The Fed Is Almost Insolvent

September 10, 2008 was one of the last “normal” days in the world of banking and finance.

That afternoon, the US Federal Reserve published its routine, weekly balance sheet report, indicating that the central bank had total assets worth around $925 billion.

Just a few days later, Lehman Brothers filed for bankruptcy, kicking off the most severe economic crisis since the Great Depression.

And almost immediately the Fed launched a series of unprecedented measures in a desperate attempt to contain the damage.

They called it “Quantitative Easing”, which was a fancy way of saying the Federal Reserve was printing money and giving it to the banks and US government.

When the commercial banks needed to sell their non-performing toxic assets, the Fed printed money to buy that garbage.

When the US government needed to borrow trillions of dollars to bail out failing companies, the Fed printed money and loaned it to Uncle Sam.

By January 2015, the size of the Fed’s balance sheet had more than quadrupled to $4.5 trillion.

It was an astonishing increase; the Fed had essentially conjured more than 3.5 trillion dollars out of thin air.

In exchange for all at printed money, the Fed had purchased a bunch of assets, including about $2.4 trillion worth of US government bonds.

This ranks the Fed as one of the top owners of US government debt, just behind the Social Security trust funds.

In fact the US government owes more money to the Federal Reserve than to China, Japan, and Saudi Arabia combined.

Now, remember that interest rates were at historic lows during the time that the Fed was buying up all that US government debt.

From the start of the financial crisis in September 2008 until the day the Fed’s balance sheet peaked in January 2015, the average yield on the 10-year US Treasury was about 2.6%.

That’s close to where the 10-year yield is today; just last week it was 2.62%.

This is where things quickly get out of control.

If you don’t know anything about bonds, there’s just one important principle to understand: as interest rates go up, bond prices go down.

Just like shares of Apple or Exxon, bonds are financial securities.

Investors pay a certain price for bonds just like they pay a certain price for Apple stock. And just like stock prices, bond prices go up and down.

Think about it like this: let’s say you own a government bond that pays $25 per year in interest.

That $25 per year is set in stone. It’s a contract.

And today, the market price for that bond is $1,000.

So, in very simple terms, an investor is paying $1,000 for the bond’s $25 annual income stream.

That works out to be a 2.5% annual return (not including maturity).

At the moment, investors are happy to receive 2.5% because that’s the current rate across most of the market.

But let’s say tomorrow the Federal Reserve jacks up interest rates to 10%.

Everything changes. Investors can now make 10% just holding money in a bank account.

The bond you own, however, still pays $25 per year. That hasn’t changed.

So if you want to sell it, you’ll have to slash the price; no investor will pay $1,000 to earn just 2.5% from the $25/year income stream.

Investors can now get 10% elsewhere in the market.

So in order for your bond’s $25/year income stream to match the 10% return that a potential buyer can receive elsewhere, you’ll have to drop your price to just $250.

In other words, the price of your bond has dropped 75%, from $1,000 to $250.

This is an extreme and simplistic example, but it paints the picture: when interest rates rise, bond prices fall.

So let’s go back to the Federal Reserve and its $2.4 trillion government bond portfolio.

The Fed recently raised interest rates. And they claim they’ll continue to raise rates for the next 1-2 years.

But as we discovered earlier, as the Fed raises rates, the value of their bonds will fall… and the Fed will suffer “unrealized losses”.

This is a gigantic problem because the Fed can’t afford to suffer any losses.

Since the start of the financial crisis, the Fed has whittled down its capital buffer to almost nothing– right around $40 billion.

This means that the Fed can only afford to lose $40 billion before going bust.

$40 billion might sound like a lot.

But considering the Fed has $2.4 trillion in government bonds, and $4.5 trillion in total assets, $40 billion is nothing– just 0.9% of the Fed’s total asset portfolio.

So if bond prices fall by just 0.9%, i.e. interest rates go up just slightly, the Fed will be insolvent.

This is already happening: as interest rates have risen, bond prices are starting to fall.

And based on the Fed’s own data, they’re already sitting on $14.2 billion in net unrealized losses.

So a big chunk of their tiny $40 billion capital buffer has already been wiped out.

As interest rates continue to rise, the rest of that $40 billion will vanish, at which point the Fed will be completely bankrupt.

And the US government, which itself is totally insolvent, won’t be in a position to bail them out.

Look, I’m an optimist. I think these are exciting times and that there’s a ton of incredible opportunity around the world.

But it would be seriously foolish to ignore the looming insolvency of the world’s most systematically important central bank.

Two words: Own gold.

- Source, Simon Black

Is Demand For Physical Gold Really Collapsing?

Seriously? “Simon Black” (it’s a nom de plume) wrote an article titled “Demand For Physical Is Collapsing.” He focused on retail bullion demand numbers. The headline and the content is largely fake news as it focuses on the demand for minted coins vs the paper gold market. We’re not really sure about the intent of article, but the content was devoid of any relevance to the actual global demand for physical gold.

While the retail minted coin and small-size bar demand is down from last year’s levels, there’s two factors to explain this. First is price. The price of gold and silver was lower in early 2016 than it is now. The price of gold in February 2017 averaged $1230-$1240 while the price of gold a year ago February averaged $1175. Retail buyers of gold/silver coins are highly sensitive to price and tend to chase the price higher, up to a point. On this basis, it’s not surprising that more minted coins were sold a year ago compared to this year. This “price effect” on the demand for retail gold and silver coins likely explains about 25% of the demand comparison between 2016 and now.

The second factor is the economy. Remember, the end user of minted bullion products is largely the retail buyer. In the first two months of 2017, real wages have declined. Even more negative for retail sales of any sort is the fact that real disposable income has been declining on a year over basis since December 2015:

While we at the Shadow of Truth do not consider buying and owning bullion to be “discretionary,” retail sales, including sales of bullion coins, is highly dependent on the relative level of real disposable income. Thus once again it should not surprise, based on just looking at retail demand for physical bullion, that retail bullion sales are falling.

On the other hand, the Black article purports the idea that retail bullion sales represents global demand for gold and silver. Nothing could be further from the truth. Retail demand at the margin has no affect on price other than maybe the price premiums in the coin market based on mint supply and retail demand.

The majority of gold bullion demand comes from the jewelry industry, eastern hemisphere Central Banks and sophisticated wealthy and institutional investors. India and China alone import more gold than is produced from mines globally. This is why Black’s “paper gold” price is rising. It’s why the BIS and western Central Banks have failed to eliminate the significance of gold in the global monetary system.

Gold imports into India jumped 175% in February from February 2016 to 96.4 tonnes (LINK). In fact, official gold imports into India have been rising since December. And that does not include dore bars or smuggled gold. 179 tonnes of gold was withdrawn from the Shanghai Gold Exchange in February. This is 60% higher than February 2016. The Russian Central Bank gold reserves have been rising almost monthly since mid-2007.

To claim that the global demand for physical gold is collapsing is seeded in either ignorance or mal-intent.

- Source, Sprott Money

Russian Roulette, Central Banks, and Gold

Grab your ultra-reliable 357 magnum revolver and load the cylinder with six, not one, rounds of ammunition. Point the gun at your head if you are a member of the struggling middle-class. Imagine pulling the trigger and hoping …

Do you feel lucky?

The Six Loads of Ammunition for your 357 revolver are:

#1: Central banks and commercial banks exert a huge influence over all aspects of our financial lives. Paper currencies issued by central banks, digital currency units, credit card debt, pension funds, retirement accounts, checking accounts, Quantitative Easing, bond monetization, congress, regulators, Presidents, and the list goes on. Their game, their rules, your losses, and more of the same.

#2: Derivatives are used to “manage” markets, exercise control via futures markets over prices for physical and paper assets, increase leverage and enhance profits for the banks. Each derivative includes a commission – it is not a “zero-sum” game. Banks and CEO bonuses win.

#3: Debt, debt, and much more debt. Deficit spending increases debt, and governments run deficits. Interest is paid by individuals, corporations, and governments. Global debt of $200 trillion will require inflation, hyper-inflation or default. How long can government expenditures increase much more rapidly than revenues? Answer: As long as our current “Ponzi” finance can continue. How long can a Ponzi scheme last? Answer: Not forever. A default or hyper-inflation will occur, sooner rather than later. Fiat currencies will devalue.

#4: Near zero interest rates, negative interest rates, and financial repression. If central banks lower the interest paid on bonds and investments, pension plans and savers are penalized. Debtors, including governments, banks, and large corporations benefit. Your government plan and corporate pension plan are increasingly insolvent. Interest earnings are nearly zero. “High yield” checking accounts pay 0.01% interest. Your savings are depleted, and you may outlive your retirement assets. Welcome to the world of NIRP, ZIRP and financial repression that transfers assets and revenue from you to the banks, courtesy of central bank policies.

#5: High Frequency Trading or HFT is legalized skimming. Ultra-fast computers, PhD mathematics and software have replaced human traders. The result is consistent and profitable trading for the big financial institutions. Per zerohedge JP Morgan’s in-house trading group has been unprofitable on only two days in the past four years. Average trading revenues were $80 million per day for 2016. Someone contributed heavily to the JP Morgan casino winnings.

#6: Too Big To Fail, Too Big To Jail. If central banks and the five largest commercial banks contribute to congressional elections, and Presidents fill their key positions with executives from the financial industries, and regulators work for them, what is the likely result? If a few large commercial banks are too big to fail, the government and taxpayers must … and you know the drill. More debt, more influence, more derivatives, and a successful business model that benefits the wealthy far more than the middle class.

- Source, Sprott Money, Read the Full Article Here

Biggest Test Of Donald Trump’s Presidency Begins…

On Wednesday, the temporary suspension of the debt ceiling ended, and so now the federal government is not going to be able to go into any more debt until the debt ceiling is raised. For the moment, the Trump administration can implement “emergency measures” to stay under the debt limit, but it won’t be too long before we get to a major crisis point because the federal government is quickly running out of cash. Already, the U.S. Treasury has less cash on hand than Apple or Google, and that cash balance is going to keep on dropping until the debt ceiling is finally lifted.

You may remember that the debt ceiling became a major issue a couple of times during the Obama years. Last time around, Barack Obama and the Republicans in Congress agreed to a horrendous deal which suspended the debt ceiling until several months after the 2016 election…

Since President Barack Obama signed the “Bipartisan Budget Act” on Nov. 2, 2015 there had been no legal limit on the amount of money the federal government could borrow until now. That law included a section entitled “Temporary Extension of Public Debt Limit.” It said that the law imposing a limit on the federal debt “shall not apply for the period beginning on the date of the enactment of this Act and ending on March 15, 2017.”

During the 16 and a half months between the signing of that deal and today, the U.S. national debt rose by a whopping $1,414,397,000,000.

But now the U.S. national debt will not be allowed to rise by another penny until the debt ceiling is raised or suspended once again.

The Trump administration is pushing hard to get the debt ceiling raised, and this is a complete reversal from how Donald Trump felt about the debt ceiling back in 2013. The following comes from the L.A. Times…

Trump sided with hard-liners in 2013, publicly opposing an increase. “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!” he tweeted then.

Trump was actually right about the debt ceiling in 2013, and he is wrong now.

We simply cannot afford to keep adding trillions of dollars to the national debt. What we are doing to future generations of Americans is beyond criminal, because we are literally destroying their future just so that we can enjoy an inflated standard of living that we do not deserve today.

Treasury Secretary Steven Mnuchin has already begun to implement “extraordinary measures” to keep us under the debt ceiling. The first step that was taken was the suspension of the sale of SLGS securities…

“Today,” Mnuchin wrote, “Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities. SLGS are special-purpose Treasury securities issued to states and municipalities to assist them in conforming to certain tax rules. These securities count against the debt limit. The suspension of SLGS sales will commence on March 15, 2017, and continue until the debt limit is either raised or suspended. As in the past, it is likely Treasury will utilize additional extraordinary measures.”

The federal government will be able to keep going for a little while by implementing such “extraordinary measures”, but the Treasury cash balance is going to continue to dwindle and at some point a major squeeze is going to happen.

As things get tighter and tighter, the Trump administration will become increasingly desperate to get the debt ceiling raised. As I wrote about yesterday, the key for Trump is going to be finding 218 votes in the House of Representatives that will be willing to go along with him.

You would think that since Republicans control the House that this should be easy, but the truth is that there are a lot of conservative Republicans that are not inclined to agree to a debt ceiling increase without substantial accompanying budget cuts.

The proposed budget that Trump released this week is getting a lot of criticism from the left for cuts to social programs, but the truth is that it actually doesn’t reduce the deficit at all…

President Trump’s “skinny” budget blueprint for 2018 features a proposed $54 billion increase in defense spending and an equal number of spending cuts from the smallest part of the federal budget.

That means his changes won’t add to next year’s projected $487 billion deficit. But they won’t reduce it, either.

And remember, that “$487 billion” figure is just for show. During the Obama years the U.S. national debt increased by an average of well over a trillion dollars a year, and that is almost certainly going to continue for years to come as long as the debt ceiling is raised.

Republicans are supposed to be the party of fiscal responsibility.

So now is their big test.

If they raise the debt ceiling and continue adding more than a trillion dollars a year to the national debt, they will lose all credibility with conservative voters on fiscal issues.

But if they try to force the federal government to start living within its means that is going to severely harm the economy in the short-term.

Donald Trump is going to have to try to figure out a way to navigate this crisis. He has already promised that he will not touch Social Security and Medicare, and those are the two biggest drivers of our budget deficits. In fact, it is being projected that entitlement spending and interest on the debt will eat up every single penny that the federal government takes in within 20 years.

So if Trump won’t touch the big entitlement programs, where will he possibly find enough cuts to satisfy the fiscal conservatives in Congress?

Without them, Trump does not have enough votes to raise the debt ceiling.

In addition, many of the conservatives in Congress absolutely hate the new Republican health care plan, and they hope to use this debt ceiling crisis as leverage to change the bill.

If Trump can’t work out something with conservatives, perhaps he could turn to the Democrats. But most Democrats are extremely resistant to work with him on anything after all that has been said and done, and so for Trump to get a deal with them he would have to make extreme concessions.

This represents the biggest political test for the Trump presidency so far, and if we get down the road a couple of months and nothing gets done, this debt ceiling crisis could spark the kind of financial crisis that I describe in my novel entitled “The Beginning Of The End“.

Barack Obama pushed things right to the brink a couple of times, but he was savvy enough politically to never let things go over the edge.

Now it is Trump’s turn, and somehow he has got to find a way to get the debt ceiling raised without making extremely deep compromises that would gut the rest of his agenda.

And he had better get to work on this quickly, because time is running out and the clock is ticking…

- Source, The Economic Collapse Blog

MSNBC's Tax Records Non-Story: Trump Made $150MM, Paid 25% Tax Rate, More Than Romney, Bernie

While Rachel Maddow drones on with the coherence of Janet Yellen, losing thousands of viewers by the minute, the MSNBC anchor was promptly scooped not only by the White House which revealed her "secret" one hour in advance, but also by the Daily Beast which reported that its contributor David Cay Johnston had obtained the first two pages of Trump’s 2005 federal income tax return, allegedly receiving them in the mail, and posted his "analysts" on his website, DCReport.org.

According to the documents, Trump and his wife Melania paid $38 million in total income tax, consisting of $5.3 million in regular federal income tax, and an additional $31 million of “alternative minimum tax,” or AMT.

The White House statement confirmed the finding: “Before being elected President, Mr. Trump was one of the most successful businessmen in the world with a responsibility to his company, his family and his employees to pay no more tax than legally required,” the White House said in a statement. “That being said, Mr. Trump paid $38 million dollars even after taking into account large scale depreciation for construction, on an income of more than $150 million dollars, as well as paying tens of millions of dollars in other taxes such as sales and excise taxes and employment taxes and this illegally published return proves just that.”

As the Beast notes, 2005 was the year that Trump, then a newly minted reality star, made his last big score as a real-life real estate developer, when he sold two properties, one on Manhattan’s west side and one in San Francisco, to Hong Kong investors, accounting for the lion’s share of his income that year.

“It is totally illegal to steal and publish tax returns,” the White House statement concluded. “The dishonest media can continue to make this part of their agenda, while the President will focus on his, which includes tax reform that will benefit all Americans.”


But the real story here is that there is no story: what MSNBC confirmed is that Trump made more money than some of his critics said he made in the period in question, and more importantly, that he paid a generous effective income tax rate, well above the 14.1% rate paid by Mitt Romney, and even higher than the 13.5% federal tax rate paid by Bernie Sanders in 2014.

Sadly for Maddow, with this attempt at a "blockbuster" story which has quickly backfired, she may well have killed the great distraction that was the trope of Trump's tax returns, and which the rest of the "resistance" press hammered on every now and then.

- Source, Zero Hedge

Tucker Carlson Destroys Anti White "Trans Racial" Jorge Ramos - "Your Whiter Than I Am!"

Tucker Carlson takes on the white, blue eyed millionaire Univision anchor Jorge Ramos. In the process, he calls him out for his racist behavior and utterly incorrect policies and beliefs.

- Source

February US Jobs Reports Blows Away the Markets Expectations, Confidence Surges

The latest United States job numbers are in, and they are huge, seeing the economy adding 298,000 new jobs in February alone! This has massively blown out the market expectations of 190,000.

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute had the following to say;

"February proved to be an incredibly strong month for employment with increases we have not seen in years."

So what does this mean? For years we have seen job reports such as these coming in, only to be disheartened by the fact that the jobs added were nothing to be celebrated at all, as it is was low quality jobs replacing high paying, skilled jobs.

This report is a complete reversal of that hollowing out trend. What is most remarkable about this massive surge in job creation, is the fact that it includes a large quantity of high quality, skilled jobs from the manufacturing, construction and mining sectors. NOT just low paying service jobs, as we have seen in the past.

Presidents Trumps pledge to rebuild America's crumbling infrastructure is being accredited as the predominant reason for this increase in hiring, as companies are experiencing new highs in confidence levels, and feel positive about the economy going forward. This is something that we have not seen since the beginning of the 2008 economic crisis.

Mark Zandi, chief economist of Moody's Analytics, agreed with this assessment;

"Confidence is playing a large role. Businesses are anticipating a lot of good stuff — tax cuts, less regulation. They are hiring more aggressively."

What is even more heartening is the trend that is now being formed in confidence. As this record number, comes after a huge increase in January, which saw 261,000 jobs added, a massive number by itself.

Even more positive, is the fact that job creation is evenly distributed across the board, with small to large business adding almost equal numbers. Proving that this is a market wide phenomenon and not simply a one off for a specific sector.

Whether or not this trend will continue, and whether or not the markets will be able to overlook the extreme uncertainty that is being spun by the MSM and the President's opponents is yet to be seen. But for now, for the first time in a very long time, the trend is good.

Silver Once Again Gets Tossed in the Meat Grinder, Billions of Dollars Wiped Out

Just take a look at the above chart. I agree, it is a disgusting, nasty image and one that represents a wiping out of roughly $2 billion dollars of value in the silver markets.

What caused it, why did it happen? Many are waking up today scratching their heads and asking themselves these very same questions, as they look at their portfolios and see that their silver holdings have taken a huge hit.

They are valid questions, and for anyone who is a veteran of the bullion markets, then the answer is the same as it always has been. The bullion cartels are the cause and the reasoning is because they can. 

This smash and grab has been repeated time and time again, and is used to depress the spirits of the precious metals community and to keep it in "check".

The bullion cartel, who has actively manipulated the price of both gold and silver for decades has once again struck and taken down silver just as it was starting to show in strength, knocking out billions of dollars worth of value.

This massacre, was clearly deliberate, as no other explanation, besides pure stupidity can explain it.

At exactly 11:30 ET, just as the European markets closed, someone unloaded $2 billion notional worth of silver bullion onto the paper markets. Over 23,000 silver futures contracts flooded the market and caused the price to crater, thus causing it to fall even further as algorithms kicked in and reacted to the action.

As previously stated, this had to be a deliberate action, as NO ONE, and I repeat NO ONE who wants to actually make a profit off of their silver bullion contracts that they are selling would intentionally choose a time of lessened liquidity to shed a massive amount of ANY paper bullion, or any position for that matter.

This is just another case of silver being "checked" and "put in its place". The financial elites have manipulated the price of precious metals for decades and this just goes to show how broken the paper markets have truly become.

The fact that billions of dollars can so easily be tossed around, despite the fact that this is a finite rare resource, proves the point that the paper markets are bogus and clearly not based in reality.

As more and more people come to this realization, they will turn to the only other viable option, the real, tangible, physical market. The only true and honest way to invest in precious metals. Until that day, enjoy the ride, ignore the noise and as always, keep stacking.

Fake News Alert: The Russians Are Coming! The Russians Are Coming?

Here we go once again, the Democratic party is doubling down on their "Russia influenced the US elections" narrative and are taking it to the next level. Grasping at any straw they can in an attempt to justify why they got wiped off the electoral college map in the recent elections.

The next target of choice is Attorney General Jeff Sessions, who the Democrats, aided by another "leak" from within the "deep state", are claiming misled Congress in his recent testimonies and therefore should be forced to resign from his newly appointed position.

Leading the charge is Nancy Pelosi, the leader of the House of Representatives for the Democratic party, and the very same person who called President Trump, President Bush just a few short weeks ago at a press conference, just one of many recent blunders she has had in her confused and befuddled state.

This recent controversy has been sparked off by another illegal leak from someone within the intelligence community, that claims Sessions spoke with a Russian diplomat last year during the campaign cycle. What is alluded here by the fake MSM and the democratic party is that Sessions was working together with Russian intelligence to influence the elections in favor of Donald Trump.

Of course, the leak itself doesn't even start this, and it is completely fake news. Yet, it is a strategy and a tactic that we have recently seen deployed against Mike Flynn and ultimately proved effective, although not for the reasons that they claim.

The drums are now once again beating loudly for the beheading of another Trump ally and the MSM is right there beside the Democratic party, assisting with the rhythm. You can expect a flood of fake news articles on the subject, filled with half-truths and omissions of facts, the go to strategy of the MSM when attempting to push their agenda.

Whether or not they will be ultimately successful is yet to be seen, but lets hope not. This is an unhealthy precedent that they are attempting to set and one that could lead to even further instability in an already incredibly unstable time.

Luckily, the American people are seeing through this garbage, as the newly elected President has seen his approval ratings ticking higher on a weekly basis, as people become fatigued with the infighting and partisanship.  While at the same time, the approval rating of the dying, dinosaur MSM continues to experience new historic lows.