The Ancient Solution to Eliminate America’s Debt

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Yesterday we likened the economy to an overswollen tick, obese with blood.

Rather than blood, the economy is obese with debt.

Like our ludicrously engorged arachnid, the economy cannot much expand. It is impossibly loaded down… and groans under the burden, horribly swaybacked.

The economy will continue to wallow — unless it can shake off the weight.

But how can it?

Today we blow the dust off an ancient solution… and polish it up for the 21st century.

It may flabbergast and stagger you. You may laugh it out of court.

But it may offer the only way out. What is it?

The answer momentarily. We first check on another preposterously inflated behemoth — the stock market.

The bears won the day on majority decision…

The Dow Jones lost 28 points on the day. The S&P slipped a single point. The Nasdaq, meantime, scratched out a four-point gain today.

In all, a quiet an uneventful December day.

But how can the economy unload the gargantuan debt load that saddles it, hagrides it and torments it?

We must first come to terms with the facts…

Not Much Bang for the Buck

The United States government has since borrowed some $13 trillion since the financial crisis.

These borrowings have hoisted the United States national debt above $23 trillion.

Yet the American economy expanded only $5.1 trillion these past 10 years.

That is, while GDP has expanded less than 40%… the national debt has increased over 120%.

Parallel the past decade to the locust years of the Great Depression…

Real GDP 1929–1940 expanded at a cumulative 19.89% rate.

But for the past 11 years, cumulative GDP expanded 18.85%.

That is, the economy of the Great Depression — cumulatively — outperformed today’s.

And consider:

Average real annual economic growth since 2009 runs to 2.23%. But the larger trend since 1980 is 3.22%.

The Cost of Lossed Growth

One percentage point may seem a trifle. And one year to the next it is.

But Jim Rickards calculates the United States would be $4 trillion richer today — had the 3.22% trend held this decade.

Run it out 30, 50, 60 years… and Jim concludes the nation would be twice as rich over a lifetime.

Here you have a grim lesson in the meaning of negative compounding interest.

Meantime, the Congressional Budget Office (CBO) projects economic growth to limp along at an average 1.9% per annum 10 years out.

That 1.9% stands against the 3.22% rate common until the great gale of 2008 blew on through.

More debt… less growth.

And so the Keynesian “multiplier” has taken up division.

A “Scoundrel Economics”

Here is the deeper lesson:

Debt-based consumption steals from the future to gratify the present. It brings tomorrow’s consumption forward to today — and leaves the future empty.

We have borrowed from the future so heavily and so long… we are writing checks against a failing bank.

It is a juvenile economics, a wastrel economics, a deadbeat economics — a scoundrel economics.

“The wicked borrows, and cannot pay back”… as Psalm 37:21 informs us.

Meantime, federal debt presently rises three times the rate of revenue coming in. And trillion-dollar deficits gape to the farthest horizon.

CBO projects annual deficits 10 years out will average $1.2 trillion.

Allow for the inevitable smash-up recession. Deficits could double… or possibly triple.

As is, debt service alone could rise to $915 billion by 2028 — nearly 25% of the entire budget.

For the long-term sufferings we turn to the Brookings Institute:

Sustained federal deficits and rising federal debt, used to finance consumption or transfer payments, will crowd out future investment; reduce prospects for economic growth; make it more difficult to conduct routine policy, address major new priorities or deal with the next recession or emergencies; and impose substantial burdens on future generations.

$210 Trillion in Debt?

And we have failed to mention “unfunded liabilities.”

Future Social Security, Medicare and Medicaid obligations are not fully tallied in official number crunching.

Work them in… and America’s true debt may rise to an obscene $210 trillion.

“The pen shrinks to write, the heart sickens to conceive” the enormity of the coming migraine.

Such obscene debt obligation cannot possibly be met. And debts that cannot be paid… will not be paid.

We cannot “grow” our way out of it.

Meantime, America labors under record student loan debt, credit card debt, auto debt, mortgage debt, corporate and state and local government debt.

Again we ask: Is there a way out? Can the economy unload its impossible cargo of debt?

Hyperinflation

One way out — or partial way out — is hyperinflation on the scale of a Venezuela.

Inflation lightens debt’s burdens. But a hyperinflation hauls them away altogether.

But hyperinflation is a very rough medicine — worse than the ailment it cures. Besides, the Federal Reserve cannot even wring a sustained 2% (official) inflation from the economy.

How could it bumble into a hyperinflation?

Furthermore, no major Western industrial power has endured hyperinflation in over 50 years.

The United States will not likely be the first.

Is there another way out?

In theory — in theory — there is. But we must furl back the scrolls of time… to the sunrise of civilization.

The 5,000-year Old Solution to America’s Debt?

Here is the answer:

A debt jubilee.

That is, the mass forgiveness of debt.

Heave the ledger book into the fire. Run a blue pen across the red ink. Wipe the tablet entirely (or mostly) clean.

The practice began some 5,000 years distant in ancient Sumer and Babylon… where a new king would delete the people’s debts.

Was it because the new king was a swell fellow? Or because he was a tribune of the proletariat, an ancient Karl Marx?

No. He cleared the books to preserve his hide. He was alert — keenly — to social stability.

An impossibly indebted class was a disgruntled class. And a disgruntled class is a dangerous class.

Economist Michael Hudson is the author of …And Forgive Them Their Debts. From whom:

The idea was to restore the economy to the stability that existed before widespread debts ran up during the preceding ruler’s reign. What was “restored” was an idealized “original” or “normal” state in which nobody owed debts to the palace…

The idea of debt amnesties was to prevent debt from tearing society apart — to prevent the kind of crisis that the United States has been in since 2008, when President Obama didn’t cancel the junk-bond debts, or the debts that tore the Greek economy apart —  when the IMF and Europe imposed them on Greece instead of letting it default on debts owed to French and German bondholders.

More:

Recognizing that a backlog of debts had accrued that could not be paid out of current production, rulers gave priority to preserving an economy in which citizens could provide for their basic needs on their own land while paying taxes, performing their… labor duties and serving in the army…

Even in the normal course of economic life, social balance required writing off debt arrears to the palace, temples or other creditors so as to maintain a free population of families able to provide for their own basic needs… Societies that canceled the debts enjoyed stable growth for thousands of years.

The debt jubilee was smuggled into Judaic law… and the Bible. Every 50th year would be a jubilee year, says Leviticus:

You shall make the 50th year holy, and proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee to you; and each of you shall return to his own property, and each of you shall return to his family.

Now come home…

Might these United States witness a debt jubilee? After all, the average American sags under $38,000 of debt… or some such.

Already cries arise for a debt jubilee of sorts. Democratic presidential candidates — for example — have announced intentions to forgive student debt.

Four Prerequisites for an American Debt Jubilee

Porter Stansberry of Agora’s Stansberry Research has canvassed the history. He identifies four requisite elements of an American jubilee:

  1. The wealth gap must be getting dramatically bigger.
  2. There must be cultural threats from those with different values or from outsiders (in other words, minority populations and immigrants).
  3. The government must be ineffective at providing solutions.
  4. And there must be growing anger toward the “elites.”

We append no comment.

Clearing away all the deadweight sitting on the economy is perhaps the way to renewed American prosperity.

The economy can then proceed on solid foundations of capital, unencumbered and unbridled by debt… like a stallion suddenly freed from the barn.

Of course, any such jubilee would bring consequences.

It would peel back the lid on a can of wriggling worms…

The Fallout

What about all the creditors a jubilee would clean out? Not all are villain Wall Street banks. Must they all go scratching?

And what of moral hazard?

Who would not load up on debt? After all, someone will one day lift it off your shoulders.

And who would loan anyone money at all — knowing one day he may be fleeced, dragooned and clubbed — and holding an empty bag.

That is, a debt jubilee would tilt the delicate balance between creditor and debtor.

In conclusion, we expect no jubilee of the sort here envisioned.

But we do expect a jubilee… of a sort. Only this jubilee will bring little jubilance.

It will arrive with the next recession. It will wipe out trillions of creaking corporate and personal debt.

It will also sink the economy. And only the avenging gods will rejoice…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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“Stop Worrying and Love The Deficit”

This post “Stop Worrying and Love The Deficit” appeared first on Daily Reckoning.

The prettiest plums dangle tantalizingly before us…

Universal Medicare, a Green New Deal, tuitionless college, guaranteed employment at a minimum $15 per — all are within grasp.

Cowardly Democrats need only summon their courage… and seize them.

This we learn from progressive Marshall Auerback, scribbling piously in The Nation.

From “Why Democrats Need To Stop Worrying And Love The Deficit”:

Delivering on big progressive ideas like Medicare for All and the Green New Deal will never happen until Democrats get over their fear of red ink.

This fellow continues in the same sweet, soaring… and foolish melody:

Progressives could do worse than embrace the sentiment… that “extremism in the defense of liberty is no vice, and…moderation in the pursuit of justice is no virtue”… progressives should be mindful that deficit spending in the pursuit of a prosperous economy that works for all is no vice, and fiscal moderation in the pursuit of social justice is clearly no virtue.

Here, in one gorgeous paragraph, we find the distilled hopes and dreams of our world…

The Modern Pursuit of Alchemy

These hopes and dreams are:

That the alchemy of lead into gold is real, that the print press unchains prosperity…

That the free lunch has actual existence and that Say’s law — that supply creates its own demand — does not.

In words other, that something can truly be gotten from nothing.

1,000 times slain, strangled, murdered, lowered six feet down… 1,001 times this gorgeous fiction has risen six feet up, alive.

And why not?

What is more tempting than heaven without hell, pleasure without pain, wealth without work?

Indeed, what is more tempting than something for nothing?

Individuals, business and governments, all hear the siren’s beautiful cry.

But none is driven madder — none is lured so unerringly to the rocks — than the government of the United States…

De‌bt Binds Most Governments

All governments incline naturally to de‌bt, as all governments incline naturally to roguery and rascality.

But most governments are limited in the amount of de‌bt they can pile up… and thus limited in the swinishness they can get up to.

That is because extreme inde‌btedness would ultimately bring creditors down upon them.

These creditors would question these governments’ ability to make good on their de‌bts.

Interest rates would soar. And the cost of de‌bt would weigh upon the issuing government… as a millstone around the neck weighs upon the posture.

These governments cannot print their way out without sinking their own currencies. Hence they are boxed in.

But the United States government is unlike most governments. For it enjoys the “exorbitant privilege”…

A License to Print Nearly Unlimited Money

The United States fields the world’s premier reserve currency. And the world runs a bottomless appetite for its dollars.

Up to 80% of all international trade is invoiced in dollars. And nearly 40% of the world’s de‌bt is issued in these same dollars.

The United States can therefore run the presses at a clip truly astonishing, without fear of overissue.

And despite America’s heroic go at the print press, its debt has scarcely cost less.

Current yields on its 10-year Treasury bond scrape along under 2%. Yields on its 30-year Treasury run barely higher.

De‌bt has therefore proven a painless gain, a windfall, a wholesale blessing.

Tally the advantages de‌bt offers the United States government…

And it can no more resist de‌bt’s pull than a cat can resist catnip, a bee can resist honey… or a moth can resist the flames.

Toward these flames the United States is likely going. Here is the largest trouble with its de‌bt:

It is largely unproductive.

Keynes’ Warning

John Maynard Keynes put the theory of deficit spending into general circulation. The magic of deficit spending can revive the animal spirits… and set the idle machinery of industry whirring.

But deficit spending was not an open-ended warrant for government extravagance.

As Mr. Lance Roberts of Real Inves‌tment Advice reminds us, Keynes placed a hard condition upon it…

Keynes insisted each dollar of de‌bt give off an economic bang.

That is, Keynes wagged his finger… and insisted that each dollar of de‌bt yield a positive return on investment.

Roberts:

John Maynard Keynes’ was correct in his theory that in order for government “deficit” spending to be effective, the “payback” from investments being made through de‌bt must yield a higher rate of return than the de‌bt used to fund it.

But the vast majority of United States government spending fails Lord Keynes’ exacting test.

“Country A” vs. “Country B”

The United States government appeared before the cre‌dit markets last year, held out its hat … and borrowed $986 billion to make its funding shortage good.

But the lion’s take of these borrowings went to “social welfare” and to service existing de‌bt.

That is, it went largely to non-productive uses. And so it brought down… rather than lifted up.

Here Roberts cites Woody Brock’s American Gridlock:

Country A spends $4 Trillion with receipts of $3 Trillion. This leaves Country A with a $1 Trillion deficit. In order to make up the difference between the spending and the income, the Treasury must issue $1 Trillion in new de‌bt. That new de‌bt is used to cover the excess expenditures but generates no income leaving a future hole that must be filled.

Country B spends $4 Trillion and receives $3 Trillion income. However, the $1 Trillion of excess, which was financed by de‌bt, was invested into projects, infrastructure, that produced a positive rate of return. There is no deficit as the rate of return on the investment funds the “deficit” over time.

The United States is not “Country B.”

And as Roberts reminds us:

As this money is used for servicing de‌bt, entitlements, and welfare, instead of productive endeavors, there is no question that high de‌bt-to-GDP ratios reduce economic prosperity over time. In turn, the Government tries to fix the “economic problem” by adding on more “de‌bt.

Russian Roulette

Evidence indicates any de‌bt-to-GDP ratio above 60% courts risk. Any ratio above 90% plays roulette of the Russian sort.

What is the United States’ de‌bt-to-GDP ratio?

106%.

Meantime, real United States GDP growth averaged 4.3% following each post-WWII recession through the end of the century.

Yet since the end of  the Great Recession — after the government piled up trillions of de‌bt — real GDP growth has averaged a mere 2.16%.

Like a tick infinitely and obscenely engorged by blood, the American economy is infinitely and obscenely engorged by de‌bt.

And as this grotesque insect Dracula has little capacity to expand… the American economy has little capacity to expand.

Next comes this question:

How heavily has de‌bt’s dead weight sat upon the American economy?

De‌bt’s Drag on the Economy

Roberts had a go at the numbers:

Another way to view the impact of de‌bt on the economy is to look at what “de‌bt-free” economic growth would be.

For the 30-year period, from 1952 to 1982, the economic surplus fostered a rising economic growth rate which averaged roughly 8% during that period.

And today?

Today, with the economy expected to grow at just 2% over the long-term, the economic deficit has never been greater. If you subtract the de‌bt, there has not been any organic economic growth since 1990… In other words, without de‌bt, there has been no organic economic growth.

No organic, de‌bt-free growth since 1990 — can you imagine it?

And why should it turn around now?

De‌bt stacks higher and higher. But GDP sinks lower…

2018 growth came it a serviceable 2.9%.

But Morgan Stanley forecasts real U.S. GDP growth will recede to 2.3% this year… and 1.8% in 2020.

Is There a Way Out?

Naturally and of course the Modern Monetary Theory crew has an answer:

To plunge deeper and deeper into de‌bt… on the belief it will bring us higher and higher up.

We believe precisely the opposite.

But is there a way out? Is there a solution to restore genuine American growth?

Tune in tomorrow…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post “Stop Worrying and Love The Deficit” appeared first on Daily Reckoning.

Central Banks Pushing for Negative (Real) Interest Rates

This post Central Banks Pushing for Negative (Real) Interest Rates appeared first on Daily Reckoning.

This summer I was in Bretton Woods, New Hampshire, along with a host of monetary elites, to commemorate the 75th anniversary of the Bretton Woods conference that established the post-WWII international monetary system. But I wasn’t just there to commemorate  the past —I was there to seek insight into the future of the monetary system.

One day I was part of a select group in a closed-door “off the record” meeting with top Federal Reserve and European Central Bank (ECB) officials who announced exactly what you can expect with interest rates going forward — and why.

They included a senior official from a regional Federal Reserve bank, a senior official from the Fed’s Board of Governors and a member of the ECB’s Board of Governors.

Chatham House rules apply, so I can’t reveal the names of anyone present at this particular meeting or quote them directly.

But I can discuss the main points. They essentially came out and announced that rates are heading lower, and not by just 25 or 50 basis points. They said they have to cut interest rates by a lot going forward.

They didn’t officially announce that interest rates will go negative. But they said that when rates are back to zero, they’ll have to take a hard look at negative rates.

Reading between the lines, they will likely resort to negative rates when the time comes.

Normally forecasting interest rate policy can be tricky, and I use a number of sophisticated models to try to determine where it’s heading. But these guys made my job incredibly easy. It’s almost like cheating!

The most interesting part of the meeting was the reason they gave for the coming rate cuts. They were very relaxed about it, almost as if it was too obvious to even point out.

The reason has to do with real interest rates.

The real interest rate is the nominal interest rate minus the inflation rate. You might look at today’s interest rates and think they’re already extremely low. But when you consider real interest rates, you’ll see that they’re substantially higher than the nominal rate.

That’s why the real rate is so important. If you’re an economist or analyst trying to forecast markets based on the impact of rates on the economy, then you need to focus on real rates.

Assume the nominal rate on a bond is 4%; what you see is what you get. But the real rate is the nominal rate minus inflation. If the nominal rate is 4% and inflation is 2%, then the real rate is 2% (4 – 2 = 2).

That difference between nominal and real rates seems simple until you get into a strange situation where inflation is higher than the nominal rate. Then the real rate is negative.

For example, if the nominal rate is 4% and inflation is 5%, then the real rate of interest is negative 1% (4 – 5 = -1).

The U.S. has never had negative nominal rates (Japan, the eurozone and Switzerland have), but it has had negative real rates.

By the early 1980s, nominal interest rates on long-term Treasury securities hit 13%. But inflation at the time was 15%, so the real rate was negative 2%. The real cost of money was cheap even as nominal rates hit all-time highs.

Nominal rates of 13% when inflation is 15% are actually stimulative. Rates of 3% when inflation is 1% aren’t. In these examples, nominal 2% is a “high” rate and 13% is a “low” rate once inflation is factored in.

The situation today is much closer to the latter example.

The yield to maturity on 10-year Treasury notes is currently around 1.8%, which is extremely low by traditional standards. Meanwhile, inflation as measured by the PCE core deflator (the Fed’s preferred measure) is currently about 1.6% year over year, below the Fed’s 2% target.

Using those metrics, real interest rates are above zero. But more interestingly, they’re higher than the early ’80s when real rates were -2%.

That’s why it’s critical to understand the significance of real interest rates.

And real rates are important because the central banks want to drive real rates meaningfully negative. That’s why they have to lower the nominal rate substantially, which is what these central bank officials said at Bretton Woods.

So you can expect rates to go to zero, probably sooner or later. Then, nominal negative rates are probably close behind.

The Fed is very concerned about recession, for which it’s presently unprepared. It usually takes five percentage points of rate cuts to pull the U.S. out of a recession. During its hiking cycle that ended last December, the Fed was trying to get rates closer to 5% so they could cut them as much as needed in a new recession. But, they failed.

Interest rates only topped out at 2.5%. The market reaction and a slowing economy caused the Fed to reverse course and engage in easing. That was good for markets, but terrible in terms of getting ready for the next recession.

The Fed also reduced its balance sheet from $4.5 trillion to $3.8 trillion, but that’s still well above the $800 billion level that existed before QE1 (“QE-lite” has since taken the balance sheet up above $4 trillion, but the Fed has done its best to downplay it).

In short, the Fed (and other central banks) only partly normalized and are far from being able to cure a new recession or panic if one were to arise tomorrow.

The Fed is therefore trapped in a conundrum that it can’t escape. It needs to rate hikes to prepare for recession, but lower rates to avoid recession. It’s obviously chosen the latter option.

If a recession hit now, the Fed would cut rates by another 1.50% to 1.75% in stages, but then they would be at the zero bound and out of bullets.

Beyond that, the Fed’s only tools are negative rates, more QE, a higher inflation target, or forward guidance guaranteeing no rate hikes without further notice.

Of course, negative nominal interest rates have never worked where they’ve been tried. They only fuel asset bubbles, not economic growth. There’s no reason to believe they’ll work next time.

But the central banks really have no other tools to choose from. When your only tool is a hammer, every problem looks like a nail.

Now’s the time to stock up on gold and other hard assets to protect your wealth.

Regards,

Jim Rickards
for The Daily Reckoning

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Rickards: World on Knife Edge of Debt Crisis

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Herbert Stein, a prominent economist and adviser to presidents Richard Nixon and Gerald Ford, once remarked, “If something cannot go on forever, it will stop.”

The fact that his remark is obvious makes it no less profound. Simple denial or wishful thinking tends to dominate economic debate.

Stein’s remark is like a bucket of ice water in the face of those denying the reality of nonsustainability. Stein was testifying about international trade deficits when he made his statement, but it applies broadly.

Current global debt levels are simply not sustainable. Debt actually is sustainable if the debt is used for projects with positive returns and if the economy supporting the debt is growing faster than the debt itself.

But neither of those conditions applies today.

Debt is being incurred just to keep pace with existing requirements in the form of benefits, interest and discretionary spending.

It’s not being used for projects with long-term positive returns such as interstate highways, bridges and tunnels; 5G telecommunications; and improved educational outcomes (meaning improved student performance, not teacher pensions).

And developed economies are piling on debt faster than they are growing, so debt-to-GDP ratios are moving to levels where more debt stunts growth rather than helps.

It’s a catastrophic global debt crisis (worse than 2008) waiting to happen. What will trigger the crisis?

In a word — rates. Low interest rates facilitate unsustainable debt levels, at least in the short run. But with so much debt on the books, even modest rate increases will cause debt levels and deficits to explode as new borrowing is sought just to cover interest payments.

Real rates can skyrocket even as nominal rates fall if deflation takes hold. Real rates are nominal rates minus the inflation rate. If the inflation rate is negative, real rates can be significantly higher than the nominal rate. (A nominal rate of 1% with 2% deflation equals a real rate of 3%.)

The world is on the knife edge of a debt crisis not seen since the 1930s. It won’t take much to trigger the crisis.

Meanwhile, the stock market is set up for a sharp decline in the days and weeks ahead. Here’s why…

Stock market behavior has become remarkably easy to predict lately. Stocks go up when the Fed cuts rates or indicates that rate cuts are coming. Stocks also go up when there’s good news on the trade war front, especially involving a “phase one” mini-deal with China.

Stocks go down when the trade war talks look like they’re breaking down. Stocks also go down when the Fed indicates it may stop raising rates or actually goes on “pause.”

Good news (rate cuts in July, September and October and good prospects on the trade wars) has outweighed bad news, so stocks have been trending higher. You don’t have to be a superstar analyst to figure this out.

The key is to understand that markets are driven by computerized trading, not humans. Computers are dumb and can really only make sense of a few factors at a time, like rates and trade.

Just scan the headlines (that’s what computers do), weigh the factors and make the call. It’s easy! What’s not so easy is understanding where markets go when these factors are no longer in play.

Stocks are in bubble territory, based on weak earnings, and have been propped up by expected good news on trade.

The other driver is FOMO — “fear of missing out” — that can turn to simple fear in a heartbeat. If the phase one trade deal and a successor to NAFTA (USMCA) are both approved by late December and the Fed pauses rate cuts indefinitely, which are both likely, what’s left to drive stock prices higher?

It won’t be earnings or GDP, which are both weak. Once the good news is fully priced in, there’s nothing left but bad news. And we’re at the point right now.

That leaves stocks vulnerable to a sharp decline around year-end or early 2020. Simple solutions for investors include cash, gold and Treasuries. Get ready.

Here’s another way to get ready for what 2020 has in store. I’d like to invite you to join myself, Robert Kiyosaki, Nomi Prins and other world-class experts as we discuss what you can expect for 2020.

Regards,

Jim Rickards
for The Daily Reckoning

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Markets vs. Politics: Which Will It Be?

This post Markets vs. Politics: Which Will It Be? appeared first on Daily Reckoning.

No man can avoid politics. All are in siege.

No rival field of human enterprise can approach its ferocity. War is the extension of what by other means… in Mr. Carl von Clausewitz’s telling?

The answer is politics of course.

Today we file a scorching tort against politics.

Politics separates, divides, enrages, disrupts — as war itself.

Democratic politics offer no exception. Reduce electoral politics to its naked core…

The Essence of Electoral Politics

You have Candidate X and you have Candidate Y. Each is nothing more in this world than a liar, jackleg or rogue.

This human sculch appears before the voters, hopeful of election.

Both roar their flubdubberies before eager and attentive crowds. Both shout their propagandas.

Each denounces the other as an arm of Satan. Amazingly, both are correct.

Come the election…

50.1% of voters yank a lever for X. 49.9% pull one for Y.

X claims the laurel. He immediately proceeds against the wants, hopes and interests of the hapless 49.9%.

Each day they live they must wither, cringe and chafe beneath X’s atrocities… helpless as worms on fisherman’s hooks.

Only upon some distant November can they heave this jackal out. Assume they do…

Yor some other Y — comes in. X’s voters must then endure their own parallel hells.

The case of President Donald J. Trump is brilliantly in point…

In Politics, Smaller Is Better

One half of the nation is with him. The other half is against — many violently against.

Why should 50%-plus one of the population boss 50%-minus one of the population?

The same pitiful calculus apply to elections at any level of American government… down to canine-catcher.

But the greater the scale… the greater the menace.

The mayor of Why, Arizona, may impose his torments upon his encircled victims — as may the mayor of Whynot, North Carolina.

Yet their victims are free to jump the fence. The next hamlet might run to saner and more tolerable settings… and so they flee.

Has a California or an Illinois gone lunatic? For many they have. But a Texas or a Tennessee holds out asylum.

These local competitions form a severe brake on the natural rascalities of politics.

But to escape a president a fellow must quit the country altogether — or rot down four years until he takes another go at the vote booth.

And if the scalawag wins reelection?

Then this wretch must endure another four years under occupation — for a total of eight.

There is politics for you.

The business is so dismal… it can wear the soul out of the stoutest fellow.

Now contrast the political system with the market system…

Voting in the Marketplace Is Entirely Different

Free markets — authentically free markets — lack entirely the violent combats central to politics.

They are scenes of peace, tolerance… and justice.

Let us draw a parallel case to our previous example of candidates X and Y…

A Coca-Cola holds itself out before the American people.

This candidate claims to be the “real thing.” “Vote for me,” it says.

Behind another podium stands a Pepsi.

“No. Vote for me,” counters this fellow. Drink me “for the love of it.”

Each cries his case before the voter.

This fickle and capricious fellow proceeds to reach into his wallet… and vote.

He pulls the lever for Coke. Or he pulls the lever for Pepsi.

Does his vote injure, usurp or ruffle another voter? Does he club the other voter over the head… as he does in politics?

In no way, no shape, no form.

Satisfied Voters

Both are satisfied voters. Neither has any care to impose his preference upon the other… or deny him his soft drink of choice.

Multiply this one example countless times and in countless directions — and you have a picture of majestic electoral peace.

McDonald’s versus Burger King, Honda versus Ford, Nike versus Adidas, Walmart versus Target… it is all one.

A vote for any of them is peaceful as a dove. This voter for any holds no gun to the other voter’s ribs.

When he votes in politics — conversely — he does hold a gun to the other’s ribs.

To pull a lever is to pull a trigger.

Red State vs. Blue State

Chain a red-state American to a blue-state American. Force a vote between any product on the free and open market.

The blue-state voter may razz the red-stater’s ghastly and barbarian tastes. The red-state voter may in turn razz the blue-stater’s effete and supercilious tastes.

But neither attempts to dragoon or bayonet the other. Each is free to vote his own way, as he might.

And so peace prevails between them.

But give them the choice of Trump versus Hillary or Trump versus whomever…

They will fall into savage combat… as the Kilkenny cats fell into savage combat.

We must therefore conclude the free market’s voting system is vastly superior to political voting.

A vote in the marketplace is a “win, win” deal, as our co-founder Bill Bonner styles it.

What is politics then but a colossal “win, lose” deal?

And market voting improves the world in ways large and small…

Voting in the Free Market Improves the World

Each business must compete for the consumer’s vote. That vote harms no one, as we have established.

It also benefits many. It benefits many because a vote sends a signal.

It tells the outvoted to field an improved product — or take the consequences. And an improved product lifts this world that much higher.

If a business fails the market’s harsh and ruthless voting, it falls into bankruptcy… and goes away.

Yet here is perhaps politics’s greatest crime, its most scarlet of sins:

It has drained away “social power”… and channeled it off into state power.

That is, politics has stripped society’s power and liberty… and handed them to the state.

Social Power vs. State Power

Albert Jay Nock (1870–1945) was a gentleman and thinker of deep and penetrating insight.

Nock bemoaned the loss of social power during the New Deal:

If we look beneath the surface of our public affairs, we can discern one fundamental fact: namely, a great redistribution of power between society and the State…

It is unfortunately none too well understood that, just as the State has no money of its own, so it has no power of its own. All the power it has is what society gives it, plus what it confiscates from time to time on one pretext or another; there is no other source from which State power can be drawn. Therefore every assumption of State power, whether by gift or seizure, leaves society with so much less power. There is never, nor can there be, any strengthening of State power without a corresponding and roughly equivalent depletion of social power…

Heretofore in this country sudden crises of misfortune have been met by a mobilization of social power. In fact (except for certain institutional enterprises like the home for the aged, the lunatic asylum, city hospital and county poorhouse), destitution, unemployment, “depression” and similar ills have been no concern of the State but have been relieved by the application of social power.

And as the frog in its pot acquiesces to the gradually warming water… the citizen has acquiesced to his gradual loss of social power:

Thus the State “turns every contingency into a resource” for accumulating power in itself, always at the expense of social power; and with this it develops a habit of acquiescence in the people. New generations appear, each temperamentally adjusted — or as I believe our American glossary now has it, “conditioned” — to new increments of State power, and they tend to take the process of continuous accumulation as quite in order.

The lingering vestiges of social power are in the State’s sights.

And many voters are hot to sign them away.

Is There Any Alternative to Politics?

Do we propose an alternative to the political arrangement?

No — not earnestly. We diagnose a disorder… we do not prescribe a fix.

Besides, most would find a true alternative hard to worry down. It would be very rough stuff.

We have previously held out the relative virtues of monarchy to jab cherished democratic theories.

But we certainly do not expect — nor do we propose — a return to monarchy.

But you say we are a republic, not a democracy. It is the best we can do in this fallen world of sin and evil.

Just so. We will not argue. But as French historian François Guizot said of republics:

“I have no use for a republic that begins with Plato… and ends necessarily with a policeman.”

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Markets vs. Politics: Which Will It Be? appeared first on Daily Reckoning.

5 Ways to Save on Your Christmas Shopping

This post 5 Ways to Save on Your Christmas Shopping appeared first on Daily Reckoning.

Dear Rich Lifer,

With two of the biggest shopping days of the year behind us, Black Friday and Cyber Monday, it might seem like there are no more deals to be had.

However, malls and retailers know this is just the beginning of the holiday shopping season.

According to Sensormatic Solutions, 8 out of the 10 busiest days for in-store foot traffic this year will take place in December:

  1. Black Friday, November 29
  2. December 21, the last Saturday before Christmas
  3. December 26, the day after Christmas
  4. December 14, two Saturdays before Christmas
  5. November 30, the Saturday after Black Friday
  6. December 22, the last Sunday before Christmas
  7. December 23, the Monday before Christmas
  8. December 28, the Saturday after Christmas
  9. December 27, the Friday after Christmas
  10. December 7, the first Saturday in December

Sensormatic based this list on stats collected from previous years showing peak in-store traffic periods.

Although mall and in-store foot traffic is declining overall in America, this is expected to be a big year for holiday spending.

The annual Deloitte holiday survey predicts spending will grow by 4.5% to 5%, and top $1.1trillion.

But with in-store shopping shifting to online, it’s more important than ever to know how to score the best deals wherever you shop.

To help you out, I compiled a short list of some of my favorite online and in-store shopping apps. I’ve mentioned a few of these before, in various issues, but with the Holidays rapidly approaching, I want you to have the best ones all in one place.

These are a mix of internet browser extensions (aka plug-ins or add-ons) and apps for your smartphone or tablet.

If you’ve never heard of browser extensions before, don’t worry. They’re easy to use. You simply go to the listed website, click “install” on the add-on, and it will automatically be added in your internet browser.

The next time you’re shopping online, the extension will pop up and work its magic. The best part is all these apps and extensions are free, and can save you a bundle.

Here are my top five shopping apps to save you money this holiday season:

Honey

Gone are the days of clipping coupons. The Honey browser extension literally automates couponing for you.

Once you add the Honey extension to your internet browser, whenever you check out at any online retailer, say Amazon.com or Walmart.com, Honey will scour the internet for digital coupons and automatically apply them to your order.

With the click of a button you can save yourself the hassle of searching coupon sites and having to type in confusing coupon codes. Honey also will send you alerts for price drops.

It can provide you with price histories on items in your digital shopping cart and tell you whether to buy now, or hold out for a better deal later.

Fakespot

The Wall Street Journal recently published a story exposing fake online reviews.

According to the story, more than one third of online reviews on major websites, including those on Amazon.com, Walmart, and Sephora, are fake, meaning they are generated by robots or people paid to write them.

If you’re worried about buying something with an overhyped review, Fakespot.com’s browser extension will help.

Fakespot flags both reviews and products it suspects are bogus and grades product reviews to help you avoid being duped by fake 4- and 5-star reviews.

The app also summarizes the most helpful reviews, which can save you a ton of time if you’ve waited until the last minute to get your Christmas shopping done.

PriceBlink

If you like to price shop online, then you’ll love PriceBlink. Instead of opening up multiple browser tabs with different retailers, you install PriceBlink and visit one major retail website.

For example, say you shop at Amazon.com, a yellow bar will pop up from PriceBlink, you click on “Compare Prices” and you’ll get a list of prices for that same item at other stores.

The browser extension checks prices at 11,000 stores. Because there’s no PriceBlink mobile app, if you want to quickly price shop in-store, you can use the app ShopSavvy. Or, use the Amazon and eBay apps.

When you tap the camera icon in any one of these apps then point your phone at an item’s barcode, the app will find competing prices.

Rakuten

Formerly known as eBates, Rakuten is an app and browser extension that allows you to earn cash back on your purchases.

How it works: once installed, you shop as you normally would online and you’ll earn cash back on qualifying purchases at more than 3,500 stores.

Once you’ve collected at least $5 in rewards, Rakuten will send you a check in the mail. You’ll receive a check quarterly with whatever cashback rewards you’ve earned.

If you choose to take your earnings as a gift card instead, you can earn more rewards faster. You can also link your credit card to the smartphone app and score cash back on certain in-store purchases, plus 5 percent cash back on meals at more than 10,000 participating restaurants.

RetailMeNot

Next time you head out shopping, add the RetailMeNot app to your phone. The app supports a wide selection of stores and food chains. The app supplies barcodes to be scanned at the register with your order.

Simply search for the retail store you’re shopping at and see if there are any coupons or sales. Similar to Rakuten, you can earn cash-back offers both in-store and online.

It doesn’t matter if it’s Black Friday or the last Saturday before Christmas, with these five apps and extensions installed, you can score the best deal no matter what time of year.

To a richer life,

Nilus Mattive

Nilus Mattive

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Beware Good News!

This post Beware Good News! appeared first on Daily Reckoning.

Mr. Jerome Powell and his mates sat on their hands today — no rate cut:

The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions and inflation near the Committee’s symmetric 2% objective.

Nor does “the Committee” intend to cut rates next year. But what of possible rate hikes?

Only four of 17 members anticipate a quarter-point raise in 2020.

Of course… the Committee hooked the standard disclaimer to their announcement:

The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.

The stock market greeted the news with a general shrug of the shoulders. It was, after all, expected.

The Dow Jones gained 29 points on the day. That is, it barely made good yesterday’s 28-point loss.

The S&P scratched out a nine-point gain. The Nasdaq fared best — up 38 points today.

The world jogs on.

But let us take a brief canvas of the overall economic condition…

Stocks presently summit new heights, unemployment presently plumbs old depths, consumer confidence is presently up and away.

Meantime, the Organization for Economic Cooperation and Development (OECD) claims the global economy has swung 180 degrees since October.

That is, the global economy has swung from contraction to recovery since October.

Sample quote:

Stable growth momentum is anticipated in the euro area as a whole, including France and Italy, as well as in Japan and Canada. Signs of stabilizing growth momentum are now also emerging in the United States, Germany and the United Kingdom, where large margins of error remain due to continuing Brexit uncertainty. Among major emerging economies, stable growth momentum remains the assessment for Brazil, Russia and China (for the industrial sector).

Just so.

If October did represent an actually inflection point, investors can prepare for a merry run…

Reports Saxo Bank’s Peter Garnry:

Our business cycle map on country level going back to 1973 suggests that if the turning point came in October, then we are entering the most rewarding period for investors in equities relative to bonds. The average outperformance for equities versus bonds in USD terms has been 9.4% for every recovery phase.

Look close. You can almost see the erring stars returning to their courses… the angels returning to their posts… the Perfections returning to view.

But as we have noted before:

While bad news frightens us… good news terrifies us.

Too many animal spirits are unchained, too many guards go down, too many fools rush in.

Have they forgotten the trade war? Are global debt levels falling? Is a white age of peace suddenly upon us?

And we might remind the chronically hopeful of this capital fact:

Recession is a menace that often arrives unannounced, like an influenza… or an unexpected visit from a mother-in-law.

Periods of seemingly incandescent growth may immediately precede it.

Please consult the following dates. Each reveals the real economic expansion rate — that is, the economic growth rate adjusted for inflation — immediately before a recession’s onset:

  • September 1957:     3.07%
  • May 1960:                2.06%
  • January 1970:          0.32%
  • December 1973:      4.02%
  • January 1980:          1.42%
  • July 1981:                4.33%
  • July 1990:                1.73%
  • March 2001:             2.31%
  • December 2007:      1.97%.

(We doff our cap to Lance Roberts of Real Invest‍ment Advice for providing the data.)

You are immediately seized by a strange and remarkable fact:

Recession has followed hard upon jumping growth rates of 3.07%, 4.02%… and 4.33%.

The quote of our co-founder Bill Bonner springs to mind:

“It is always dawnest before the dark.”

Let the record further reflect:

Growth ran 2% or higher immediately prior to five of nine recessions listed.

“At those points in history,” Roberts reminds us, “there was NO indication of a recession ‘anywhere in sight.’”

Once again… here we refer to real growth, which minuses out inflation’s false fireworks.

Now come home…

Third-quarter 2019 GDP came ringing in at 2.1%. And the Federal Reserve projects 2019 will turn in 2.2% growth when the final tally comes in.

What was GDP before the last recession — the Great Recession?

1.97% — a general approximation of the rate presently obtaining.

Shall we enjoy a belly laugh at Ben Bernanke’s expense?

Granted, it is nearly too easy — like guffawing at a justice of the Supreme Court who slips on a banana peel… or whose toupee is carried off by a sudden gust.

But in January 2008 Mr. Bernanke stood proudly before the world and exulted:

“The Federal Reserve is not currently forecasting a recession.”

Below, Jim Rickards shows you why one the Federal Reserve begins intervening in markets, it cannot stop. Where will it take us? Read on.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Beware Good News! appeared first on Daily Reckoning.

3 New Retirement Rules You Need to Know

This post 3 New Retirement Rules You Need to Know appeared first on Daily Reckoning.

Dear Rich Lifer,

Spend less than you earn. Never take a loan to invest. Don’t borrow more than you can repay.

If you stick to these simple money rules, you won’t ever be a slave to debt.

In retirement planning, there are rules of thumb that can help guide you away from financial ruin as well.

For instance, the 4% rule is great to avoid running out of money. But, a lot of basic retirement rules like these need a refresh.

If I’m being candid, there are too many Americans planning their financial futures with outdated advice and rules that no longer hold true today.

That’s why I thought it’d be a good idea today to share with you three new rules of retirement. These are new ways of looking at old problems that I think everyone should know.

Rule #1 – Forget About Your “Retirement Number.”

Only 39% of Americans have tried to figure out how much money they need to retire, according to FINRA.

I’m willing to bet the other 61% of Americans will do just as fine as the first group. Here’s why…

Too often we fixate on a single number — usually the amount of money we think we need saved to retire comfortably.

If you’re hoping to finance at least part of your retirement with savings, this is the wrong approach to take.

For most people, if you ask them what money means to them, they say things like “freedom,” “security,” and “having options.” Notice they didn’t say luxury cars and boats, beach villas, or expensive jewelry?

That’s because the number that matters most to you probably isn’t the number in your bank account. It’s the number of years of freedom those digits in your bank account buy.

If you frame retirement through this lens then your perception of wealth changes too.

For example, if someone is worth $1 million and lives a lifestyle that’s costing them $200,000 a year, this person likely only has five years of freedom and security to their name.

On the other hand, someone with a net worth of $200,000 who lives on $10,000 a year, plus Social Security, has 20 years of freedom banked. (Assuming their nest egg is invested and keeps pace with inflation and taxes.)

By our new definition, the second person is wealthier. You can think of wealth like a ratio: the money you have versus the money you need to live life on your terms for as long as you please.

Looking at wealth in time versus dollars is a powerful way of thinking about retirement.

Rule # 2 – Saving Beats Earning More.

If wealth is about time, and money buys freedom, then there are two ways you can become wealthier: make more money or spend the money you have more wisely.

Which one do you think is easier?

Going back to our example of someone with a net worth of $200,000. If that person were to spend $20,000 annually above Social Security payments, they’d have 10 years of financial wealth.

But if they could find simple ways to cut their annual expenses in half (a little over $800 per month), they’d double their financial wealth to 20 years.

Compare that scenario to someone who decides they want to keep their $20K-a-year lifestyle. Instead of cutting spending by $10,000 a year, they find ways to make an extra $10K each year.

The problem is you won’t get all that money after taxes. Even if you were willing to work an extra 10 years to maintain your current spending levels, you might bring home a total of $80,000 after taxes.

So, your net worth after 10 years would be $280,000. With a $20K-a-year spending rate, you have about 14 years of wealth.

What’s the better deal: Spend $10,000 less per year, and you immediately gain 10 years of wealth, or spend a decade making an extra $10,000 to gain about four years?

Surprisingly, living frugally actually has a better payback than taking on a side hustle.

But what about happiness?

If you think spending less will make you unhappy, it’s very unlikely. Research shows that we quickly get used to living on less, just as we quickly get used to living on more.

Plus, people tend to get more happiness out of experiences rather than buying stuff.

Most of the best memories you have probably cost very little. Taking your children and grandchildren out for ice cream, going on hikes, cooking dinner together.

Cutting costs is not rocket science either. I’ve shared several tips on how to save money by cutting cable, downsizing, selling your old junk…you name it.

I recommend starting by cutting one thing out of your budget for one or two months and see what that does to your happiness.

Rule # 3 – Delay Taking Social Security.

I touched on this on Monday, but it’s important enough that it bears repeating. There are a number of reasons why people choose to take Social Security as soon as they can rather than wait.

Sometimes it’s outside of their control, other times it’s because they don’t want to dip into their retirement savings.

If you’re taking benefits ASAP to protect your nest egg, you’re making a huge mistake. A better choice is to spend your savings today so you can delay taking Social Security.

When you follow this rule, you’re basically buying one of the best annuities around: one that’s guaranteed by the government, keeps pace with inflation and has a survivor benefit.

Plus, each month you wait to take Social Security, it gets better. Delaying payments from age 66 to 70 can raise your monthly benefit 32 percent, even before cost-of-living increases kick in.

While there are a lot of factors you need to consider, as a general rule of thumb, delaying Social Security is a solid strategy for most.

If you’re single, and in good health, wait.

If you’re the higher earner in a married couple, wait until 70 unless you and your spouse are in poor health.

If you’re the lower earner in a married couple, filing early is okay too, especially if one of you is in poor health.

Always run the numbers first to see what’s best given your circumstances.

These rules are meant to be guidelines not the gospel. Adopt the ones that fit your situation and discard the ones that don’t.

To a richer life,

Nilus Mattive

Nilus Mattive

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QE Is Much Closer Than You Think

This post QE Is Much Closer Than You Think appeared first on Daily Reckoning.

Today we hazard a thumping prediction:

The next round of quantitative easing — official, actual quantitative easing — is fast approaching.

Yes… the Federal Reserve will soon be clearing for emergency action.

When precisely can you expect it? And why the urgency?

Answers shortly. Let us first squint in on Wall Street…

The Bears Win on Points

The Dow Jones took a 28-point flesh wound today. The S&P lost but three points; the Nasdaq, five.

Gold gained $4 today, while 10-year Treasury yields rose ever so slightly — to 1.83%.

A humdrum performance altogether, this day put in.

But when can you expect the next round of authentic quantitative easing… and why so soon?

We must first distinguish between official quantitative easing and its junior shadow, “QE-lite”…

The Difference Between QE and QE-lite

Quantitative easing had a strategic vision. That is, it was intended to stimulate.

And so it stomped mercilessly upon long-term interest rates… and battered them down to nothing.

QE-lite — conversely — lacks all strategic vision.

It is workaday… and technical. It simply fills a leakage somewhere within the financial plumbing.

It consists of mere “open market operations” the Federal Reserve has always conducted.

And it fixes upon short-term rates — unlike quantitative easing. Its mission is therefore limited.

The Birth of QE-lite

The Federal Reserve initiated QE-lite in September, when liquidity ran dry in the short-term lending markets.

The Federal Reserve’s New York crisis management team rounded into action, unfurled the hoses… and gave these markets a good thorough drenching.

They are still hard at the business — and inflating the balance sheet beautifully.

The Federal Reserve’s balance sheet came in at $3.8 trillion in September. Yet it presently expands to $4.07 trillion.

IMG 1

Yesterday alone the New York crew emptied in $81.4 billion of liquidy credit.

Yet we are assured none of it has seeped into the central water lines of the stock exchanges.

Morgan Stanley’s interest rate strategist Matt Hornbach thus informs us:

There is little debate that the Fed is increasing the quantity of money, or Q. However… the additional money lacks a direct transmission mechanism to the equity markets or other long-duration risk assets.

Just so. QE-lite nonetheless expands the Federal Reserve’s balance sheet, as shown. And the balance sheet is the central scene of action.

Is it coincidence the major indexes have established fresh records recently?

“Like a Fourth Rate Cut This Year”

As we noted last week:

The S&P turned in only one negative week these past two months. That was the same week — and the only week — that the balance sheet contracted.

QE-lite is “like a fourth rate cut this year,” affirms Matthew Miskin, John Hancock co-chief investment strategist.

Meantime, Jerome Powell claims QE-lite has patched the financial plumbing. All leaks are wrenched shut.

Yet independent inspectors are far from convinced. Some see not patched leaks — but ongoing hemorrhagings…

Broken

James Bianco of Bianco Research:

The big-picture answer is that the repo market is broken. They are essentially medicating the market into submission. But this is not a long-term solution… This is now far bigger than anyone thought this was going to be. I think they’re hoping the market will magically fix itself. I don’t see why it would.

Nor do we.

The Federal Reserve is currently three months deep into these “temporary” open market operations.

And they will run “at least into the second quarter” of 2020… by Mr. Powell’s own admission.

We bet high they will go into the third quarter of 2020. And likely the fourth.

But why have the Federal Reserve’s heroic floods of liquidity failed to fill the pipes?

Here is the likely answer:

It can pump in its liquid. And it has. But it cannot guarantee it sloshes on through to its intended destination.

Clogs may bottle it up.

The Clogs in the System

We first must understand the repo market piping. Explains Reuters:

In a repo trade, Wall Street firms and banks offer U.S. Treasuries and other high-quality securities as collateral to raise cash, often just overnight, to finance their trading and lending. The next day, borrowers repay the loans plus what is typically a nominal rate of interest and get their bonds back. In other words, they repurchase, or repo, the bonds.

Twenty-four banks — or “primary dealers” — run direct lines to the liquidity taps.

That is, they transact directly with the Federal Reserve. From these primary dealers the liquidity goes sluicing out through the repo market.

Yet these banks have evidently chosen to sit on their supplies… rather than lend them to thirsting recipients.

Our minions inform us that over 70 financial institutions presently go without.

Hence the liquidity shortage.

The Bank for International Settlements (BIS) has reached the same conclusion.

BIS fingers four banks in particular. Yet it failed to identify the culprits… for what it is worth to you.

But why are these bloated and hoggish banks refusing to lend as needed?

Bloated and Hoggish Banks

Here is why they decline to put loanable funds on offer:

They can store their hoards at the Federal Reserve instead — where they earn a superior interest.

Bryce Doty, is a senior portfolio manager at Sit Fixed Income. From whom:

The big banks are just hoarding cash. They told the Fed they have more than enough cash in excess reserves to meet regulatory issues, but they prefer having money at the Fed where they can still earn 1.55%, rather than in the repo market.

In addition, elevated post-crisis capital requirements incentivize banks to pile up reserves rather than loan them.

So concludes our brief canvas of the repo market… and its present woes.

Yet we promised a prediction at the outset… that the Federal Reserve will soon undertake the next official round of quantitative easing.

But when?

We now gaze into our polished, haze-free crystal sphere for the answer…

Prepare for Imminent “Official” QE

The Federal Reserve will initiate the next official round of quantitative easing — QE4 — before this year runs out.

That is, before Jan. 1, 2020.

This is actually the near-prediction of Credit Suisse analyst Zoltan Pozsar.

Here is the hinge upon which it rests:

Whether or not the Federal Reserve loses control of overnight rates in the weeks ahead.

Mr. Pozsar has toiled for both the New York Federal Reserve and the United States Department of Treasury.

Thus he is exquisitely familiar with the financial plumbing. And this fellow believes the Federal Reserve’s patchwork has failed to plug the leaks.

Repo market funding remains unequal to requirements, he insists. Meantime, regulatory burdens on the primary banks are “shaping up to be a severe binding constraint.”

And so this Pozsar detects a main pipe groaning, rattling and giving… ready to rupture.

He believes the weeks ahead are “shaping up to be the worst in recent memory.” Moreover, he concludes “the markets are not pricing any of this.”

“If we’re right about funding stresses,” he concludes, “the Fed will be doing ‘QE4’ by year-end.”

But let us take this near-prediction, strip its escape clause, challenge its manhood and put steel in its spine:

The Federal Reserve will be doing “QE4” by year-end.

That is our prediction, presented with a wry grin. Let the countdown begin…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post QE Is Much Closer Than You Think appeared first on Daily Reckoning.

3 Moves You Need to Make BEFORE the Holiday Rush

This post 3 Moves You Need to Make BEFORE the Holiday Rush appeared first on Daily Reckoning.

Dear Rich Lifer,

We’re entering the busiest time of the holiday season, and I’m sure you have a lot going on.

But the reality is that, with the end of the year rapidly approaching, now is also the time to consider some last-minute moves that can substantially change your finances as well.

So before time runs out, I want to give you three of the best ones …

Tax Loss Harvesting

Although plenty of stocks have made big gains in 2019, others haven’t fared as well.

So if you have some open losses in your portfolio, you might consider selling them before year’s end so you can deduct the losses on Tax Day, 2020.

It works like this:

First

If you also booked gains this year, you’ll be able to offset them on a dollar-for-dollar basis with no limit.

Second

If you recorded more losses than gains — or no gains at all — you can use your losses to offset some ordinary income. The maximum amount is $3,000 ($1,500 if married filing separately) … but you can carry additional losses forward for future tax years.

Doing this before year-end is a no brainer if you have losing positions that you don’t think will ever come back.

You will not only get a tax break, but you can then take the proceeds from the sale and reinvest them in better long-term choices.

Of course, even if you have underwater positions that you would like to continue holding for the long-term, you STILL might consider selling them at a loss for the tax advantage.

Why? Because as long as you wait more than 30 calendar days before buying back those same positions, the loss will count on your tax form.

The IRS applies what is known as a “wash rule.”

What Qualifies as a Wash?

Basically, they will not recognize a loss if you’ve bought replacement stock within 30 calendar days before or after you sell your losing position.

However, if you wait 31 days, you’re fine and the loss counts.

Aren’t tax laws great?

The real risk is that the stock could rebound over those 30 days and you’d miss out. But I would consider taking the chance, it all depending on the position.

You might also consider another tactic during this season of giving …

Charitable Donations

If you happened to spot some unused items while you were digging out your holiday decorations, now is a great time to take them to your local charity.

And the same thing is true if there’s a particular cause you’d like to fund.

Reason: As long as you itemize, your charitable donations will also be deductible come April 15th.

Here’s some of the fine print straight from the IRS:

“To be deductible, charitable contributions must be made to qualified organizations. Payments to individuals are never deductible.

“If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.

“For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution.

“In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations.”

If you want even more details, go here. But suffice it to say that this is one of those rare tax items that helps you do well by doing good.

Last but not least, one last time…

Look at Your Retirement Accounts

Some accounts — such as IRAs — give you all the way until April 15th, 2020 to sock away money for 2019. But others must be established and/or funded by December 31st.

For example, if you have access to an employer’s 401(k) plan, your contributions have to be in before New Year’s Day.

So if you’ve been slacking, there should still be time for you to get something in there for this calendar year.

Doing so will provide you with more money for the future … the possibility of matched contributions from your employer … PLUS a nice tax break on your 2019 taxes.

Self-employed? Then DEFINITELY consider opening a Solo 401(k).

I’ve written about them before, but I never get tired of saying it: Opening one could allow you to sock away as much as $56,000 just in 2019 … or even $61,000 if you’re over 50!

But again, you have only until December 31st to establish a Solo 401(k) and elect to contribute any money that is to count as your “employee” part of the overall contribution (though the money itself can go in by April 15th).

One Last Thing

This is also the time to consider implementing any changes to existing accounts — for example, converting a traditional IRA to a Roth.

As with all the other moves I described today, personal circumstances will dictate a lot of what makes sense for you personally… and you may be best served by talking to a tax professional to get more information on all the ins and outs.

But my overall point is that — despite the holiday madness — this is also the best time of the year to make important decisions that will affect you well into 2020 and beyond.

To a richer life,

Nilus Mattive

Nilus Mattive

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