a post-Brexit UK economy cannot be the ability of UK companies to issue in Euros! (especially with rising currency volatility). Thus, we think the BoE would be playing its part in supporting the UK economy if it helped revitalize the £ credit market with a new corporate bond purchase programme.

  In effect, we believe there is a need to “balkanize” credit markets again, especially the Sterling corporate bond market. We think a “£ CSPP” would act as a nice counterbalance to the ECB’s CSPP, and would return European credit markets to a more level playing field. And importantly, we think there would be the possibility of Carney and Draghi “coordinating” their respective corporate bond buying.

  What could a £ CSPP look like today?

  To bring the £ credit market “back to life”, we think a BOE corporate QE programme would need to be much bigger than 2009’s version. Only regular and continuous buying would ensure that depth returns to the £ primary market. Just as Mario Draghi is showing with his corporate bond buying programme, tightening spreads helps achieve this (as well as purchasing corporate bonds in the primary market,  which the BoE has never done before).

  

  In Chart 12, we draw from the methodology of the ECB’s Corporate Sector Purchase Programme to create the same idea for the Sterling credit market (we call it the £CSPP). We calculate the volume of eligible corporate bonds that would be available for the Bank of England.

  • We start with our UR00 Sterling corporate bond index (which includes financials and non-financials). We then exclude bank debt, but keep insurance (in line with ECB CSPP methodology),
  • We then exclude all subordinated debt (again in line with ECB CSPP methodology),
  • We then limit the universe to “UK relevant companies” which means either a) UK domiciled companies or b) non-UK domiciled companies with significant exposure to the UK (which we define as companies having at least £3bn of Sterling corporate bonds outstanding). This results in £128bn of eligible corporate bonds for the BoE.
  • As an additional filter, we note that in 2009 the BoE stated that they were prepared to buy corporate bonds denominated in currencies other than £. In the end they kept purchases just to £. But here we add the Euro-denominated bonds issued by UK corporates to which the rules above apply. In this case, we get £211bn of eligible corporate bonds for the BoE.

  How big are these numbers?

  • £128bn is 44% of the Sterling IG corporate bond market.
  • Interestingly, we think the ECB has an eligible universe of €710bn for their CSPP while the Euro IG corporate bond market is €1.72tr in size (41%).

  The ECB is currently buying between €9-10bn of corporate bonds per month. If the BoE was to create their own £CSPP then we think around £2bn of purchases per month would be a sensible starting point.

  

  

• Dear Job Market, Take This Indicator & Shove It!

  Authored by Danielle DiMartino Booth,

  Some songs are just destined to be belted out while speeding down an open highway with the all the windows down, your hair whipping in the wind and the dust flying. Donald Eugene Lytle, aka, Johnny Paycheck, delivered one in spades with his catchy, purposely grammatically incorrect rendition of David Allan Coe’s working man’s anthem. The song, Take this Job and Shove It, which has earned cult status in the Honky Tonk hall of fame proved to be the only number one hit of Paycheck’s career.

  Ironically, Paycheck didn’t change his name to fit the song; that happened 13 years earlier when he borrowed it from a top-ranked Chicago boxer whose claim to fame was his 1940 fight against Joe Lewis for the heavyweight title.

  Very few of us have escaped those lyrics invading our mind from time to time. You might have been slopping sauce on one more pizza, bagging yet another bag of leaves on someone else’s lawn or plugging away at a spreadsheet for which you’d never get credit – all for meagre pay. Whatever the thankless task, you sure would have relished unleashing those words to your boss’ face. Just take this job and shove it!

  The 1977 hit was so popular it went on to inspire a not so popular 1981 movie. Alas the movie of the of the same name, billed as “The comedy for everyone who’s had it up to here…” fell flat at the box office. It was the timing that was all wrong. A movie with a “job shoving” theme was unseemly considering the economy was veering headlong into a double-dip recession. The worker bees of the economy were understandably unamused by the idea of brazenly quitting their jobs.

  Today, in 2016, it’s looking more and more like Janet Yellen is less than amused with her own greatest hit, The Labor Market Conditions Index. She conceived this alternative measure of the job market and debuted it to much fanfare in an August 22, 2014 speech at the Shangri La of economic confabs in Jackson Hole, Wyoming.

  With that, a whole new cottage industry was born. Two gauges measuring the state of the job market, nonfarm payrolls and the official unemployment rate, ballooned into 19. Joy for the economist community in the form of 17 new raison d’etres!

  How have things worked out since then?

  Appreciating the historic context is an essential first step to answering that question. At its December 2012 meeting, with unemployment at 7.8 percent, the Federal Open Market Committee announced its first ever unemployment rate target of 6.5 percent. Fed economists projected that this bogey would not be reached until the end of 2015. At that point, they anticipated the rate would be inside a 6.0-6.6-percent range.

  One voter in the FOMC room begged to differ. Richmond President Jeffrey Lacker dissented, recognizing the folly of the quantitative commitment. The Fed was effectively boxing itself in as financial markets would price in a rate hike the minute the threshold was visible on the horizon.

  As if wearing blinders, then-Chairman Ben Bernanke predicted that the target would act, “as an automatic stabilizer,” with the added qualifier that the new policy, “by no means puts monetary policy on autopilot.”

  Of course, that’s just not the way financial markets work. They are forward-looking beasts precisely because they set prices based on the inputs provided.

  Hence the Fed’s panicked emergency videoconference meeting on March 4, 2014 on the heels of that year’s April jobs report, which revealed a steady unemployment rate of 6.7 percent. The markets’ conclusion: A June rate hike was imminent, a full year and a half before Bernanke had any intention of tightening policy.

  Though still the subject of furious debate, the missing link from Fed economists’ models was the permanence of the decline in the labor force participation rate fed by the 2009 introduction of 99 weeks of unemployment insurance. Needless to say, politicians clamoring for easy votes extended these extraordinary benefits time and again.

  By the end of 2013, 99 weeks had become all too ordinary. Millions of workers had simply dropped out, disincentivized by design. Because the unemployment rate is calculated against the number of people in the labor force, it declined much more rapidly than historic precedent suggested it would.

  And so, with mis-measured inflation still too low for comfort (another full blown story for another day), policymakers backtracked on their commitment. The March 2014 FOMC meeting minutes attempted to explain: “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

  The schizophrenic behavior did nothing to bolster the Fed’s credibility. To counter perceptions, the Fed, under the new leadership of labor economist Yellen, came up with yet another model. As she illustrated in great detail at that year’s Jackson Hole gathering, the LMCI would better measure the slack in the labor market without unduly “rewarding” the decline in the labor force participation rate which cast the low unemployment in too positive a light.

  “Assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty,” Yellen said, reminding the audience that in 2012 the Fed had caveated that, “factors determining maximum employment ‘may change over time and may not be directly measurable.’”

  More variables, more math, more clarity? Not hardly. OK – that was a pretty extensive history lesson. But sometimes the setup is key to understanding the outcome.

  Once again, the markets are heavily anticipating Yellen’s 2016 Jackson Hole speech. Will she posit that the LMCI was flawed at inception to now justify a rate hike? Her baby, so to speak, has been wailing for six straight months, the longest slide since the end of the 2009 recession.

  

  At this year’s June 15^th press conference, Yellen once again highlighted the importance of the context of the current backdrop, which has apparently rendered the LMCI, “a kind of experimental research product.” Is it any wonder the media characterized her remarks as “bipolar”?

  The question is, what went wrong, if anything?

  The nature of the LMCI’s components is a good starting point. As a recent Goldman Sachs report detailed, “The LMCI inputs are detrended, and the estimated trends likely ‘soak up’ some of the growth in labor market activity (such that only growth in excess of the trend contributes positively).” Yours truly added the emphasis as this ‘detrending’ is key to explaining away the alarm emanating from the LMCI.

  The Goldman report goes on to say that labor market indicators tend to level off in the middle of an economic cycle even as trends continue on their established pathways, driven by momentum: “The LMCI in effect reflects a combination of the rate of change in labor market conditions – the first difference – as well as recent acceleration or deceleration – the second difference.”

  Did someone mention ‘Nuanced” with a capital ‘N’?

  And then there are the actual inputs. The index’s 19 indicators endeavor to capture movements not just in job creation, but underemployment, wages, worker flows and both consumer and business surveys. A few examples help to illustrate.

  The National Federation of Independent Businesses queries small businesses on their hiring plans and whether it is hard to fill open positions. So fairly straight forward, forward-looking indicators.

  Then you have temporary employment, which once provided a reliable signal on the direction of nonfarm payrolls to come. But temps have lost some of their predictive powers in a world increasingly dominated by firms cutting costs where they can, even if it entails classifying near-permanent employees as temporary to reduce benefit expenses.

  The same goes for new help-wanted ads, which have been trending down for a year now. Not to worry, says the Fed itself, whose economists recently debunked fresh postings as unreliable given Craigslist’s near doubling of fees since the end of 2012. The rising costs associated with advertising thus distills the message in the mere four percent rise in postings through yearend 2015 in the help wanted data vs. the 48 percent rise in the job openings data series. We’re supposed to file that one in the “If you say so” file.

  Finally, you have the distinct ‘job leavers unemployed for less than five weeks,’ which is buried in the household survey, and the now-beloved ‘quit rate’ from the monthly job openings data. Workers having the hutzpah to tell their employers where they can put their cruddy job is measured by the quit rate. When the rate rises, it tends to coincide with a high degree of confidence that you can storm out one door and waltz into another in a short timeframe. So a rise in unemployed for less than five weeks is thus a good thing reflecting workers’ certainty about the job market’s prospects.

  While the unemployed-for-less-than-five-weeks metric has held up of late, the quits rate has fallen. So call this a wash for the moment. In addition, net hiring plans have come off their highs, concomitant with the decline in the number of job openings. These data are released with varying degrees of lag, which can be frustrating for the impatient type who’d prefer to not be sideswiped by a data miss.

  That brings us to perhaps the best indicator of what’s to come, which cannot be explained away, though it too comes from help wanted ads. You may recognize the name Jonathan Basile, AIG’s Head of Business Cycle Research. As his pragmatic title suggests, he is duty bound to have a crystal clear crystal ball.

  Let’s just say we should all adopt one of his favorite indicators on the labor front, the reposting of job positions. Just about every anecdote we’ve heard in recent years has touched on the dearth of skilled labor. As that slack was absorbed, it became increasingly difficult to source good talent. What to do if you can’t fill a position? Well, you repost it until it does get filled. That way you succeed in achieving your original goal of growing that top line by satisfying the incremental demand that triggered the need for a new hire in the first place.

  You see where this is going. If you no longer need to repost that position while the hiring rate is falling…well you get the picture, a picture that’s come into increasing focus since repostings peaked last November.

  “When companies stop reposting help wanted ads, it means they’ve given up on adding additional headcount,” Basile said. “It’s a more cautious signal about the outlook. It means their balance sheets can’t handle the additional labor costs. This is what happens when revenue and earnings headwinds bleed into the labor-intensive parts of the economy, like construction and services.”

   

  Revenues? Earnings? Those certainly don’t sound like economic data points. They sound so much more real.

   

  “Labor sits at the intersection of revenues and earnings because it is the biggest cost on corporate balance sheets,” Basile continued. “Many sell-side nonfarm payroll (NFP) models show labor begetting labor – labor data used as inputs to generate NFP as the output. But in business, balance sheets beget labor. You increase or decrease your headcount based on what your revenues and earnings do, the source that pays for labor. How is this left out of the equation?”

  Great question. The conclusion: the earnings recession we’ve been told to ignore is, after all, relevant. Get it, got it, good.

  You will recall that the bright spot in the awful GDP report was consumption. Hate to go out on any limbs here, but it’s pretty hard to consume if you don’t have a job.

  “All it takes is another shock to tip this one-legged pirate of an economy over,” Basile worries. “That’s why I’m on 100% watch.”

  We should probably all be watching Yellen’s math as she shoves the jobs data around until it’s contorted enough to fit her agenda’s perfect picture frame. Not so perfect are the prospects for those ungainfully employed who are apparently a figment of our collective imagination. They can only dream of a world where jobs are plentiful enough to not-so-respectfully request their employer take their job and shove it.

  

  

• Hyperinflation Defined, Explained, and Proven

   

   

   

   

   

  
  

  Hyperinflation Defined, Explained, and Proven

  
  Written by Jeff Nielson (CLICK FOR ORIGINAL) 

   

  
  

   

  Regular readers already know that hyperinflation is not merely an economic “threat” looming in our near future, it is a certainty. Indeed, it has already occurred. Sadly, the term “hyperinflation” is still widely misused, and thus widely misunderstood. Definition of terms is required.

  
  

  The reason why the term “hyperinflation” is widely misused/misunderstood is a very simple one. It is because the term “inflation” is widely misused/misunderstood. If one does not have a clear grasp of the concept of inflation, obviously it is impossible to have an adequate comprehension of hyperinflation.
  

  
  

  Inflation is an increase in the supply of money. That is the economic definition of the term. It is the only correct definition of the term. It is a derivative of the verb “inflate”: to increase (i.e. inflate) the supply of money.

  
  

  The term “inflation” is widely, erroneously, and (in the case of central bankers) deliberately misused as meaning an increase in the price of goods. But this price inflation is merely the direct and inevitable consequence of the initial act of inflation: the increase in the supply of money.
  

  
  

  Thanks to decades of brainwashing (and the fraudulent “inflation” statistics which came along with that), this simple but important distinction is almost beyond the comprehension of most readers. Yet it is a concept which is already well-understood in the realm of our markets. It is the concept of dilution.

  
  

  When a company prints up a new share, it has diluted its share structure, and the value of all shares in circulation falls commensurately/proportionately. This is nothing more than elementary arithmetic. If a company which originally had a share base of 1,000,000 increases the number of shares to 2,000,000, the value of all those shares decreases by 50%. If we priced the world in terms of the value of our shares (rather than the bankers’ paper), the dilution of the share structure would automatically result in proportionate price inflation.
  

  
  

  This concept applies directly and identically to our monetary system. If a central bank prints up a new unit of its (un-backed) fiat currency, it dilutes its monetary base, and the value of all units of currency already in existence falls. It is the fall in the value of the currency through diluting that currency which directly translates into higher prices: price inflation. Yet incredibly (thanks to our brainwashing) this elementary concept is not accepted. A simple allegory is necessary.
  

  
  

  Let us all journey to Gilligan’s Island: a closed system, and a small population – ideal for our purposes. But let us change one detail. For the sake of mathematical convenience, we will assume that there are ten “castaways” on the island rather than only seven.
  

  
  

  Even among the residents of the island, some commerce takes place. Mr. Howell, the island’s resident banker, suggests that they create their own currency, on the hand-operated printing press he happened to have in his luggage.
  

  
  

  He dubs this currency the Coconut Dollar, and each resident is issued ten Coconut Dollars. No new currency is created, i.e. the monetary base is perfectly flat. Under these circumstances, there would never and could never be any (price) “inflation” on Gilligan’s Island – ever.
  

  
  

  Initial prices (in Coconut Dollars) would be determined by the relative preferences of the residents, and unless those preferences changed, prices would remain absolutely stable, because the amount of currency in circulation was not increasing – i.e. there was no inflation.

  
  

  Then circumstances change. Mr. Howell, now the island’s central banker, tells the island’s residents that they should not have to endure such a meager standard of living. He tells the other residents he can raise their standard of living by printing more Coconut Dollars, in order to create “a wealth effect”.
  

  
  

  He issues all the residents 40 more Coconut Dollars. The island’s residents now all have 50 Coconut Dollars. They all feel much “wealthier”. But what happens on the island?
  

  
  

  The residents’ preferences for goods have not changed. Mary Ann bakes one of her highly-prized, coconut-cream pies, slices it into ten pieces, and (as she always does) offers slices for sale. After months/years of baking and selling pies, the standard price for each slice has always been one Coconut Dollar.
  

  
  

  The Skipper, who has a much larger appetite than the other residents, and now five times as many Coconut Dollars in his pocket decides he wants to increase his own share of slices. He offers Mary Ann two Coconut Dollars for a slice. But all the other residents also have five times as many Coconut Dollars in their pockets, and they match the Skipper’s price, in order to maintain their own level of consumption. The “price” for a slice of coconut-cream pie is now two Coconut Dollars.
  

  
  

  The Skipper, with still a large surplus of Coconut Dollars in his pocket tries again to increase his share, by raising his ‘bid’ to three Coconut Dollars. The other residents again match that offer, and the price-per-slice increases to three Coconut Dollars. This process continues until a new price equilibrium is established for coconut-cream pies, as well as all the other goods bought/sold by the residents.
  

  
  

  With the supply of goods on the island being fixed, the island’s residents would soon allocate all of their additional Coconut Dollars, and new (much higher) “standard” prices would emerge. Naturally, no increase in their standard of living ever takes place. The “wealth effect” is purely an illusion. At that point; there would never be any additional price inflation, unless/until Mr. Howell printed even more Coconut Dollars – and “inflated” the monetary base, again.

  
  

  Inflation does not appear out of thin air, conjured by magical fairies, as the lying central bankers would have us believe. It is
  always and exclusively a product of their own (excessive) money-printing. That is “inflation”, in the real world. Hyperinflation, by obvious extrapolation, is the extremely excessive money-printing of the central bankers.

  
  

  Skeptics and (central bank) Apologists will remain unconvinced. They will point out that “the real world” is a place which is much more complex than Gilligan’s Island, and thus the allegory carries no weight.
  

  
  

  Yes and no. Yes, the real world is much more complex than Gilligan’s Island. No, the allegory loses none of its validity as a result, because the underlying principles can be (easily) incorporated into the real world.
  

  
  

  Our real world is a world with a steadily increasing population, and a steadily increasing supply of goods to meet the needs of that growing population. But it is still a fixed system. It is not Gilligan’s Island, it is the Island of Earth.
  

  
  

  This is how the dynamics of our previous allegory translate onto the Island of Earth. While our population is growing at an alarming rate (from a long term perspective), the annual rate of growth is a low, single-digit number, generally in the 1 – 2% range. The supply of goods increases at a roughly parallel rate – to meet the demand of this (slightly) growing population.
  

  
  

  In economic terms; this is known as “the natural rate of growth”. Equally, it can be described as the sustainable rate of growth. In a finite system, with fixed resources, growth beyond that “natural” rate is both artificial and unsustainable.

  
  

  In our monetary system; if the central bankers restrain their level of money-printing to this natural rate of growth, i.e. if central bank inflation matches this rate of growth, then there would, could, and should be no price inflation in the world. The rate of growth in the supply of currency matches the rate of growth in population/goods, and thus price equilibrium can be maintained.
  

  
  

  It is very interesting to note that over the long term, the increase in the global supply of gold has always roughly paralleled the natural rate of growth. This is but one of many reasons why a gold standard, i.e. a gold-backed monetary system, is the optimal basis for our monetary system.

  
  

  Robbed of our gold standard in 1971, by Paul Volcker and his lackey Richard Nixon, the central bankers have been free to print their fraudulent paper currencies at will. The “Golden Handcuffs” so despised by John Maynard Keynes have been removed.

  
  

  Cautiously, at first, and then with steadily more-reckless abandon, the central bankers have accelerated their money-printing. This has culminated with what readers have already seen on many occasions: the Bernanke Helicopter Drop.

   

  
  

   

  As has been explained before; this is the literal, mathematical representation of hyperinflation: the exponential, out-of-control expansion of a nation’s money supply. As readers now know, the monetary base of any legitimate economy (and monetary system) is supposed to be a horizontal line, as we see with the U.S. monetary base (and other currencies) in all the decades during which we operated under some form of gold standard.
  

  
  

  As soon as the last remnant of our gold standard had been eliminated, the horizontal line began to acquire an upward slope. This in itself was visual/mathematical proof that the U.S. dollar, now just an un-backed fiat currency, was being diluted to worthlessness – at a linear (i.e. gradual) rate.

  
  

  Then came the Crash of ’08. What was an upward sloping line became a vertical line: conjuring new currency into existence at literally a near-infinite rate. When the horizontal line of a nation’s monetary base is transformed into a vertical line, this is absolute, conclusive proof that hyperinflation has already taken place: the extreme and irreversible dilution of a currency to worthlessness.

  
  

  Again, the Skeptics and Apologists have their obvious retort. If the U.S. dollar has already and “irreversibly” been diluted to worthlessness, why has its exchange rate not fallen to zero/near-zero? The glib and succinct reply to that question comes in two words: currency manipulation.

  
  

  The Big Bank crime syndicate has been criminally convicted of manipulating all of the world’s currencies, going back to at least – you guessed it – 2008. However, this is only a small portion of the complete answer to that question. A more comprehensive reply will be the starting point of the next installment of this series.

   

   

  Please email with any questions about this article or precious metals HERE

   

   

   

   

   

   

  Hyperinflation Defined, Explained, and Proven

  
  Written by Jeff Nielson (CLICK FOR ORIGINAL) 

  
  

  

• Why We Need a Much Better Plan Than Diversification to Survive the Next Couple of Years

  The first time I’ve made the above claim was well over a decade ago, and I’ve stated it many times since, and this time probably won’t be the last time I discuss this topic. However, this year is an especially easy year to make this argument. If commercial fund managers are so insistent that diversification strategies work, then why have the bulk of them completely ignored the best performing asset class of 2016? What kind of diversification is that? (I will refute some of the better-known arguments in response to this question later in this article, so stay tuned.)

   

  Consider that despite the stellar performance of gold mining stocks this year that have been, by far, the strongest performing asset class of 2016 (along with silver mining stocks), and that even with the massive growth in market cap of PM stocks during H1 2016, the total market cap of all the mining stocks that comprise the HUI Gold Bugs index, as of 2 August 2016, is still barely larger than 1/3 the market cap of Facebook and Amazon. In fact, we could own every single company in the entire HUI gold bug index, and their total market cap would incredibly be less than 1/4 the market cap of one company, Apple. Should Apple’s market value really be in excess of 4-times the market value assigned to of all the gold reserves and resources held by all the companies that comprise the entire HUI gold bugs index? Should Facebook, a glorified advertising company masquerading as a social networking organization that produces no tangible product, really possess a market value nearly 3 times all the gold mining companies that comprise the HUI Gold Bugs Index? The market will tell us that the answer to both these questions is yes. In my opinion, however, the answer to both of these questions is a resounding no, and I believe that within the next couple of years, the market will violently correct these misconceptions. So even with the great run higher in the prices of gold (and silver) mining share prices, the market is still underpricing these shares considerably.

   

  In my opinion, there is no better inventory for a company to own, given the grave fragility of the global banking and finance system, than the only real, sound money in the entire world, proven and probable reserves of physical gold and physical silver. (Sorry, BTC enthusiasts, the answer is not bitcoin, even though I fully support open currency competition, including all cryptocurrencies. However, the recent 30% dump in the price of BTC in just 2 days, after Hong Kong BTC exchange Bitfinex was hacked and nearly 120,000 BTCs were stolen, deftly illustrates that there is no substitute for physical gold and physical silver. While BTC will rebound in price from this event as it has in the past from similar events, and cryptocurrencies provide a good mechanism to move currencies around the world outside of the authority of governmental capital controls and tracking, they still leave a lot to desire in terms of fitting the “sound money” definition. Just perform a Google search of the formerly most hated female at JP Morgan, “Blythe Masters” and “cryptocurrencies” to understand how bankers are trying to transform the use of digital currencies into just another tool of control.) Yet, despite the reality of PM Mining Stocks being the best performing asset class by far in the stock world this year, nearly every commercial bank and commercial brokerage fund manager completely avoids the asset class of Precious Metal mining stocks like it is kryptonite, and in fact, most of the time, refuses to even acknowledges the existence of this unique asset class, despite a supposed commitment to diversification.

   

  As those of you that have been following my writings since 2006 know, including the more than 600 postings on my blog, I used to work at a Wall Street firm more than 10 years ago, before I quit in disgust after witnessing systemically fraudulent practices. However, it may surprise you to discover that I considered portfolio diversification strategies to be one of these systemically fraudulent practices. Before any of you doth protest too much about this conclusion, let me explain the rationale for my inclusion of diversification strategy among the other much better known systemically fraudulent practices regularly engaged in by big commercial brokerage firms and banks.

   

  Most people never ask their financial advisers about their educational backgrounds, and just assume that their adviser retains a certain level of investment expertise. I guarantee you 100% that this assumption is incorrect. In fact, one of the most surprising aspects I learned about financial advisers while working for a Wall Street firm back in the day was the enormously diversified pool of educational and professional backgrounds from which managers plucked their team of financial advisers. Some of my peers came from liberal arts background, teaching backgrounds, government/political policy backgrounds, sports backgrounds and science backgrounds just to name a few. And what was my background? I majored in neurobiology as an undergraduate. Sure, I later obtained an MBA with a concentration in finance, but I also guarantee you that this advanced degree taught me next to nothing about intelligent investment strategies. Instead, I learned a bunch of theories that don’t even apply in the real world of dark pools and computer HFT algorithm controlled markets. In fact, back then, my manager that hired me seemed more interested in the psychological profile I completed as part of the application process versus my possession of any real investment advisory qualifications.

   

  At this point, most people will inquire about a firm’s training program, believing that this program provides the necessary skills for financial advisers to formulate intelligent strategies under all market conditions and not just raging, bloated, Central Banker induced price distortions higher. Again, this assumption would be wrong. Our training program, by my estimation, was 90% focused on closing sales techniques to capture AUM (Assets Under Management) and block and bridge techniques to overcome client objections during the closing process versus the development of any real strategic investing acumen. Of course, many among us may be reading this, thinking “tell me something I don’t already know”, and if so, this article is not intended for you. However, every single year, I still casually meet loads of people that tell me the most important part of their wealth building plan is diversification. This article is intended for this subset of people.

   

  But I digress. So how did so many people with little background, if any, in investing and/or finance, and some with no background at all, become the most successful financial advisers at the firm (as measured by AUM fees generated), you may wonder? That is an excellent question that took me a little while to discover the answer to as well. During my years spent in the commercial investment world, I came to the conclusion that diversification strategy was by far, the most important key to not only the success of firms in capturing hundreds of millions in AUM, but also the key to preventing assets from leaving during down years as well. If every commercial firm utilized the same diversification strategies, then in up years, every firm’s financial advisers more or less returned the same yields within a tight range to their clients, and in down years, every firm’s financial advisers more or less returned the same losses within a tight range to their clients. If every other firm lost roughly the same percentage of money for their clients in a down year, why bother jumping ship to a competing firm if you were a client, right? Thus the industry-wide adoption of portfolio diversification strategy was not executed to benefit clients, as is sold to naive clients, but done to benefit the firms within the industry in maintaining AUM fees.

   

  You see, it really didn’t matter at all if a financial adviser knew what they were doing, because selling diversification strategies to clients made it sound like they knew what they were doing, which was an infinitely better proposition for commercial investment firms than employing financial consultants that actually knew what they were doing. Yes, the analogies to convince clients of diversification strategies were clever, like comparing the necessity of a diversified stock portfolio to the necessity of a diversified, well-balanced diet that consisted of some protein, some fats, and some carbohydrates. The only problem with this analogy, no matter how clever it was, is that it has always been patently untrue.

   

  Consider the global stock market crashes that afflicted the world in 2008. No matter how well someone’s US stock portfolio was diversified that year, if they remained invested in any diversified portfolio that mirrored US stock market indexes like the S&P500 or the Dow Jones Industrial Average, as is the overwhelming case with portfolio asset allocation among fund managers, they lost 40% or more that year in their diversified portfolio. In 2008, we maintained a very concentrated SmartKnowledgeU Crisis Investment Opportunities portfolio allocated to just a couple of asset classes, and we ended up the year with not a lesser 20% loss against the 40%+ losses of a diversified US S&P500, but we ended up with slightly positive yield for the year. And if diversification is such a wealth protective strategy, can you guess which commodity firms declared the largest impairments to their balance sheets by far in 2015? The most diversified ones: Glencore, Vale, Freeport and Anglo-American. These four massively diversified mining giants declared cumulative impairments in 2015 that nearly totaled $36 billion. Of course, one of the reasons their declared impairments were so massive was simply due to the giant size of these corporations, but the fact of the matter is that diversification of their business segments into many different commodities didn’t help these companies from suffering massive losses in 2015 and diversification didn’t prevent US stock portfolios from crashing in 2008.

   

  
  

  So why exactly is diversification such a great strategy if it only works when a bubble is building but fails miserably to preserve wealth when a bubble implodes or a significant downturn occurs? The reason commercial investment firms and commercial banks all over the world, no matter if they are located in Cologne, Madrid, Reykjavik, Buenos Aires, New York, London, Wellington, Melbourne, Toronto, Vancouver, Montreal, Shanghai, Kunming, Hong Kong, Singapore, or Nairobi try to convince all clients to embrace diversification strategy as an essential part of their wealth building plan is not because it actually works, but because it covers up the weaknesses and flaws of an unqualified financial consultant. Diversification strategies appeared to have “worked” during the golden years of the 1980s and 1990s, simply because US stock markets were returning 17% to 18% every year on average during those two decades and Stevie Wonder could have pointed to a bunch of stocks from a newspaper listing the components of the US S&P500 during that period and likely would have fared very well. Thus, the “success” of diversification strategies was confused with luck during these times and such a strategy even provided incompetent financial consultants with a cover of credibility as it empowered them with an undeserved veneer of competency. However, the ability to sell the appeal of diversification, as I explained above, completely changes when yield becomes much more difficult to achieve than just throwing darts at a board, and one really has to understand market risks to formulate strategies that can produce significant yield during difficult times. At this point, reliance on a diversified bubble of assets to further significantly inflate to produce yield pulls the curtain back on the diversification scam.

   

  As Credit Suisse’s Andrew Garthwaite discovered, during these times, the weakness and low utility of diversification is really exposed. If a strategy only works when everything is working but doesn’t work in years when times are tough, then I would argue such a strategy is a bad strategy. Just last month, it was reported that Credit Suisse strategist Andrew Garthwaite lamented dismal yields for the past couple years in a client report, writing that “his team has come across almost no one who seems to have outperformed or made decent returns this year” and “we have never had so many client meetings starting with statements such as ‘we are totally lost’.” The reason that Garthwaite’s team cannot find anyone that has made decent returns this year and are totally lost is because his team is likely diversified in the types of asset classes that only work when stock markets are not price-distorted bubbles. Garthwaite’s team’s failure to perform this year likely is due to their refusal to deviate from past strategies and their likely failure to concentrate on only asset classes that are highly undervalued, such as PM mining stocks.

   

  Garthwaite’s commentary takes me back to a conversation I had with a top producer in my office when I worked for a Wall Street firm back in the day. Back then, when I asked this top producer how to become successful, he answered (and I’m paraphrasing here to the best of my memory) that I should not waste any more than 10 to 15 minutes making asset allocation decisions once I closed on a large account. I remember him being very explicit that the pathway to success was to focus on closing 1M+ AUM clients and to not “waste time” on asset allocation decisions, instead taking no more than 10 to 15 minutes to assign this responsibility by making four phone calls to four pre-picked portfolio managers, a small-cap, a mid-cap, a large-cap and an international stock manager, each of whom should receive 25% of the account’s assets. From there, my job as a financial adviser was done, and my role, if I wanted to be successful, was to go out and capture the next $1M or $5M to build my cumulative AUM figure. And with building my AUM total, this was the way to keep the firm happy and be rapidly promoted. In fact, I often heard stories of a new “star” financial adviser arriving at our firm after blowing up their clients’ portfolios at another competing firm. When I would ask why such a person would be given a bonus of 1M+ to come to our firm if they lost considerable amounts of money for all their clients at a previous firm, the answer I heard time and time again was because such a person was awesome at building AUM. After hearing this advice from a top producer and hearing these stories, there was no longer any question in my mind that the diversification strategy was a systemic scam of the financial industry.

   

  At SmartKnowledgeU, I spend hundreds of hours every year determining my asset allocation models for my Crisis Investment Opportunity newsletter and my Platinum Member portfolio. Furthermore, I spend a minimum of 400+ hours a year to produce the bi-annual reports that I send to every Platinum Member that includes analysis and purchase price points for several dozen gold and silver mining stocks that trade on various global stock exchanges that I conclude are among the best in the world. The point is that I discovered that most commercial investment firms could care less if their financial consultants/ advisers know next to nothing about investing, and spend less than 10 minutes per client in determining a client’s asset allocation, as long as they are racking up the AUM fees. If one’s counterargument to this fact is that this particular task is the job of a portfolio manager, then (1) why assign such misleading titles like “financial consultant/adviser” to their employees when salesman is a more appropriate title; and (2) why does nearly every portfolio manager employed by commercial investment firms stick to low-utility diversification strategies that consistently underperform non-managed, passive index funds year after year?
  

  
  

  More than a decade ago, during my meetings with these portfolio managers, if I inquired as to whether the manager had any gold and silver mining stocks in his “diversified” portfolio, the fund manager always answered no. When I probed further, they stated that they never considered gold and silver mining stocks because their small market capitalization made them “too risky”, even if they were a small-cap portfolio manager. The large-cap managers stated that they may consider well-diversified, large-cap, mining stocks like BHP Billiton for inclusion in their portfolio, but that they couldn’t consider other mining companies solely focused on gold or silver production because their smaller-cap size and share prices didn’t meet their fiduciary mandate. Again, I understand if a large-cap fund manager that is restricted by a fiduciary mandate can not buy any PM mining stocks, but small-cap portfolio managers that also avoided PM mining stocks like they were the plague always provided excuses that were pure rubbish. Remember, I last worked in the commercial banking and investment industry over a decade ago, when the bull market for gold and silver was just getting started and the best gold and silver mining stocks were soaring in share price. Most likely, small-cap portfolio managers utilized the too much “risk” excuse back then to mask an utter lack of knowledge regarding how to properly assess a gold and silver mining stock’s value and upside potential.

   

  Back then, there were junior gold and silver mining companies that were a fraction of the market cap of their much larger-cap mining peers that had much stronger management, had managed geopolitical risk in a superior manner, and had streamlined operations to a far greater degree than their larger-cap peers that were not huge risks. Today, these arguments are even more applicable, and one can find junior gold and silver mining companies that are much better bets than their larger cap peers. I have uncovered many instances in the gold and silver mining world in recent years of smaller cap companies that acquired gold and silver mining operations from their much larger peers and

  (1) turned around the operations of a PM mine that was woefully mismanaged by their larger peers,

  (2) improved recovery rates of the metals,

  (3) increased exploration and successfully increased reserves and resources, and

  (4) even improved the grade of ore being mined with the employment of different mining techniques and the sale of non-core assets.

   

  In a day and age in which regular asset classes that commercial portfolio managers normally consider have become overwhelmingly bloated in price as a consequence of the persistent and extended cheap money policy of global Central Bankers, an investment strategy of concentration in few select still undervalued assets versus diversification is likely the only strategy that will work moving forward in returning significant yields. As support of this thesis, just read some of the archived links I’ve provided below. In conclusion, when managers refuse to buy gold and silver mining stocks in their “diversified” portfolio because they consider them too “risky”, even in an environment in which they admit nothing is working, maybe it’s time we should dig a little deeper to learn the truth behind their refusal to ever deviate from their stubborn adherence to diversification strategies that don’t work. If fund managers are trying to pass off some of the best safest assets today as risky, simply because their mandates restrict them from investing in them, then it’s time for us to take back control of our own wealth management. Currently, there are a lot of junior gold and silver mining companies I would rather own moving forward for their upside potential of their valuation versus owning Facebook and Amazon, and frankly, we should all feel the same way as well.

   

  More recent articles from SmartKnowledgeU:

  Can You Imagine the Mass Media Headlines if the S&P500 Index Were Experiencing the Same Year as Gold and Silver Stocks?

  The Current Fall in Gold and Silver Prices Will Prove to be Just a Lull in a Continuing Uptrend That Started Last Year

  Proof that the Largest Gains in the Best Gold and Silver Mining Stocks are Still Ahead

   

  About the author: JS Kim is the Managing Director and Founder of SmartKnowledgeU, a fiercely independent research, consulting and education firm that focuses on gold and silver asset investment strategies as a means of countering the damaging effects of rapidly devaluing fiat currencies worldwide and price-distorted stock market and asset bubbles created by Central Bankers. YTD, his Crisis Investment Opportunities newsletter has more than tripled the yield of the US S&P 500 after also returning positive yields last year, at a time in which the HUI gold bugs index declined by more than 50% from January 2015 to January 2016.

  

• Not "The Onion": Argentina's Fernandez Says She Deserves A Nobel Prize In Economics

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  Cristina Fernandez de Kirchner, former First Lady and President of Argentina (2003-2015), confessed in an interview that “instead of having the courts chase us, they should be giving us a Nobel prize for economics… We inherited a country in default and we left it without any debt. ” Brilliant.

  Amongst her accomplishments, Cristina boasts one sovereign debt default after failing to negotiate with creditors (2014), cooking the national economic figures for 8 years, an IMF censure for faking such data, devaluing her currency from 4:1 to 15:1 USD, and leaving her successful with 50% inflation. Perhaps the BoJ could use her advice?

  She and her cabinet have also been the subject of multiple corruption scandals following her departure of office. She has naturally expressed shock, condemned any corrupt officials and denied any knowledge of such actions.

  For those who like to focus on her track record,  Bloomberg has compiled a helpful GDP growth that compares GDP in Cristina’s mind versus GDP growth in the real world.

  

  To her credit, she has a chance… the Nobel committee did award Paul “we need a bigger housing bubble” Krugman the Economics Nobel and Barack Obama the Nobel Peace prize…..

  

  

  

• Goldman Finds The Treasury Market No Longer Reacts To Economic Data

  For all the younger traders in our audience, we would like to inform you that maybe not now, but once upon a time, markets actually used to respond to economic data.  That includes both stocks as well as the market that has been historically considered far “smarter” than equities, the Treasury market. Sadly, as central banks took over, the significance of economic data released declined until recently it has virtually stopped mattering, something we predicted would happen back in 2009 when we warned that soon the only financial report that matters is the Fed’s weekly H.4.1 statement.

  Today, some six years later, Goldman picks up where we left off nearly a decade ago, and asks “Does the Treasury Market Still Care about Economic Data?”

  What it finds is simple (and something even the most lay of market observers these days could have told them): no.

  As Goldman’s Elad Pashtan writes, “the sensitivity of US Treasury yields to economic data surprises has declined to near record-lows over the last two years. We find that the pattern of reactions to data surprises across the yield curve matches pre-crisis norms—with higher sensitivity for short-term rates than longer-term rates—but the average reactions are much lower; for breakeven inflation reactions to growth data are not discernible from zero.”

  So if it is not the economy, then what does the “market” respond to?  Take a wild guess:

  In contrast, Treasury yields have reacted more strongly to Fed communication, at least according to one measure of policy surprises, and the sensitivity of exchange rates to activity news has increased.

  Here are the details:

  Economic data “surprises”— the difference between reported values for major economic indicators and consensus forecasts—have had a limited impact on US Treasury yields lately. Typically, Treasury yields rise on news of stronger-than-expected economic growth as investors anticipate either higher inflation and/or tighter monetary policy, and fall on news of weaker growth as markets discount lower inflation and/or easier monetary policy. In recent months, yields have had a much smaller reaction than normal to these types of data surprises. In Exhibit 1, we show the estimated impact of a 10-point surprise in our MAP index—a scaled measure of US growth surprises—on Treasury yields by year, controlling for changes in both risk sentiment (using the VIX index) and oil prices. The impact on 2-year yields has fallen to the lowest level since 2012, and the impact on 10-year yields has fallen to the lowest level since our dataset begins.

  Treasury Rates Becoming Less Responsive to Data Surprises

  

  Here Goldman expresses its confusion: “The limited impact of data surprises on rates is surprising given that the funds rate is no longer pinned at zero, and the Federal Reserve is actively considering further rate increases. When the funds rate was at the zero lower bound (ZLB) and the Fed was easing policy through forward guidance and QE, investors rightly saw little prospect of near-term rate hikes, even if the economy firmed meaningfully. The responsiveness of short-term Treasury yields to data surprises picked up as the Fed approached liftoff last year, but has since retreated back to ZLB levels.”

  Actually, the reason for the collapse in the market’s response is precisely because the same “market” no longer believes the Fed, or its reaction function, and as a result is no longer as concerned about rate hikes, as it was for example in 2015.  Where things get even more confusing is that over the past several years, Fed policy has been largely driven by the market itself, which however no longer responds to the data but merely to the Fed, creating the most diabolical and reflexive “circular reference” in capital markets existence.

  That particular discussion is the topic of a separate post, however.  For now we are more interested by Goldman’s “amazement” at something that had been largely obvious to most non-academics. Here is Goldman’s attempt to “explain” this phenomenon.

  One possible explanation for this phenomenon is that investors are now more focused on Fed communications, rather than to economic data releases—perhaps due to uncertainty about the central bank’s reaction function. And we do see some evidence along these lines. For example, we can use the same regression framework, but replace the MAP score variable with a measure of monetary policy surprises. We quantify monetary policy surprises using the correlation in daily returns across asset classes. Unexpected monetary policy changes create a particular pattern in market returns, which allow us to isolate them from growth and inflation shocks, and estimate their relative magnitudes over time (for further details see here). We calculate policy shocks using average correlations from 2000 through 2016 (i.e. the principal component loadings are fixed over this time period), so the regression results can be thought of as how the reaction in rates differs from the sample average. When we apply this regression to nominal forward rates on FOMC meetings and minutes release days, we see that interest rates have indeed become more sensitive to monetary policy events—both today and during the crisis—than they were during the pre-crisis era (Exhibit 3).

  Treasury Reactions Similar but Larger to Monetary Policy Surprises

  

  While most of Goldman’s analysis is commonsensical, they do find an interesting tangent, namely that as the “sensitivity of the Treasury curve to data surprises has declined, the sensitivity of the dollar has increased.” So are we all now just one big FX-trading family? Here’s Goldman

  Why are investors no longer reassessing their inflationary outlook in response to economic data? One possible explanation relates to investor perceptions about divergent global monetary policy regimes. While the sensitivity of the Treasury curve to data surprises has declined, the sensitivity of the dollar has increased: since mid-2014 the dollar has been roughly twice as sensitive to data surprises compared to pre-crisis levels (Exhibit 4, right panel). This result hints that investor may be focused on the effects of dollar pass-through to domestic prices, such that breakeven inflation remains stable even as activity data surprises markets (though we would note that the implied effects are larger than our normal pass-through estimates would suggest, and much more persistent as well).

  Breakevens no Longer Sensitive to Data, but Dollar Sensitivity Higher

  

  Summarizing Goldman’s findings:

  we find that that the sensitivity of nominal Treasury yields to US economic data surprises is currently very low, despite the fact that the FOMC has hiked once and is considering further increases. The reaction of breakeven inflation in particular is not discernible from zero. At the same time, Treasury markets appear more sensitive to Fed communication—at least according to one measure of policy surprises—and the dollar is reacting more strongly to activity data. Although it is difficult to draw strong conclusions, there could be a few explanations behind these disparate facts, including (1) higher uncertainty about the Fed’s reaction function, (2) investor focus on exchange rate appreciation and pass-through to domestic prices, and (3) low confidence that cyclical forces will lift domestic inflation.

  While we are genuinely surprised at Goldman’s surprise to the bond market’s lack of a reaction to surprises, we would add a (4): the market, in its conventional role of a discounting mechanism which is constantly calibrated by processing an near infinite amount of information about the future, no longer does that and is simply responding to the latest statement or act by the Fed which – paradoxically – is reflexively responding to the market (especially if the market is selling off). Which is why on occasion you will find us writing it as “market“, because thanks to the Fed, it no longer exists.

  

  

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