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Tag: Economics

From Slaughter To Wealth To Bankruptcy, by G Squared

Arabia AramcoThe history of Saudi Arabia has been from a state of tribal and family slaughter in 1932, to extreme wealth, to bankruptcy.
Saudi Aramco valued at some $12 trillion is for sale. There are no buyers. The present arrangements with Trump and Goldmans, is to offer 5% through an NYSE IPO for $2 trillion. That delivers a convenient value of $40 trillion.
But it doesn’t stop there. It’s what happens when trust is flung to the winds and the direction of the source and cause of the bankruptcy.
Now $2 trillion will theoretically be raised. But then the organisers (lead banks, managers, brokers, underwriters etc.) have to be paid. So they will receive shares for nothing, and will trade them back into the market to be bought by those screwed for the initial contrived offering.
Then the deal continues. The Saudis get $200 billion at best. Which is 10% of the float of $2 trillion. So if that’s 5% of the value of Saudi Aramco, its theoretical value of $40 trillion becomes $4 trillion. Which is just 30% of the $12 trillion estimated initial value.
But there’s more. Apart from The Saudis being screwed to buy American military junk and worthless American Treasury Bonds.
The first $2 trillion float is tied to positions being taken for $1.8 trillion in four companies. That will not only push those four players well above their real values; but will make further inside trading returns for those already positioned in the four; even further worked down.
These are the position; $526 billion in Apple, $486 billion in Alphabet (Google), $408 billion in Microsoft, and $380 billion in Exxon Mobil.
Saudi Arabia moving from camels to camels within a century; under Anglo-American ‘expert’ guidance.

G Squared

 

Saving Illinois: Getting More Bang for the State’s Bucks

By Ellen Brown

Illinois is teetering on bankruptcy and other states are not far behind, largely due to unfunded pension liabilities; but there are solutions.

The Federal Reserve could do a round of “QE for Munis.” Or the state could turn its sizable pension fund into a self-sustaining public bank.
Illinois is insolvent, unable to pay its bills. According to Moody’s, the state has $15 billion in unpaid bills and $251 billion in unfunded liabilities. Of these, $119 billion are tied to shortfalls in the state’s pension program. On July 6, 2017, for the first time in two years, the state finally passed a budget, after lawmakers overrode the governor’s veto on raising taxes. But they used massive tax hikes to do it — a 32% increase in state income taxes and 33% increase in state corporate taxes — and still Illinois’ new budget generates only $5 billion, not nearly enough to cover its $15 billion deficit.
Adding to its budget woes, the state is being considered by Moody’s for a credit downgrade, which means its borrowing costs could shoot up. Several other states are in nearly as bad shape, with Kentucky, New Jersey, Arizona and Connecticut topping the list. U.S. public pensions are underfunded by at least $1.8 trillion and probably more, according to expert estimates. They are paying out more than they are taking in, and they are falling short on their projected returns. Most funds aim for about a 7.5% return, but they barely made 1.5% last year.
If Illinois were a corporation, it could declare bankruptcy; but states are constitutionally forbidden to take that route. The state could follow the lead of Detroit and cut its public pension funds, but Illinois has a constitutional provision forbidding that as well. It could follow Detroit in privatizing public utilities (notably water), but that would drive consumer utility prices through the roof. And taxes have been raised about as far as the legislature can be pushed to go.
The state cannot meet its budget because the tax base has shrunk. The economy has shrunk and so has the money supply, triggered by the 2008 banking crisis. Jobs were lost, homes were foreclosed on, and businesses and people quit borrowing, either because they were “all borrowed up” and could not go further into debt or, in the case of businesses, because they did not have sufficient customer demand to warrant business expansion. And today, virtually the entire circulating money supply is created when banks make loans When loans are paid down and new loans are not taken out, the money supply shrinks. What to do?
Quantitative Easing for Munis
There is a deep pocket that can fill the hole in the money supply — the Federal Reserve. The Fed had no problem finding the money to bail out the profligate Wall Street banks following the banking crisis, with short-term loans totaling $26 trillion. It also freed up the banks’ balance sheets by buying $1.7 trillion in mortgage-backed securities with its “quantitative easing” tool. The Fed could do something similar for the local governments that were victims of the crisis. One of its dual mandates is to maintain full employment, and we are nowhere near that now, despite some biased figures that omit those who have dropped out of the workforce or have had to take low-paying or part-time jobs.
The case for a “QE-Muni” was made in an October 2012 editorial in The New York Times titled “Getting More Bang for the Fed’s Buck” by Joseph Grundfest et al. The authors said Republicans and Democrats alike have been decrying the failure to stimulate the economy through needed infrastructure improvements, but shrinking tax revenues and limited debt service capacity have tied the hands of state and local governments. They observed:

State and municipal bonds help finance new infrastructure projects like roads and bridges, as well as pay for some government salaries and services.
. . . [E]very Fed dollar spent in the muni market would absorb a larger percentage of outstanding debt and is likely to have a greater effect on reducing the bonds’ interest rates than the same expenditure in the mortgage market.
. . . [L]owering the borrowing costs for states, cities and counties should not only forestall tax increases (which dampen individual spending), but also make it easier for local governments to pay for police officers, firefighters, teachers and infrastructure improvements.rs and infrastructure improvements.

The authors acknowledged that their QE-Muni proposal faced legal hurdles. The Federal Reserve Act prohibits the central bank from purchasing municipal government debt with a maturity of more than six months, and the beneficial effects expected from QE-Muni would require loans of longer duration. But Congress was then trying to avoid the “fiscal cliff,” so all options were on the table. Today the fiscal cliff has come around again, with threats of the debt ceiling dropping on an embattled Congress. It could be time to look at “QE for Munis” again.

Getting More Bang for the Pensioners’ Bucks

Scott Baker, a senior advisor to the Public Banking Institute and economics editor at OpEdNews, has another idea. He argues that the states are far from broke. They may not be able to balance their budgets with taxes, but a search through their Comprehensive Annual Financial Reports (CAFRs) shows that they have massive surplus funds and rainy day funds tucked away around the state, most of them earning minimal returns. (Recall the 1.5% made by the pension funds collectively last year.)
The 2016 CAFR for Illinois shows $94.6 billion in its pension fund alone, and well over $100 billion if other funds are included. To say it is broke is like saying a retired couple with a million dollars in savings is broke because they can earn only 1.5% on their savings and cannot live on $15,000 a year. What they need to do is to spend some of their savings to meet their budget and invest the rest in something safe but more lucrative.
So here is Baker’s idea for Illinois:

Make an iron-clad pledge by law, even in the State Constitution if they can get quick agreement, to provide for pension payouts at the current level and adjusted for inflation in the future.

Liquidate the current pension fund and maybe some of the other liquid funds too to pay off all current debts.

This will leave them with a great credit rating . . . .

Put the remaining tens of billions into a new State Bank, partnering with the beleaguered small and community banks . . . . Use that money to finance state and local businesses and individuals instead of Wall Street schemes and high fund manager fees that will no longer be necessary or advisable, saving the state hundreds of millions a year.
The Public Bank could be built roughly on the model of the hugely successful Bank of North Dakota example, one of the country’s greatest banks, measured by Return on Equity, and scandal-free since its founding in 1919.
The Bank of North Dakota (BND), the nation’s only state-owned bank, has had record profits every year for the last 13 years, with a return on equity in 2016 of 16.6%, twice the national average. Its chief depositor is the state itself, and its mandate is to support the local economy, partnering rather than competing with local banks. Its commercial loans range from 2.4% to 7.5%. The BND makes cheaper loans as well, drawing on loan funds for special programs including infrastructure, startup businesses and affordable housing. Its loan income after deducting allowances for loan losses was $175 million in 2016 on a loan portfolio of $4.7 billion. (2016 BND CAFR, pages 28-29.)That puts the net return on loans at 3.7%.
Illinois could follow North Dakota’s lead. Looking again at the Illinois CAFR (page 45), the amount paid out for pension benefits in 2016 was only $1.833 billion, or less than 2% of the $94.6 billion pool. An Illinois state bank could generate that much in profit, even after paying off the state’s outstanding budget deficit.
Assume Illinois guaranteed its pension payouts, as Baker recommends, then liquidated its pension fund and withdrew $10 billion to meet its current budget shortfall. This would significantly improve its credit rating, allowing it to refinance its long-term debt at a reduced rate. The remaining $85 billion could be put into the state’s own bank, $8 billion as capital and $77 billion as deposits. [See chart below.] At a loan to deposit ratio of 80%, $60 billion could be issued in loans. At a return similar to the BND’s 3.7%, these loans would produce $2.2 billion in interest income. The remaining $17 billion in deposits could be invested in liquid federal securities at 1%, generating an additional $170 million. That would give a net profit of $2.37 billion, enough to cover the $1.8 billion annual pensioners’ payout, with $570 million to spare.
The salubrious result: the pension fund would be self-funding; the state would have a bank that could create credit to support the local economy; the pensioners would have money to spend, increasing demand; the economy would be stimulated, increasing the tax base; and the state would have a good credit rating, allowing it to borrow on the bond market at low interest rates. Better yet, it could borrow from its own bank and pay the interest to itself. The proceeds could then go to its pensioners rather than to bondholders.
Where there is the political will, there is a way. Politicians and central bankers will take radical, game-changing steps in desperate times. We just need to start thinking outside the box, a Wall Street-imposed box that has trapped us in austerity and economic servitude for over a century.

Self-funding of Illinois Pensions
(Image by Ellen Brown)   Permission   Details   DMCA

See Opednews Article for more links and detailed info:

http://Illinois is teetering on bankruptcy and other states are not far behind, largely due to unfunded pension liabilities; but there are solutions.

 

Sovereign Debt Jubilee, Japanese Style, By Ellen Brown

Sovereign Debt Jubilee, Japanese-Style Thursday, June 29, 2017 By Ellen Brown, The Web of Debt Blog | News Analysis

Let’s face it. There is no way the US government is ever going to pay back a $20 trillion federal debt. The taxpayers will just continue to pay interest on it, year after year.

A lot of interest.

If the Federal Reserve raises the fed funds rate to 3.5% and sells its federal securities into the market, as it is proposing to do, by 2026 the projected tab will be $830 billion annually. That’s nearly $1 trillion owed by the taxpayers every year, just for interest.

Personal income taxes are at record highs, ringing in at $550 billion in the first four months of fiscal year 2017, or $1.6 trillion annually. But even at those high levels, handing over $830 billion to bondholders will wipe out over half the annual personal income tax take. Yet what is the alternative?

Japan seems to have found one. While the US government is busy driving up its “sovereign” debt and the interest owed on it, Japan has been canceling its debt at the rate of $720 billion (¥80tn) per year. How? By selling the debt to its own central bank, which returns the interest to the government. While most central banks have ended their quantitative easing programs and are planning to sell their federal securities, the Bank of Japan continues to aggressively buy its government’s debt. An interest-free debt owed to oneself that is rolled over from year to year is effectively void – a debt “jubilee.” As noted by fund manager Eric Lonergan in a February 2017 article:

The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%). BoJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage.

If the Federal Reserve followed the same policy and bought 40% of the US national debt, the Fed would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs.

Eight trillion dollars in money created on a computer screen! Monetarists would be aghast. Surely that would trigger runaway hyperinflation!

But if Japan’s experience is any indication, it wouldn’t. Japan has a record low inflation rate of .02 percent. That’s not 2 percent, the Fed’s target inflation rate, but 1/100th of 2 percent – almost zero. Japan also has an unemployment rate that is at a 22-year low of 2.8%, and the yen was up nearly 6% for the year against the dollar as of April 2017.

Selling the government’s debt to its own central bank has not succeeded in driving up Japanese prices, even though that was the BoJ’s expressed intent. Meanwhile, the economy is doing well. In a February 2017 article in Mother Jones titled “The Enduring Mystery of Japan’s Economy’s Economy,” Kevin Drum notes that over the past two decades, Japan’s gross domestic product per capita has grown steadily and is up by 20 percent. He writes:

It’s true that Japan has suffered through two decades of low growth . . . . [But] despite its persistently low inflation, Japan’s economy is doing fine. Their GDP per working-age adult is actually higher than ours. So why are they growing so much more slowly than we are? It’s just simple demographics . . . Japan is aging fast. Its working-age population peaked in 1997 and has been declining ever since. Fewer workers means a lower GDP even if those workers are as productive as anyone in the world.

Joseph Stiglitz, former chief economist for the World Bank, concurs. In a June 2013 article titled “Japan Is a Model, Not a Cautionary Tale,” he wrote:

Along many dimensions — greater income equality, longer life expectancy, lower unemployment, greater investments in children’s education and health, and even greater productivity relative to the size of the labor force — Japan has done better than the United States.

That is not to say that all is idyllic in Japan. Forty percent of Japanese workers lack secure full-time employment, adequate pensions and health insurance. But the point underscored here is that large-scale digital money-printing by the central bank used to buy back the government’s debt has not inflated prices, the alleged concern preventing other countries from doing it. Quantitative easing simply does not inflate the circulating money supply. In Japan, as in the US, QE is just an asset swap that occurs in the reserve accounts of banks. Government securities are swapped for reserves, which cannot be spent or lent into the consumer economy but can only be lent to other banks or used to buy more government securities.

Debt Japanese

The Bank of Japan is under heavy pressure to join the other central banks and start tightening the money supply, reversing the “accommodations” made after the 2008 banking crisis. But it is holding firm and is forging ahead with its bond-buying program. Reporting on the Bank of Japan’s policy meeting on June 15, 2017, The Financial Times stated that BoJ Governor Kuroda “refused to be drawn on an exit strategy from easy monetary policy, despite growing pressure from politicians, markets and the local media to set one out. He said the BoJ was still far from its 2 per cent inflation goal and the circumstances of a future exit were too uncertain.”

Rather than unwinding their securities purchases, the other central banks might do well to take a lesson from Japan and cancel their own governments’ debts. We have entered a new century and a new millennium. Ancient civilizations celebrated a changing of the guard with widespread debt cancellation. It is time for a twenty-first century jubilee from the crippling debts of governments, which could then work on generating some debt relief for their citizens.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Ellen Brown

Ellen Brown is an attorney, president of the Public Banking Institute and author of 12 books including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her websites are The Web of Debt Blog, Public Bank Solution and Public Banking Institute.

https://www.truth-out.org/news/item/41099-sovereign-debt-jubilee-japanese-style

Italy Commits $19 Billion for Veneto Banks in Largest State Deal

Italy banks fail

  • Government plans to split lenders up into good and bad banks
  • Italian No. 2 lender Intesa Sanpaolo to take over good assets

Italy will commit as much as 17 billion euros ($19 billion) to clean up two failed banks in one of its wealthiest regions in the nation’s biggest rescue on record.

The intervention at Banca Popolare di Vicenza SpA and Veneto Banca SpA includes state support for Intesa Sanpaolo SpA to acquire their good assets for a token amount, Finance Minister Pier Carlo Padoan said Sunday after an emergency cabinet meeting in Rome. Milan-based Intesa can initially tap about 5.2 billion euros to take on some assets without hurting capital ratios, Padoan said. The European Commission said it approved the plan.

The lenders will be split into good and bad banks, and the firms will be open on Monday, Prime Minister Paolo Gentiloni said. Intervention was needed because depositors and savers were at risk, he said. The northern region where they operate “is one of the most important for our economy, above all for small- and medium-size businesses.”

While an additional 12 billion euros will be available to cover potential further losses, Padoan said, the Italian Treasury estimates the fair value of the losses at about 400 million euros. That amount is already included in the funds provided to Intesa.

The government tried for months to find a way to keep the banks afloat, including an appeal to wealthy businessmen in the region to contribute to a rescue. Those efforts ended Friday when the European Central Bank said the two banks are failing or were likely to fail and turned the matter over to the Single Resolution Board in Brussels for disposal. The SRB, in turn, passed the issue back to Italian authorities to allow the banks to be wound down under local law.

Since the ECB’s decision Friday, Italy rushed to assemble the measures to carry out the plan because a local regulatory framework was required to allow the banks to open Monday. The deal crafted over the weekend is in line with the bloc’s state-aid rules. Shareholders of the two banks as well as holders of subordinated debt “fully contributed” to the plan, limiting costs of the Italian state, EU Competition Commissioner Margrethe Vestager said in a statement.

READ THE REST:

https://www.bloomberg.com/news/articles/2017-06-25/italy-mobilizes-up-to-19-billion-to-keep-veneto-banks-afloat

Image result for Italy aid to banks 19 billion

SEE ALSO:

Italy may spend billions to shut two failing banks

By

DeborahBall

ROME — Italian authorities said Sunday they were prepared to spend as much as EUR17 billion ($19 billion) as part of the shutdown of two regional banks, in a deal that will transfer the lenders’ best assets to Intesa Sanpaolo SpA for a nominal sum.

Veneto Banca and Banca Popolare di Vicenza, are midsize lenders in the Veneto, Italy’s prosperous north east. Both have been flailing for several years despite efforts to shore up their capital and restore their health.

On Friday evening, the European Central Bank declared that the pair were set to fail, having “repeatedly breached supervisory capital requirements.”

That set the stage for the government intervention over the weekend, which will involve splitting Veneto Banca and Banca Popolare di Vicenza into good and bad assets.

The government passed a decree Sunday that will effectively sell the good part of the two banks to Intesa, Italy’s second-largest and best-capitalized bank. Intesa said last week that it would be willing to buy the best assets for a token price of EUR1 as long as the government assumed responsibility for liquidating the banks’ large portfolio of sour loans.

The EUR17 billion includes the cost of Rome’s responsibility for the bad loans, along with items such as covering legal exposure, restructuring of the remaining bank and paying for the expense of personnel issues associated with splitting the two banks into a good one and a bad one.

MORE:

https://www.marketwatch.com/story/italy-may-spend-billions-to-shut-two-failing-banks-2017-06-25

Dear Mr. President, Be Careful What You Wish for: Higher Interest Rates Will Kill the Recovery

Albeit a bit sophisticated, this article clearly illustrates the predictable, and in fact inevitable results inherent in a monetary system co-managed by the conflicting interests of Federal Government and not-federal-except-in-name Federal Reserve (Central Bank).

Federal ReserveHigher interest rates will triple the interest on the federal debt to $830 billion annually by 2026, will hurt workers and young voters, and could bankrupt over 20% of US corporations, according to the IMF. The move is not necessary to counteract inflation and shows that the Fed is operating from the wrong model.

Responding to earlier presidential pressure, the Federal Reserve is expected to raise interest rates this week for the third time since November, from a fed funds target of 1% to 1.25%.  But as noted in The Guardian in a March 2017 article titled “Trump Is Set to Win the Battle on Interest Rates, but US Economy Will Pay the Price”:

An increase in the base rate, however small, will tighten the screw on younger voters and some of the poorest communities who voted for him and rely on credit to get by.

More importantly for his economic programme, higher interest rates in the US will act like a honeypot for foreign investors . . . . [S]ucking in foreign cash has a price and that is an expensive dollar and worsening trade balance. . . . It might undermine his call for the repatriation of factories to the rust-belt states if goods cost 10% or 20% more to export.

In its Global Financial Stability report in April, the International Monetary Fund issued another dire warning: projected interest rises could throw 22% of US corporations into default. As noted on Zero Hedge the same month, “perhaps it was this that Gary Cohn explained to Donald Trump ahead of the president’s recent interview with the WSJ in which he admitted that he suddenly prefers lower interest costs.”

But the Fed was undeterred and is going full steam ahead. Besides raising the fed funds rate to a target of 3.5% by 2020, it is planning to unwind its massive federal securities holdings beginning as early as September. Raising interest rates benefits financial institutions, due to a rise in interest on their excess reserves and net interest margins (the difference between what they charge and what they pay to depositors). But borrowing costs for everyone else will go up (rates on student loans are being raised in July), and the hardest hit will be the federal government itself. According to a report by Deloitte University Press republished in the Wall Street Journal in September 2016, the government’s interest bill is expected to triple, from $255 billion in 2016 to $830 billion in 2026.

The Fed returns the interest it receives to the Treasury after deducting its costs. That means that if, rather than dumping its federal securities onto the market, it were to use its quantitative easing tool to move the whole federal debt onto its own balance sheet, the government could save $830 billion in interest annually – nearly enough to fund the president’s trillion dollar infrastructure plan every year, without raising taxes or privatizing public assets.

That is not a pie-in-the-sky idea. Japan is actually doing it, without triggering inflation. As noted by fund manager Eric Lonergan in a February 2017 article, “The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%).” Forty percent of the US national debt would be $8 trillion, three times the amount of federal securities the Fed holds now as a result of quantitative easing. Yet the Bank of Japan, which is actually trying to generate some inflation, cannot get the CPI above 0.2 percent.

The Hazards of Operating on the Wrong Model

President interestThe Deloitte report asks:

Since the anticipated impact of higher interest rates is slower growth, the question becomes: why would the Fed purposely act to slow the economy? We see at least two reasons. First, the Fed needs to raise rates so that it has room to lower them when the next recession occurs. And second, by acting early, the Fed likely hopes to choke off inflationary pressure before it starts to build.

Rates need to be raised so that the recession this policy will trigger can be corrected by lowering them again – really? And what inflation? The Consumer Price Index has not even hit the Fed’s 2% target rate. Historically, when interest rates have been raised in periods of tepid growth, the result has been to trigger a recession. So why raise them? As observed in a June 2 editorial in The Financial Times titled “The Needless Urge for Higher Borrowing Costs”:

In this context, the apparent determination of the Fed in particular to press on with interest rate rises looks a little peculiar. Having created expectations that it was likely to tighten policy with three quarter-point increases over the course of 2017, the Fed is acting more like a party to a contract that feels the need to honour its terms, than a central bank that takes the data as it finds them. [Emphasis added.]

In the six months since President Trump was elected, the Fed has pressed on with two rate hikes and is proceeding with a third, evidently just because it said it would.  Impatient bond investors are complaining that it has found one excuse after another to postpone the “normalization” it promised when market conditions “stabilized;” and in his presidential campaign, Donald Trump attacked Janet Yellen personally for keeping rates low, putting her career in jeopardy. She has now gotten with the program, evidently to restore the Fed’s waning credibility and save her job. But the question is, why did the Fed promise these normalization measures in the first place? As then-Chairman Ben Bernanke explained its “exit strategy” in 2009:

At some point, . . . as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. . . . [B]anks currently hold large amounts of excess reserves at the Federal Reserve. As the economy recovers, banks could find it profitable to be more aggressive in lending out their reserves, which in turn would produce faster growth in broader money and credit measures and, ultimately, lead to inflation pressures.

The Fed evidently believes that the central bank needs to tighten monetary policy (raise interest rates and sell its bond holdings back into the market) because the massive “excess reserves” held by the banks (currently ringing in at $2.2 trillion) will otherwise be lent into the economy, expanding the money supply and triggering hyperinflation. Which, as David Stockman puts it, shows just how clueless even the world’s most powerful central bankers can be in matters of banking and finance . . . .

Banks Don’t Lend Their Reserves

There need be no fear that banks will dump their excess reserves into the market and create “inflation pressures,” because banks don’t lend their reserves to their commercial borrowers. They don’t because they can’t. The only thing that can be done with money in a bank’s reserve account is to clear checks or lend reserves to another bank. Reserves never leave the reserve system, which is simply a clearing mechanism set up by the central bank to facilitate trade among banks. Technically, dollars leave the system when a depositor pulls money out of the bank in cash; but as soon the money is spent and redeposited, these Federal Reserve Notes go back into the banking system and again become reserves.

Not only do banks not lend their reserves commercially, but they do not lend their deposits. Banks create deposits when they make loans. As researchers at the Bank of England have acknowledged, 97 percent of the UK money supply is created in this way; and US figures are similar. Banks do not need reserves or deposits to make loans; and since they are now flooded with reserves, they have little incentive to pay interest on the deposits of “savers.” If they do not have sufficient incoming deposits at the end of the business day to balance their outgoing checks, they can borrow overnight in the fed funds market, where banks lend reserves to each other.

At least they used to do this. But since the Fed began paying Interest on Excess Reserves (IOER) in 2008, they have largely quit lending their reserves to each other. They are just pocketing the IOER. If they need funds, they can borrow more cheaply from the shadow banking system – the Federal Home Loan Banks (which are not eligible for IOER) or the repo market.

So why is the Fed paying interest on excess reserves? Because with the system awash in $2.2 trillion in reserves, it can no longer manipulate its target fed funds rate by making reserves more scarce, pushing up their price. So now the Fed raises the fed funds rate by raising the interest it pays on reserves, setting a floor on the rate at which banks are willing to lend to each other – since why lend for less when you can get 1.25% from the Fed?

That is the theory, but the practical effect has been to kill the fed funds market. The Fed has therefore implemented a new policy tool: it is “selling” (actually lending) its securities short-term in the “reverse repo” market. The effect is to drive up the banks’ cost of borrowing in that market; and when this cost is passed on to commercial borrowers, market rates are driven up.

Meanwhile,  the Fed is paying 1% (soon to be 1.25%) on $2.2 trillion in excess reserves. At 1%, that works out to $22 billion annually. At 1.25%, it’s $27.5 billion; and at 3.5% by 2020, it will be $77 billion, most of it going to Wall Street megabanks. This tab is ultimately picked up by the taxpayers, since the Fed returns its profits to the government after deducting its costs, and IOER is included in its costs. Among other possibilities, an extra $22 billion annually accruing to the federal government would be enough to end homelessness in the United States. Instead, it has become welfare for those Wall Street banks that largely own the New York Fed, the largest and most powerful of the twelve branches of the Federal Reserve.

Paying IOER is totally unnecessary to prevent inflation, as evidenced again by the case of Japan, where the Bank of Japan is actually trying to fan inflation and is now charging banks 0.1% rather than paying them on their excess reserves. Yet the inflation rate refuses to rise above 0.2%.  

Banks cannot lend their reserves commercially and do not need to be induced not to lend them. The Fed’s decision to raise rates by increasing IOER just increases public and private sector borrowing costs, slows the economy, threatens to bankrupt businesses and consumers, and gives another massive subsidy to Wall Street.

____________________

Ellen Brown is an attorney, founder of the Public Banking Institute, a Senior Fellow of the Democracy Collaborative, and author of twelve books including Web of Debt and The Public Bank Solution. She co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

Wall Street tumbles as reform hopes fade with Trump crisis

From Reuters News Agency:

By Sinead Carew

The S&P 500 and the Dow notched their biggest one-day fall since Sept. 9 as investor hopes for tax cuts and other pro-business policies faded after reports that U.S. President Donald Trump tried to interfere with a federal investigation set off alarm bells on Wall Street.

Former FBI chief James Comey said in a memo that Trump had asked him to end a probe into former National Security Adviser Michael Flynn’s ties with Russia, the reports said.

That was only the latest worry in a tumultuous week at the White House after Trump unexpectedly fired Comey and reportedly disclosed classified information to Russia’s foreign minister about a planned Islamic State operation.

The developments intensified doubts that Trump would be able to follow through on his promises for tax cuts, deregulation and fiscal stimulus. Those pledges had helped fuel a record-setting post-election rally on Wall Street.

Selling accelerated late in the afternoon of one of the busiest trading days in months and the three major indexes ended near session lows.

“We’ve seen the Trump agenda derailed and try to get back on track several times. It’s registering with more investors that its going to be hard to get back on track with the latest allegations,” Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 12, 2017. REUTERS/Brendan McDermid

“Prior to the election investors expected Trump to represent uncertainty,” he said. “The market is now recognizing that some of the fears they had back in October are coming to fruition.”

Both the Dow and S&P 500 fell below their 50-day moving average for first time since late April. The S&P began the session 0.74 percent lower, the largest gap down since March 30, 2009, when it opened trading with a 0.84 percent drop.

The Dow Jones Industrial Average .DJI fell 372.82 points, or 1.78 percent, to 20,606.93, the S&P 500 .SPX lost 43.64 points, or 1.82 percent, to 2,357.03 and the Nasdaq Composite .IXIC dropped 158.63 points, or 2.57 percent, to 6,011.24.

The VIX .VIX, Wall Street’s “fear gauge”, shot up to 15.34, its highest level since April 18.

Nasdaq had its steepest one-day loss since June 24, after Britain voted to exit the European Union, as did S&P’s financial .SPSY and technology .SPLRCT sectors. The financial sector closed down 3 percent while the technology sector fell 2.8 percent.

The S&P bank sub-sector .SPXBK dropped 4 percent, led by a 5.9 percent decline in Bank of America (BAC.N) shares and a 3.8 percent loss for JPMorgan (JPM.N).

“The bull market is not over by any means, but between the political stuff and the fact that the next earnings season is three months away, there’s going to be a lack of motivation,” said Donald Selkin, chief market strategist at Newbridge Securities in New York.

Nine of the 11 major S&P 500 sectors fell with the only gain from utilities .SPLRCU and real estate .SPLRCR, defensive sectors with predictable if slow growth and high dividends.

Declining issues outnumbered advancing ones on the NYSE by a 3.92-to-1 ratio; on Nasdaq, a 5.64-to-1 ratio favored decliners.

The S&P 500 posted 11 new 52-week highs and 19 new lows; the Nasdaq Composite recorded 28 new highs and 93 new lows.

About 8.37 billion shares changed hands on U.S. exchanges in the busiest trading day since March 21, compared with the 6.9 billion-share average for the last 20 sessions.

(Additional reporting by Yashaswini Swamynathan in Bengaluru, Chuck Mikolajczak in New York, Noel Randewich in San Francisco; Editing by Saumyadeb Chakrabarty and Meredith Mazzilli)

https://www.reuters.com/article/us-usa-stocks-idUSKCN18D1E0

 

Short Term Memories, By G Squared

Image result for peanut galleryThe Peanut Galleries refuse to learn that 10 minutes of nonsense waffled by The Institution of TV News, does not make them fully informed about anything. The absurdity is, they want to argue their inculcated ignorance as a valid perspective, in contradiction to reality.

The Liberals and Progressives rely on the short term memory of their followers, and those swept by transient deceptions.

The reality of hypocritical and duplicitous narratives are hardly obvious to them. The Comey Affair is one recent example.

Yates, Lynch, Flynn, Clapper, and Brennan were last Month’s fashion statements.

Comey was great when running the fictional Trump Russian Collusion and Electoral Hack Affair. Bad news when investigating Hillary. A great fellow when he couldn’t find evidence on Hillary. Evil when he reopened The Hillary Affair. Great when he dumped it again. And when he gets shafted, the last narrative was “Hillary is great and Trump is no good”. Therefore Comey is great and Trump is wrong again.

Hoover was Diector of The BOI from 1924 to 1935, then Director of its rebadging to The FBI from 1935 to 1972 (48 years of relentless blackmailing of 8 presidents, and anyone he felt was a suitable target).

He began falling apart with The Valachi Affair of 1963. He had the files on everyone. The Mafia only had one file: Hoover’s. Up to that time Hoover denied the existence of The Mafia. The empowerment of The Mafia by the madness of Prohibition.

LBJ was blackmailed by various murders and his having raped his grandmother at age 14 (Kinsey file). So he naturally appoints Hoover to be FBI Director for life.

After The Hoover Affair, the FBI Director was appointed on a ten year contract at The President’s Pleasure. He could be asked to leave office by The President, at any time, without any requirement to state why.

A little point conveniently forgotten in the Dems MSM rants concerning their on again off again love affair with Comey. Dutifully sucked in by the herds. The hypocrisy of The Dem MSM vacillations running from May 2016 to the present.

Trump leaked that he has Comey on tape from Jan. 2017. To be released if he lies again in the upcoming Senate Intelligence Committee Hearings.

Comey is involved in the admitted fiction of The Russian Collusion and Hack Affair and the real Hillary Affair concerning all the allied; yet to be revealed; matters concerning Hillary pretending to be Secretary of State under Sidney Blumenthal.

Comey, as I have written, was involved in every Clinton Affair from the Iran-Contra activities through Adams Field Airport, when Billy Boy was Arkansas Attorney General, through Whitewater to the present.

Trump didn’t sack Comey to prevent him investigating the fictitious Russian Affair, he kept him on to allow him to go nowhere with the stupidity. As he did.


The very reasons almost all of America voted for The Trump GOP was that they wanted America restored to its Constitution, whether or not that was specifically understood.

Most of real America had suffered under the insane socio-economic engineering agendas from Clinton and Obama. Albeit The GFC Affair came at the end of The GWB Presidency. His administration was preoccupied with war mongering and aloof to the real world and what was being perpetrated on The People of America.

America continued at war with the world, while domestically it destroyed its Health, Education, and Welfare Systems.

Americans were robbed of their homes, their jobs, and their future. While government officials and the bankers who robbed them, sported amounts of money, the damaged will never know.

In November 1999. Bill Clinton announced that The Glass-Steagall Act was “dead”. Citibank merged with Salomon Smith Barney. Bear Stearns, Merrill Lynch, AIG, IndyMac, and Lehmans were waiting to happen in 2007-8. The Gramm-Leach-Bliley Act was too little too late.

The insanity of Intellectualised Social-Engineering became the dominant narrative of America.

The anti-Trump noise began with media and celebrity mouths advising the world that their instructions were not obeyed. An absurdity that is drowning itself. but not fast enough.

Then we suffered the inanity of sacked public servants refusing to leave office. Then there were objections to Executive Orders on the basis of idiotic junk interpretations of law. Then local authorities were refusing to obey federal laws concerning the harbouring of tens of millions of illegal immigrants, causing hundreds of billions of dollars in socio-economic damage to the nation.

The Judiciary Branch strayed wildly off rational course; as individuals wanted to pin their dysfunctionality in accord to their personal ideological obtuseness.

The incessant ventilations of every aspect of why The Trump GOP was stamped into Executive and Legislative Office. Confirming. over and over, the very reasons and the delusional disengagements from reality that drove the prior America, ad nauseam.

American intel is a world unto itself. Its deeply entreched flaws were displayed by the current Syrian, Afghani, and North Korean Affairs.

I have written how America had no knowledge of the very obvious Russian infrastructure investments and commercial dealings through North Korea. Russia owns North Korea and has built heavy rail freight lines and oil and gas pipelines to The 38th. Parallel North border. In preparation for the unification. And recently confirmed by the new South Korean President.

I have written that America trying to ingratiate itself to a belated invitation to that trading table will fall on deaf ears, unless America is prepared to pay heavily for its prior and recent behaviour in the region.

American MSM has now announced that North Korea wants to enter negotiations with America. Not true. It’s a step back from the insane Amada Affair by America. Not as a consequence of its fiction. All to placate The Peanut Galleries.

North Korea has no business to discuss with America. And America has no business with North Korea. Allegedly protecting South Korea and Japan, America has no business in the region. The American China Policy after WWII, The Korean and Vietnam Wars, its incessant attempts to block sea lanes in the region, and its incessant attempts at surveillance, have excluded America.

America’s interests concerning Australia were clearly demonstrated by The East Timor and West Papua Affairs. The slaughters concerning the latter, are still occurring.

America has 35 bases fixed in Australia, an unknown submarine base below North West Cape (Station Harold E.Holt), and mining and oil self-serving interests. It sells junk war mongering hardware, and uses Australia and New Zealand as cohorts in alleged multinational forces.

Apart from selling Australia by absurd treaties, food it does not need nor want, and ridiculous forced GM technologies, the insanity of America wanting to control the world’s food chains. Apart from the massive environmental destruction yet to be realised by fracking and in situ leaching of uranium. And of course the essential economic slavery.

America does not mesh with SIS. Since the beginning of The Cold War era, American intel has taken its own path. It has notoriously been wrong. In a disservice to its nation, it has too often taken the path of supplying intel to match political and ideological paths.

SIS correctly steered The British Cabinet during WWII. In contradiction to the paths determined by those cabinets. The West needed Russia to defeat Germany. American intel supporting the dysfunctionality of ideology as a foreign enemy, gave the longterm result that it has.

At an unknown budget of over two billion dollars per week (Congessional Appropriations are not the true operational costs), America deserves more than it is receiving. The seventeen main intel branches in America are too many and at least not confined within rational parameters.

Power Maximising and the rationale of allied mutations, deliver the institutionalised cultures that America suffers today.

It is absurd that government functionaries are able to weaponise through mass media; any disruption or absurdity tractioned as valid for herd manipulation.

American mass media has proven itself incapable of delivering truth and rigorous assessment. And certainly American Government ‘Communication’ deliver neither.

Lies built on lies deliver belief systems of mush. The American education system, from pre-school to tertiary, tutors a regurgitative inability to rationalise critical thought. The journey is irreversible.

Policies evolve based on absurd foundations. At least one generation is totally lost. Was this the intent of the foundation of the great American Republic.

America evolved a malignancy that has spread to every nation foolish enough to surrender their ideological sovereignty and independence, to the insane dictates of contemporary America. The socio-economic damage is real, enduring, and obstinant to move.

When America is reformed, reality will lateralise. Being a two generational endurance, if that span is hindered, the reconstruction falters to its beginning.

There are many challenges. The foundations are intellectualised, obtuse ideologies, concocted and enhanced ‘enemies’, and an inculcated self-belief beyond any rational substance.

The UK destroyed itself in Western Europe in 1914, and The US destroyed itself in Eastern Europe in 2014.

The journey for Britain has been long and painful. That for America will be worse.

To rectify wrongs, it’s first necessary to recognise that there are diversions. America is not yet able to function that introspection. America is right, and all else are wrong.

Its Foreign Policy is an obstinant, militarist idiocy driven by absurd institutionalised intel. An addiction that has destroyed its domestic economy either directly, or by lack of focus on infiltrated treachery.

Floating Policy based on directed or diverted populist attention, is absurd. Weaponised mass media is absurd. None of this is the substance of a sound First World nation state, or the respect of the individual’s right to know. The People are fed nonsense and expected to believe it; in accord to their lifelong tutoring and acceptance of what to think, rather than how to think.

America became a nation lost. And those who followed are now floating free in a void, not of their intended making, and with no chartered course of socio-economic survival.

Beyond the constraints of domestic hyperinflation; America floated an international currency that is baseless and valueless. It is invalidly quoted on manipulated markets as having a rational exchange value against legitimate currencies. It’s representative ‘value’ or exchangeability for goods and services, is based on tutored perception. And the belief that someone else will take those dollars from you.

Precious metals are commodities and cannot be a functioning medium of exchange. Irrespective of the perceptions of intrinsic value. They can be a store of value, but never a general medium of exchange.

Government bonds are based on the issuing government honouring its promise to pay. America defaulted on France in 1972. A currency is based on the belief system of the person to whom those tokens or promissory notes are tendered for value. Can the accepting party equally exchange them for value. Apart from the notions of soaking assets and any floating currency, in an economy.

The American Dollar is worthless paper, valued by the belief system of another party prepared to exchange it. In America, those promissory notes are issued by banks in the privately owned Federal Reserve System. In The UK, banks also issue their floating promissory notes. Read what is written on them. The only guarantee is that they are worthless; but a legislated medium of exchange.

The world is driven by trade and economics. Not by wars, threats of wars, concocted enemy focusses, or manipulations of belief systems.

There are no National Security Interests or an essential to police all others. There are no threats beyond those caused or invented.

The People of a nation state expect sound government that protects them, and what they create, by hard effort. Not incessant fabrications and diversions that destroy their lives, present and future.

Governments are regarded as the true enemies of their people. With taxes becoming a forced extortion to feed government. Not some moral obligation by a citizenry. The filing of returns is the full data of the commercial life of an economy. Not merely the audit of what is paid.

How did governments as American and Australian function before the deceptions of federal taxation.


Image result for citibank

The American Government on 23/11/2008, announced it had lent Citi $25 billion to add to a previous $20 billion and the guarantee of a further $386 billion for its exposures.

Citi promising to pay the first $29 billion of the guarantee, then announced it had repaid the loans. The $386 billion was effectively a government guarantee for Citi, which it used accordingly.

Obama was politically trapped into the bad management of a bad situation. Even though the government was issued shares in Citi in compensation and eventually made a profit on the sales. The issue of shares cost nothing to Citi. And the ‘profit’ was paid by other parties buying the shares in the manipulated market.

In 2009, Obama, on advice from The Treasury, began ordering Citi to divide into a number of smaller entities. Citi ignored the matter and advised that the division was not possible and Obama could not support the authority he was posturing.

In 2008 Citi was under protection and partly nationalised. It moved itself out of that position with a $10 billion ‘profit’ in 2010. Albeit it was technically insolvent, and the government loans and guarantees allowed the different projection.

The history of Citi (owned with Chase by The Rockefellers, who are also stakeholders in The Federal Reserve System); is the parallel of all that has gone wrong.

In 1919, the ‘Citi’ of its day declared a very conservative $1 billion in assets. Subsequently Chester Glass was to advise that, Citi under Mitchell was a major orchestrator of The 1929 Collapse in America. Some number of years ago I wrote the lengthy history of how that massive 1929 fraud had occurred, and who the characters were.

The manipulation had been test run in London on two previous occassions. It was well signalled.

The Rockefellers learnt from The Rothschilds, and financed wars, including The American Civil War of 1861-1865. The American War of Independence was about The British Pound.

During and after WWII in America, Citi controlled the $5.6 billion War and Victory Loan Drives. Very little reached where the people believed it would.

In 1998, Citi was implicated in The Salinas Money Laundering Affair.

In Dec. 2002, Citi was fined $400 million for deceiving investors with biased research.

On 2/8/2004, Citi dumped €11 billion in bonds, collapsing The European Bond Markets. It then bought back all the securities at a fraction of the price.

In June 2006, Richard Bowen, Citi Vice President advised the board that Citi was trading $90 billion a year in mortgages, and 60% were defective. In contradiction of The Sarbanes-Oxley Act, the information was hidden by the board.

In 2007, Citi was implicated in The Terra Securities Affair.

In 2008 Citi was heavily involved in The Sub-Prime Mortgage Fraud.

In Aug. 2008, Citi paid $18 million in refunds and fines for ‘Computer Sweeping’ over 53,000 accounts between 1992 and 2003.

Following The Sub-Prime Collapse, Citi used government bailout funds to pay 1,034 employees bonuses of between $1 million and $10 million each.

In 2009 legislation was enacted to prevent a recurrence.

On 19/10/2011, Citi paid $285 million in a civil fraud settlement; for selling known high risk mortgage packages, then playing the markets against what they had sold the investors.

In 2013, Citi was ‘The Global Bank of The Year’, according to ‘The Banker’. And in 2015, ‘Best Global Bank’ according to ‘Euromoney’.

In Sept. 2015, Citi paid $770 million for illegal and misrepresented transaction fees and costs, concerning some seven million credit card holders.

In Jan. 2017, Citi was fined $25 million for manipulating US Treasury Futures over 2,500 times between July 2011 and Dec. 2012.

On 20/3/2017 looted Russian State Assets (renamed KGB funds) were located in Citi accounts. The funds looted from Ukraine were flown to The New York Federal Reserve in 2014.

Through a long history of developing and floating cards, Citi and its minor playmates own Mastercard. Similarly it owns internet banking.

The International Payments Systems including Chaps and Swift are owned and controlled by the usual suspects. As are The Federal Reserve System and The West’s Clearing Houses and Central Banks.

Brics is a breakaway from the international American financial monopoly, which America began using as an economic blackmail tool during The Obama Era.

Russia, China, India, Brazil, and South Africa, will be joined by South Korea, Mexico, and Turkey in the trading bloc, and international payments system, to isolate America and prevent future economic blackmails.

The 9th. Meeting of Brics will be in Xiamen on Sept.3-5, 2017. Russia and China remain as pivotal members of G-20, despite the propaganda of America excluding Russia from G-8. There are groupings based on trading interests of G-4, G-5, G-6, G-7, G-20, and G-30.

Credit cards exist for purposes of financial enslavement, for those who pay as the good little trapped that they are. Deeply concerned about their fictional Credit Rating. And if they can, they keep borrowing more and more, to pay for the absurdities of their silly little socially entrapped lives.

Those who believe that increased returns are higher than the inflation manipulated against them. Those who believe that franking, negative gearing, and even foreign currency loans, will save them from bracket creep.

In Australia they were The Pitt Street Farmers And The Superphosphate Bounty Recipients of a past era.

If you borrow, you lose. If you use your own, you can’t be blackmailed. If you want the mortgage (you buy the right to pay rates and taxes), pay it off as quickly as possible. Apart from your home maybe, If owning it was smart you would be only buying 100 year leases.

Some theories are cuter than others.


Image result for putin nwo

The Global Laundromat Affair or The Moldova Scheme, is as interesting as The Golden Lilly or Black Eagle Affair.

When Vladimir Putin, backed by The KGB and The Russian Orthodox Church, began taking control of Russia in 1998, it eventually became clear that there would be major changes. The Oligarchs were ousted and their assets confiscated. The control of Russia’s natural resources and media were returned to the state. There were no exceptions.

Before Putin could seal the doors, some $100 billion was looted from the Russian banking system through an elaborate and complex scheme, mainly between 2004 and 2008.

Putin’s cousin Igor Putin was involved. Which is how Western MSM conveniently spun the narrative to include Vladimir Putin. But Igor had actually exposed the affair in 2010, when first employed at Master Bank. He is currently a director of Master Bank and Avtovaz Bank.

Veaceslav Platon (code named ‘Rider 1’); was on the boards of Mondindcon Bank and Investprivat Bank in Moldova. On 20/4/2017, he was sentenced to 18 years in prison.

Russian authorities have raided Master (Mactep) Bank; Boris Bulochnik, Meri Tevanyan, and Yevgeny Rogachev; are to be charged as at 14/5/2017. Further actions are expected.

Fictitious loans were drafted concerning banks in Moldova and borrowers in Russia. The borrowers allegedly defaulted, and bought judges in Moldova acted accordingly.

The journey was through Master Bank in Russia through Chadborg Trade and Tronlux Ventures to Mondindcon Bank and Investprivat Bank in Moldova, and their correspondent banks in Latvia.

The funds were broken into parcels. One journey of some $20 billion was through banks in The UK, Cyprus and New Zealand.

The banks involved were Deutsche, Standard Chartered, Barclays, HSBC, Royal Bank of Scotland (and its subsidiaries NatWest and Coutts (The Royal Family’s bank)), J.P.Morgan, and Wells Fargo.

The European funds landed in Zurich and Scotland. Seabon managed the UK operatons, through Birmingham and London.

A few years ago I was the first to advise that The Australian Reserve Bank through its note printing branch, Securency International, was forging foreign currencies. The thrust concerned currencies to affect the economies of Asian countries including Indonesia.

Following raids in Canberra and some activity about London, Peter Chapman of Securency is currently in Wandsworth. All and sundry did a deal and pointed at poor old Peter.

The affair became “Chapman under stress to secure sales for polymer notes”: he being a big tipper for London cabs; he paying bribes to The Nigerian Mint for sales; something about bribes to Saddam Hussein; a Seychelles company called Swingaxle; and a Canadian company supplying ‘janitorial and general contracting services’ and ‘consultancy invoices’.

Nothing  to do with forging Asian Currencies for Asian Tigers Collapse Mark II, the sequel to early 1997. And no Intel agencies were involved in the courts in London.

—————————————————————————

Expect more clearances at 1600 Pennsylvania Avenue. Sean Spicer was so well represented by Sarah Sanders, that he could be floating for a real job. With Kimberly Guilfoyle brought in as deputy to Sarah Sanders.

They are definately not the comedy theatre that became The State Press Room with Jennifer Psaki and Marie Harf, under Victoria Nuland (Nudelman, Kagan), and John Kerry.

Reince Priebus (Chief of Staff) and Michael Dubke (Communications Director), also need a rethink.Steven Bannon and Jared Kushner need to pocket their egos.

Rod Rosenstein will brief the full Senate. Chucky Schumer Senate Dem. Minority Leader, needs to stop screeching ‘Bitch’ to everyone with whom he momentarily disagrees. It’s beginning to make the few remaining Democratic frontline Progressives and Liberals, look somewhat even more deranged. Their ever changing hypocritical narrative should be enough.

The Comey Tapes are interesting. If James keeps lying, out they will be popped. The President is not under any legislation, state or federal, concerning taping. The Obama Affair has slight variations using CIA and NSA. But he has not been pursued.

Those unsuitable for Comey’s job are currently making themselves known.

Scott Pruitt (Administrator of The EPA), has backed away from the Obama led obstruction of The Bristol Bay mining operations. The protect the salmon population is as cute as the ill-informed eco-warriors who caused the ecological devastation that arose from The Fur Seal Affair.

Flushing a dam in a Schwarzenegger drought riddled California to save some 20 trout, or preferring oil train derailments, fires and deaths to a non-existent leak of crude into the artesian system are also classic.


Text by G Squared, Edited by Martin H.

 

Bombs Drop; Stocks Fall

Boom! Here’s the economic fallout from  the “fallout-less” bomb!

EXPLOSION FOAB russia

CNBC

Stocks fell Thursday after the U.S. dropped “the mother of all bombs” in Afghanistan while bank stocks dropped despite strong earnings from JPMorgan Chase and Citigroup.

The U.S. used a GBU-43 bomb on a cave complex believed to have ISIS fighters, according to the Associated Press. The bomb had ever been used in combat, according to Adam Stump, the Pentagon spokesman.

Goldman Sachs Group Inc

GSPRA

23.54
+0.17
+0.73%
FactSet Research Systems Inc

FDS

157.92
-1.28
-0.80%
Citigroup Inc

C

58.04
-0.47
-0.80%
Wells Fargo & Co

WFC

51.35
-1.77
-3.33%

Stocks extended losses shortly after news of the bombing broke. The Dow fell 100 points, with Chevron and Goldman Sachs contributing the most losses, before recovering to trade about 60 points lower. The S&P 500 was down 0.3 percent after falling nearly 0.5 percent, with energy and financials leading decliners. The Nasdaq was down by 0.1 percent, also off its lows.

“People are nervous in front of the long weekend,” said Art Cashin, the director of NYSE floor operations for UBS. “I would give that about a quarter of the move. The rest of its worries about the financials.” The U.S. stock market is closed Friday due to a holiday.

The Financials Select Sector SPDR Fund ETF gave back initial gains to trade nearly 1 percent lower. The ETF has also fallen more than 2 percent this week and gave up its gain for the year on Wednesday.

“It’s a market in search of a catalyst that hasn’t found one yet to fully justify this fast move higher,” said Mark Luschini, a chief investment strategist at Janney Montgomery Scott. “I think the market has no reason to buy, rather than having a reason to sell.”

The Dow fell 68 points, with Chevron and Exxon Mobil contributing the most losses. The S&P 500 was off by 0.3 percent, with energy and financials leading decliners. The Nasdaq slipped 0.15 percent.

So-called risk-off trades have been in vogue this week, with gold, Treasurys and the Japanese yen were all tracking for gains. The three major U.S. indexes, meanwhile, were on pace to end the week slightly lower.

Traders grew nervous this week as overseas tensions between the U.S. and Russia heated up as State Secretary Rex Tillerson flew to Moscow to meet his Russian counterpart, Sergey Lavrov.

Also, Wall Street grew jittery as it gauged where the Trump administration’s priorities were. On Wednesday, President Donald Trump told Fox Business he wanted to repeal and replace Obamacare before moving on to tax reform.

Trump told the Wall Street Journal later on Wednesday he thought the dollar was getting “too strong.” The comment sent the dollar index to its lowest level of the month against a basket of currencies; it last traded 0.4 percent lower at 100.38.

“I’m a proponent of neither a strong nor weak currency but a stable one and believe that we should be careful here in hoping for a weak currency (or just not a strong one which I get) Mr. President,” said Peter Boockvar, a chief market analyst at The Lindsey Group, in a note.

“Just look at the experience of Japan where consumer spending remains punk and the weak currency hasn’t led to any noticeable impact on export volumes,” he said.

Also, some prominent investors have come out this week saying the stock market may be overvalued.

ValueAct Capital’s Jeff Ubben said Wednesday he is “skeptical” of the market’s valuation, adding the firm is returning $1.25 billion to investors. Janus’ Bill Gross wrote in his monthly investment outlook that the stock market has “priced for too much hope.”

That said, equities have managed to hold their ground somewhat, as they have avoided a major sell-off recently.

“There’s been a lot of news over the past few days and we’re still in a holding pattern,” said Scott Clemons, a chief investment strategist at Brown Brothers Harriman. “I think investors are more focused on earnings.”

JPMorgan Chase, Citigroup and Wells Fargo all reported quarterly results. JPMorgan easily topped expectations. Citigroup also posted better-than-expected results. Wells Fargo was mixed.

“It sort of gives investors some comfort that the high valuations and earnings expectations may be correct,” Brown Brothers Harriman’s Clemons said.

In economic news, jobless claims came in at 234,000, below expectations, while March PPI declined 0.1 percent. Consumer sentiment came in at 98, beating expectations