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A Global House of Cards
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As most Americans, if not the financial media, are aware, Quantitative Easing (a euphemism for printing money) has failed to bring back the US economy.

So why has Japan adopted the policy? Since the heavy duty money printing began in 2013, the Japanese yen has fallen 35% against the US dollar, a big cost for a country dependent on energy imports. Moreover, the Japanese economy has shown no growth in response to the QE stimulus to justify the rising price of imports.

Despite the economy’s lack of response to the stimulus, last month the Bank of Japan announced a 60% increase in quantitative easing–from 50 to 80 trillion yen annually. Albert Edwards, a strategist at Societe Generale, predicts that the Japanese printing press will drive the yen down from 115 yen to the dollar to 145.

This is a prediction, but why risk the reality? What does Japan have to gain from currency depreciation? What is the thinking behind the policy?

An easy explanation is that Japan is being ordered to destroy its currency in order to protect the over-printed US dollar. As a vassal state, Japan suffers under US political and financial hegemony and is powerless to resist Washington’s pressure.

The official explanation is that, like the Federal Reserve, the Bank of Japan professes to believe in the Phillips Curve, which associates economic growth with inflation. The supply-side economic policy implemented by the Reagan administration disproved the Phillips Curve belief that economic growth was inconsistent with a declining or a stable rate of inflation. However, establishment economists refuse to take note and continue with the dogmas with which they are comfortable.

In the US QE caused inflation in stock and bond prices as most of the liquidity provided went into financial markets instead of into consumers’ pockets. There is more consumer price inflation than the official inflation measures report, as the measures are designed to under-report inflation, thereby saving money on COLA adjustments, but the main effect of QE has been unrealistic stock and bond prices.

The Bank of Japan’s hopes are that raw material and energy import prices will rise as the exchange value of yen falls, and that these higher costs will be passed along in consumer prices, pushing up inflation and stimulating economic growth. Japan is betting its economy on a discredited theory.

The interesting question is why financial strategists expect the yen to collapse under QE, but did not expect the dollar to collapse under QE. Japan is the world’s third largest economy, and until about a decade ago was going gangbusters despite the yen rising in value. Why should QE affect the yen differently from the dollar?


Perhaps the answer lies in the very powerful alliance between the US government and the banking/financial sector and on the obligation that Washington imposes on its vassal states to support the dollar as world reserve currency. Japan lacks the capability to neutralize normal economic forces. Washington’s ability to rig markets has allowed Washington to keep its economic house of cards standing.

The Federal Reserve’s announcement that QE is terminated has improved the outlook for the US dollar. However, as Nomi Prins makes clear, QE has not ended, merely morphed.

The Fed’s bond purchases have left the big banks with $2.6 trillion in excess cash reserves on deposit with the Fed. The banks will now use this money to buy bonds in place of the Fed’s purchases. When this money runs out, the Fed will find a reason to restart QE. Moreover, the Fed has announced that it intends to reinvest the interest and returning principle from its $4.5 trillion in holdings of mortgage backed instruments and Treasuries to continue purchasing bonds. Possibly also, interest rate swaps can be manipulated to keep rates down. So, despite the announced end of QE, purchases will continue to support high bond prices, and the high bond prices will continue to encourage purchases of stocks, thus perpetuating the house of cards.

As Dave Kranzler and I (and no doubt others) have pointed out, a stable or rising dollar exchange value is the necessary foundation to the house of cards. Until three years ago, the dollar was losing ground rapidly with respect to gold. Since that time massive sales of uncovered shorts in the gold futures market have been used to drive down the gold price.

That gold and silver bullion prices are rigged is obvious. Demand is high, and supply is constrained; yet prices are falling. The US mint cannot keep up with the demand for silver eagles and has suspended sales. The Canadian mint is rationing the supply of silver maple leafs. Asian demand for gold, especially from China, is at record levels.

The third quarter, 2014, was the 15th consecutive quarter of net purchases of gold by central banks. Dave Kranzler reports that in the past eight months, 101 tonnes have been drained from GLD, an indication that there is a gold shortage for delivery to physical purchasers. The declining futures price, which is established in a paper market where contracts are settled in cash, not in gold, is inconsistent with rising demand and constrained supply and is a clear indication of price rigging by US authorities.

The extent of financial corruption involving collusion between the mega-banks and the financial authorities is unfathomable. The Western financial system is a house of cards resting on corruption.

The house of cards has stood longer than I thought possible. Can it stand forever or are there so many rotted joints that some simultaneous collection of failures overwhelms the manipulation and brings on a massive crash? Time will tell.

(Republished from by permission of author or representative)
• Category: Economics • Tags: Federal Reserve, Japan 
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  1. edwardk says:

    Paul Craig Roberts monetary theory has been consistently wrong in predicting gold and oil prices.

    And he ascribes the distance between his theory of hyperinflation and reality to market manipulation , ie deux ex machina.

    If he was a scientist, he would re-examine his assumptions and try to build a new theory consistent with empirical reality. not revert back to reaganomics.

    1) why not just explain qe(s) as backfiling huge debt holes created by usury and fraud, ie handing money to the fraudsters socializing their losses? Until those holes are filled, easing is anti deflationary not inflationary. Which btw explains currency, metals, oils better than the PCR hyperinflation theory bubble.

    2) (1) wont change quickly, why ? The global economy is way over capacity for goods production, most of which are needless vanity entertainment goods, and with the backdrop of negative population growth.

    3)Dropping your own currency is a good thing if you want to discourage imports and sustain domestic production, which explains Japan better than the theory that it is a complete and utter vassal of america hurting itself.

    4) Hyperinflation will never occur in the USA until its elite is completely out of us paper financial assets, because hyperinflation hurts the rich lenders and helps theindebted poor wiping out their debts. Its a jubileee.

    5) the only way to grow the economy is to transfer income from the old and rich to the young an dpoor. They still need stuff. The blue hairs in florida already have their golf clubs and cadillacs.

    PCR please come up with a new theory of gold oil housing prices please.

    • Replies: @Kiza
  2. Kiza says:

    “The Western financial system is a house of cards resting on corruption… Can it stand forever or are there so many rotted joints that some simultaneous collection of failures overwhelms the manipulation and brings on a massive crash?”

    Two sentences that tell it all – even the market bears are silly optimists for what may be coming. When? Nobody knows. Next Thursday, 10 years from now, 20?

  3. Kiza says:

    Which economics theory works when confronted by blatant market manipulation? You make some valid points but you appear to deny market manipulation, correct? Because only if you deny manipulations of virtually all financial asset markets (real-estate, precious metals, bonds etc) you can say that PCR is wrong. He is a better economist than 10 of us put together.

    This is how I explain to laymen how the market manipulation is done, and both the manipulation and my explanation appear to work. Say I am Jamie Dimon (or rather demon) of JPM, and I agree with BoA’s Moynihan to exchange on the gold bullion market a piece of paper which states that I am selling him 10,000 troy ounces of gold at US$1,000 each. We register this properly with the market authority. We never exchange anything except this piece of paper. Now, the market authority is usually doing spot audits to verify completed transactions. But, I give a cellular call to this young auditor with 3 years experience in the financial industry, whose first job is auditing of gold transactions. So I say: “Buddy, I heard that you a great potential and we at JPM need good people always because we are growing. Also, buddy, I know your boss, we dine at the same Country Club.” Now, do you think that this auditor will not verify this transaction? How can he verify it anyway, by checking that the physical gold has been transported? All it takes later is for my friend to “sell” the gold back to me for $1,000 in the same financial year (our balances remain the same). Can the market authority audit every transaction of the millions that happen, and if audits how reliable are the audits? In summary, without the will and tenacity of a determined government regulator, the markets are places of virtual reality, that is as corrupt as PCR says.

    • Replies: @edwardk
  4. edwardk says:

    Kiza and PCR are correct. The markets are manipulated , they’re not even markets in classical economic terms, rather ‘semi-markets’. We have vertically integrated coordinating pools of capital, ‘unification of interests’, buying and selling between themselves., even within the same organization. I recall Chase had three interest rate derivatives trading desks at one time– how do we explain this in theoretical economic terms. But one casino having three blackjack tables makes perfect sense. Volatility is the key to bringing in the players, no one leaves without paying a heavy transactions cost fee.

    PCR is a great economist maybe, but certainly an important economics writer and thinker. Eventually gold may hit 5000$ with hyperinflation as Schiff says, but if it does, it will hurt the rich lenders who control the system, and reward the borrowers, exactly contrary to what PCR’s market manipulations would dictate.

    They wont let it happen. But they will sell into every gold rally they hype on talk radio, then pull out the rug until grannies fold in their chips, then onto the next hyped buble.

    But in the interim we need an explanation of why increased quantitative easing crashed oil and gold, housing. Thats not hyperinflation.

  5. Sam J. says:

    I agree with edwardk. If Japan is a vassal of of the US why are they practicing mercantilism and we allow it. As for manipulation of gold and silver I don’t think there’s any doubt this is going on.

    The lending to banks is such a scam. If you take the 16 trillion and divide by 300 million Americans you come up with 213,333 for a family of four. Think 213,333 at zero interest would bring us out of deflation? It would certainly solve any housing crisis. As it is they’ll get the money which they will use to buy all the productive assets in the country and we’ll get the bill.

  6. Kiza says:

    @edwardk and @Sam

    Three quick points:
    1) What will happen with paper gold when China, Russia, Switzerland and retail market suck up all available physical gold at the current silly prices?
    2) I agree that with 16 trillion in their hot little hands the households would create inflation in an instance. But why would Fed give fresh QE money to households instead of its own stock-holders? Could you imagine any different recipient of fresh greenbacks? Only if banks were charities! Therefore, the problem is who owns the Fed. QE never ever had a chance, but more likely it was just a ploy to enrich the banksters at the expense of the households.
    3) Oil price plunge is a result of a secret Kerry’s visit to Saudi Arabia; this on top of a depressed global economy; the main goal is to do a regime change in Russia (depose Putin) by starving Russia of cash; ditto Venezuela; Russia needs oil price above $100, Saudi Arabia breaks even at around $30. Expect oil price around $60.

    • Replies: @edwardk
  7. Whilst I agree there’s always tweaking, the crisis of 07-08 just shows how wrong governments can get the boom/bust cycle.

    From what I understand a lot of recent market talk has been about devaluing core ccys (EUR, GBP) to make exports more competitive in the market.

  8. edwardk says:

    physical gold has a supply curve, and it does not spoil

    If gold buyers typically have long holding periods, then is gold like oil that was burned or corn that was eaten? Is it gone forever and not part of the market?

    Every asset is for sale at some price. While many small gold coin and bar buyers have a reservation price that is more than $10 above today’s price, they do have a reservation price. There is a point at which other assets (stocks or bonds) or consumption goods (cars or houses) would start to look more attractive than holding the marginal ounce of gold. There can be no doubt that a good many gold owners would become sellers at $5,000, $10,000, or $100,000 per ounce.

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