Note: Before reading and commenting on my opinion, please read the following note!
I obtain no rights from this image, which was copied from an Amazon advertisement (for which I will receive no financial benefit either, for Kelly Osbourne’s mini-series “Turning Japanese” which can be viewed on a pay-per-view basis on Amazon.com. I merely wanted to use the image to somewhat demonstrate the strange bed fellows that are the similar perspectives of currency and monetary policies of Japan, the United States of America, the Eurozone, and seemingly the entire planet are now. Absurdity (even in a publicity photo) can be a very instructive thing indeed .
On Wednesday, the financial universe was quite well blown away when Switzerland, via the Swiss National Bank (SNB), removed its $1.20 peg on the EURO as a floor for the Swiss Franc, and watched it plunge, not only shocking shorts, but literally blowing apart certain hedge funds and high leverage currency brokerages in the process. It has been part of a rather rapid transition for the Swiss from keeping the currency stable both from the standpoint of gold backing, which has been reduced substantially, and from keeping a close price association with the EURO to provide the Eurozone currency with some price stability leverage as it deals with the almost if not certainly impossible task of handling the sovereign debt crises of each member nation. With a swift change in pricing policy of its own sovereign currency, Switzerland has all but guaranteed that the European Central Bank has no alternative but to begin some kind of quantitative easing to prevent ( as much as it can now) the possibility of rising interest rates in a debt ridden continent filled with members in some certain state of massive deficits, some, like Greece, facing insolvency. A decent discussion of the cause and the near-term and perhaps long-term effects of the SNB action, can be found here. It is clear that the Swiss may have to do something else over time, but their interest rates are now at -0.75 percent, and that could cause investors, both domestic and international, to remove funds again ( weakening the currency even more), if it did not un-peg. It is certainly one significant reason you have seen the flight to quality (I use that term rather cautiously in this case) to the U.S. 10-year Treasury Bonds, which is now a positive 2.25%. A great portion of the Eurozone has very low to even negative interest rates (in which YOU, the investor, pay the bank, to hold your cash reserves). Greece has wonderful yields, if, of course, you don’t mind the possibility of not seeing your money again, or as happened recently, a portion of your equity position is taken away to cover the debt load. Japan, under Prime Minister Abe, continue their own brand of buying treasuries to drive yields to zero, as you can see here.
Even though it would appear that U.S. Federal Reserve Chairperson Janet Yellen is beginning to react, late perhaps, to heed the warnings of interest rate hawks on the Federal Open Market Committee (F.O.M.C.), she is still wanting to have the options to maintain interest rates at near zero level on bank deposits. She knows that a stronger dollar will hurt U.S. exports abroad and perhaps foreshadow another U.S. domestic recession if rates rise too quickly. She also knows that the banks that have invested so much cash (as have institutions and hedge funds) in the stock market. She knows that when the value of safer (but with our current debt crisis, but NO means safe) money alternatives will begin to be compared favorably to the variability of earnings in a slowing economy. she cannot allow that golden star of net return to crumble, even though, across nearly 241 years of U.S. equity market history, there has been a major correction in prices in almost cyclical fashion. In the last century, it has averaged about one every 4.5 years. Japan is well into its third decade of a secular bear market. Its population is aging rapidly, and the welfare state, combined with previously higher currency valuations to other world currencies, has made growing its economy virtually impossible. It seems that the entire world wants to provide the illusion that asset values are strong, even though they are compared with the bloated debt of welfare states that has little intrinsic value, once one figures out that the sovereigns to printed that debt paper have little or no ability to pay it back. The United States, in bailing itself and its banks out of insolvency, as a central bank that will not even reveal the degree to which it has bailed out foreign banks and insurance companies. The U.S. banks themselves hold somewhere between $70 trillion and $75 trillions of dollars in derivatives that will also at some point have to be funded as well. We as a planet, hang ourselves on a mountain of debt, and dream that we will be unscathed as we somehow magically unravel from it.
What I think is most insulting domestically here in the U.S., is that our central planners seem to think that our equity market valuations are the only measure of success, not looking at the cold reality of life for the average American citizen and family. This is, by the way folks, true for either party’s bureaucrats, from Ben Bernanke, nominated by a Republican, or Janet Yellen, nominated by a Democrat. In a very recent ZeroHedge article (and don’t cringe out there folks, this post contains quotes ), you get to hear how CEO of the Federal Reserve Bank of St. Louis. Jim Bullard proudly boast that the reflation of assets from Quantitative Easing “works pretty well”. Anyone who looks at the chart just below that quote sees how U.S. employment growth has not kept up the pace with the stock market expansion (and it is in fact, the slowest employment growth in U.S. History outside of the Great Depression). The rate of recovery has been painfully slow, and the job shifts have largely been to low-paying service and administrative work.
Yes, every President since Washington has tried to pump the economy, take credit for or spin favorably every “gain”, and throw others under the bus for any other economic setback. The unelected central planners behind them are no different. What kills me about Bullard’s comments is that he is only looking at one metric, the equity markets, for validation. What he forgets is that only 44% of Americans currently own stocks. What is even worse are two very stark realities:
1) The average American this year is about one paycheck away from the street, literally.
2) At the end of 2013, the average American family net worth DECLINED over 40% since the end of 2007. Look at page 8 of the PDF file in that link. (I will apologize in advance for this, but a U.S. Treasury Department link confirming the same data for 2014 is down at the moment, but I will re-post as soon as I have it.)
I don’t care who the President is or what the political party or agenda is, the U.S, and indeed, the entire world is NOT better off than before the Great Recession hit. We still have 93 million Americans not finding work, a population being forced to accept illegal migrants who will receive benefits that everyone of us will pay for out of higher taxes, and politicians proposing free education at the community college level, even though we have absolutely no way to pay for it. China teeters onto a path of lower growth, and the anger of non-urban citizens who are not participating in the growth of the last 15 years in that economy. We seem to think the central planners have all the answers, yet all they deliver are illusions of wealth to disguise a Himalayan mountain range of unfunded liabilities. I think Milton Friedman was correct when he observed that economic dislocations like the Great Depression, and our current dilemma, were made worse by government intervention. It is time that we let the corrupt and rotten remains of bad policy be rebuilt by people on the ground next to the smoldering wreckage, and not we sways by the Svengalis of spin. Central banks are now boxed in by at least a two dimensional problem of high debt and lack of policy adjustment power. About the only thing we know from history is that great economic dislocations are often followed by wars or massive changes in culture. We have seen capitalist societies commit suicide through the very cronies who sought to buy influence in it. Over the last 20 years, they moved from buying influence in it to buying industry outright, and building a revolving door for the criminals of government and central planning to invent a new hybrid of fascism and capitalism, where influence, not skill, and money, not success is the only measure of quality. The fascists and the statists are now the capitalists, and sadly, now they only listen to themselves talk. There can be no listening to the voter or the taxpayer. They cannot buy influence like their crony friends can.
It is time that people organize once again to establish the economic liberty and ability of movement without burdensome regulation that they now have on their backs like a cancer. Hopefully, this nation and this planet will espouse personal and economic liberty, and take back what is their natural birthright. It is time. It is way past time for this to happen. We need to stop turning Japanese, and start turning on our minds and finding out own way out, not shackled by the criminals of political elitism.