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Posts tagged ‘Federal Reserve System’

A Trip Down a Bitcoin Mega Mine in Iceland

By Lewrockwell

Tyler Durden writes: Once upon a time, money – in the form of precious metals – used to be literally dug out of the earth. Limitations on the amount that could be mined, and on how much growth could be borrowed from the future (all debt is, is future consumption denied), is why eventually the world’s central bankers moved from money backed by precious metals, to “money” backed by “faith and credit”, in the process diluting both. It was the unprecedented explosion in credit money creation that resulted once money could be “printed” out of thin air that nearly destroyed the western financial system. Which brings us to Bitcoin, where currency “mining” takes place not in the earth’s crust, or in the basement of the Federal Reserve, but inside supercomputers

It is these supercomputers, that are the laborers of the virtual mines where Bitcoins are unearthed, that the NYT focuses on in a recent expose:

Bitcoins are invisible money, backed by no government, useful only as a speculative investment or online currency, but creating them commands a surprisingly hefty real-world infrastructure.

Instead of swinging pickaxes, these custom-built machines, which are running an open-source Bitcoin program, perform complex algorithms 24 hours a day. If they come up with the right answers before competitors around the world do, they win a block of 25 new Bitcoins from the virtual currency’s decentralized network. The network is programmed to release 21 million coins eventually. A little more than half are already out in the world, but because the system will release Bitcoins at a progressively slower rate, the work of mining could take more than 100 years.

As the following chart shows, in addition to the surge in the price of Bitcoin, another explosion witnessed recently is in the processing power of the Bitcoin network: from non-existent a couple of years ago, the “mining” power dedicated to hashing, or the calculations used to extract new Bitcoins, has risen to nearly 10 quadrillion per second!

full article at source: http://www.marketoracle.co.uk/Article43740.html

Mitigating a Credit Crisis Liquidity Crunch 2014

By Nicole_Foss

Despite the media talking up optimism and recovery, people are not   seeing the supposed good news playing out in their own lives. As we have    discussed here many times before, the squeeze continues on Main Street,   while QE has generated asset bubbles at the top of the financial food   chain. Complacency reigns, but this is the endgame. Increasingly    delusional collective optimism, based on illusory wealth for the few,    has ben the driving force for 2013, even as the smart money has been    selling everything not nailed down for most of the year – cheerfully    handing the empty bag to a public that demands it. It’s been a five year   long party, where, demonstrably, no lessons were learned from the    excesses preceding the previous peak, and the consequences that followed  from itNow,  as a result of throwing caution to the wind again (mostly  with   other people’s money of course), we face another set of  consequences,   but this time the hangover will be worse. Timely  warnings are rarely   credible, as they contradict the prevailing wisdom of the time, but it   is exactly at this time that warnings are most  needed – when we are   collectively irrationally exuberant on a grand  scale. We need to   understand the situation we are facing, in order to  see why this period   of global excess will resolve itself as a global  credit implosion, what   this means for ourselves and our societies, and what we can hope to do   about it, both in terms of preparing in  advance and mitigating the   impact once we are confronted with a new,  sobering, reality.

We are facing an acute liquidity crunch, not the warning shot  across   the bow that was the financial crisis of 2008/2009, but a  full-blown   implosion of the house of cards that is the global credit  pyramid. Not   that it’s likely to disappear all at once, but over the  next few years,   credit will undergo a relentless contraction,  punctuated by periods of   both rapid collapse and sharp counter-trend  rallies, in a period of   exceptionally high volatility. The primary  impact will stem from the   collapse of the money supply, the vast  majority of which is credit – a   mountain of IOUs constituting the  virtual wealth of the world.

This has happened before, albeit not on this scale. Since  humanity   reached civilizational scale we have lived through cycles of  expansion   and contraction. We tend to associate these with the rise  and fall of   empire, but they typically have a monetary component and  often involve a   credit boom. Bust follows boom as the credit ponzi  scheme collapses.   Mark Twain commented on one such episode in 1873:

“Beautiful credit! The foundation of modern society.    Who shall say that this is not the golden age of mutual trust, of    unlimited reliance upon human promises? That is a peculiar condition of   society which enables a whole nation to instantly recognize point and   meaning in the familiar newspaper anecdote, which puts into the mouth  of   the speculator in lands and mines this remark: — ”I wasn’t worth a cent two years ago, and now I owe two million dollars.””

full article at source: http://www.marketoracle.co.uk/Article43730.html

QE Euthanasia of the Economy?

Today’s Outside the Box comes to us from my good friend and business partner Niels Jensen of Absolute Return Partners in London. Niels gives us an excellent summary of how QE has affected the global economy (and how it hasn’t). I have found myself paraphrasing Niels all week.

I also want to call to your attention an interview first posted at ZeroHedge between my friends Chris Whalen and David Kotok. This is an inside-baseball view of a not-so-minor issue involving central banks and ZIRP. The FDIC charges 7-10 basis points on deposits for the national deposit insurance scheme. At close to the zero bound, the fee means that banks can lose money on deposits. As Chris and David point out, this is just another distortion being fed into the system. David was the first to introduce me to this concept (and rather passionately). I have not written about it because it gets complicated quickly, but it highlights a very serious problem and one that is not dissimilar to the deflationary aspects of the Basel III requirements, working at odds with what central bankers are trying to do. This goes with my long-held contention that the models the Fed and all central banks are working with are simply inadequate to describe the complexity of the global economy, and we have no true idea what we are doing, just a guess and a hope.

full article at source: http://www.marketoracle.co.uk/Article43446.html

An Open Letter to the FOMC: Recognizing the Valuation Bubble In Equities

In today’s Outside the Box, my friend John Hussman of Hussman Strategic Advisors addresses the members of the Federal Open Market Committee, the Federal Reserve committee that makes decisions about interest rates and national monetary policy. The Fed has been notoriously clueless about bubbles, particularly in the run-up to the Great Recession, and so John would like to help them recognize the currently inflating bubble in equities.

He leads off with the key point that when the Financial Accounting Standards Board abandoned the FAS 157 “mark-to-market” accounting standard on March 16, 2009, in response to Congressional pressure from the House Committee on Financial Services, the FASB removed at a stroke the threat of widespread insolvency by making insolvency opaque. In other words, anyone with anything to hide could now hide it. John goes on:

full article at source: https://mail.google.com/mail/?shva=1#spam/1429bf9c2702906e

Too Many Stock Market Dummies are Getting Rich…

By: Clive_Maund

We know that the Fed and other Central Banks are printing money like there’s  no tomorrow to stop the fragile system from imploding, but the Little Guy is  not seeing any benefit from it, instead the banks and elites are making even  more money out of that which is spirited into existence and then handed to  them on a platter by driving asset prices higher and higher. The Little Guy  instead gets stuck with the bill as he becomes a victim of the inflation that  results.

There is a widespread assumption now that “nothing can go wrong”, because  the Fed and other CB’s will simply print more and more money as required to  keep the party going so that everything accelerates upward in a parabolic arc  until the eventual and inevitable hyperinflationary burnout. This is true,  that is where we are headed, but what is dangerous about the current situation  is that this has become universally accepted and believed. This means that  there could be some very nasty speedbumps along the way, particularly if the  lurking forces of deflation temporarily gain the upper hand, as is happening  right now in Europe, where the elites are using the state of crisis to consolidate  power………………

full article at source: http://www.marketoracle.co.uk/Article43105.html

U.S. Blasts Germany’s Economic Policies

 

Employing unusually sharp language, the U.S. on Wednesday openly criticized Germany’s economic policies and blamed the euro-zone powerhouse for dragging down its neighbors and the rest of the global economy.

In its semiannual currency report, the Treasury Department identified Germany’s export-led growth model as a major factor responsible for the 17-nation currency bloc’s weak recovery. The U.S. identified Germany ahead of its traditional target, China, and the most-recent perceived problem country, Japan, in the “key findings” section of the report.

The U.S. is itself dealing with persistently weak growth and has faced complaints from some countries about its attempts at reviving a sluggish economy, including the Federal Reserve’s easy money policies. Finance leaders have also taken aim at the U.S. over the global economic impact of fiscal wrangling between the White House and Congress, including the government shutdown and debt-ceiling fight………………………..

see full article here:

http://online.wsj.com/news/articles/SB10001424052702304527504579168113091545256?mod=mktw

QE Worked For The Weimar Germany For A Little While Too

By: LewRockwell

Michael Snyder writes: There is a reason why every fiat currency in the history of the world has eventually failed.  At some point, those issuing fiat currencies always find themselves giving in to the temptation to wildly print more money.  Sometimes, the motivation for doing this is good.  When an economy is really struggling, those that have been entrusted with the management of that economy can easily fall for the lie that things would be better if people just had “more money”.  Today, the Federal Reserve finds itself faced with a scenario that is very similar to what the Weimar Republic was facing nearly 100 years ago.  Like the Weimar Republic, the U.S. economy is also struggling and like the Weimar Republic, the U.S. government is absolutely drowning in debt.  Unfortunately, the Federal Reserve has decided to adopt the same solution that the Weimar Republic chose.

The Federal Reserve is recklessly printing money out of thin air, and in the short-term some positive things have come out of it.  But quantitative easing worked for the Weimar Republic for a little while too.  At first, more money caused economic activity to increase and unemployment was low.  But all of that money printing destroyed faith in German currency and in the German financial system and ultimately Germany experienced an economic meltdown that the world is still talking about today.  This is the path that the Federal Reserve is taking America down, but most Americans have absolutely no idea what is happening.

It is really easy to start printing money, but it is incredibly hard to stop.  Like any addict, the Fed is promising that they can quit at any time, but this month they refused to even start tapering their money printing a little bit.  The behavior of the Fed is so shameful that even CNBC is comparing it to a drug addict at this point…

full article at source: http://www.marketoracle.co.uk/Article42405.html

New Dow High as Another Stocks Bear Market Goes Up in Smoke

By: Nadeem_Walayat

Dow Jones surges to a new all time closing high of 15,460.92 as many market commentators literally never learn! And there is a reason for this.

Bull markets do one thing, and one thing only, they resolve to NEW bull market highs, as that is what ultimately defines what a bull market is, and so the market that I have traded for near 30 years, the DJIA stock index has once more resolved to a new bull market ALL Time High.

Meanwhile those that clearly have a psychological blind spot towards being on the right side of a trend, continuously repeat the same behaviour pattern of betting against the trend as evidenced by the fact that the deeper the recent correction progressed the more vocal they became in their utterances for an end of the bull market that they were never even able to recognise as a  bull market by virtue of what I deem to be ridiculous statements such as that of saying that the stock market bull run of 5 years had just been a cyclical event within a secular  BEAR market. Despite the fact that you will have heard the SAME garbage for over FIVE YEARs now!

To reiterate once more, there is no cyclical or secular ONLY BULL or BEAR, only LONG or SHORT, either that or as is more probably the case those that are most vocal commentators NEVER actually TRADE or INVEST with their OWN money! That is self evident in the fact that had they traded with their own money, then by now they would have gone bust several times over!

full article :http://www.marketoracle.co.uk/Article41365.html

Stock Market Extreme Euphoria Tops

By: Zeal_LLC

The levitating stock markets continue to  seductively entrance traders, powering to new nominal record highs day after  day after day.  No one believes a  meaningful selloff is even possible anymore, thanks to the vast deluge of  central-bank monetary inflation.  Sheer  euphoria has set in as all perception of risk has vanished.  This makes these stock markets  extraordinarily dangerous, they are truly at topping extremes.

As of Wednesday, the flagship S&P 500 stock index (SPX) had rallied to new nominal record highs in 11 of the past 13 trading days. It blasted 4.8% higher over this short span. If sustained for an entire year, this blistering rate of ascent would nearly double the stock markets! This latest euphoric surge extended the cyclical stock bull that was born way back in March 2009 to a massive 145.2% gain over 50.2 months.

This move, particularly the one-sided 22.6%  melt-up in the last 6 months, has bred unmistakable euphoria.  Wall Street  vehemently tries to deny this truth, but the definition of euphoria is “a  feeling of great happiness or well-being, a feeling of great elation”.  Does that not describe the outlook for the  stock markets today?  There are no bears  left, everyone is incredibly bullish  and expects no material selloffs.

Normal healthy bull markets climb a literal  “wall of worry”, traders are always anxious about some catalyst arising that  will spark a sharp selloff.  But not  today.  The markets have run up for so  long with nary a hiccup that traders no longer believe significant selloffs are  even possible.  They expect any selling  to be met with immediate buying, effectively backstopped by the Fed’s  unprecedented QE3 debt monetization.

All news is being interpreted as bullish today, thanks to the Fed manipulating the markets. If it ramps up QE3, then there will be more freshly conjured money pouring into stocks. If it instead tapers QE3, then the underlying US economy must be improving so cash on the sidelines will return. And of course any poor economic news is seen as forcing the Fed to keep aggressively monetizing debt, again bullish for stocks.

But all markets flow and ebb.  Prices rising and falling is the natural order of  things.  This is because nearly all  short-term price action is driven by the perpetually warring emotions of greed  and fear.  These are mutually exclusive,  so prevailing market sentiment swings back and forth between them like a great  pendulum.  Excessive greed is followed by  excessive fear, as the markets always ultimately balance out.

Euphoria, which is built on rampant greed,  is the most tell-tale sign of a major topping underway.  Traders no longer worry about anything, so their  greed drives them to buy every trivial dip.   This pushes markets higher and higher regardless of newsflow until  everyone interested in buying in anytime soon has already bought in.  That leaves only sellers, so the great  sentiment pendulum starts swinging back.

I suspect that very peak-euphoria moment is  here, when the SPX’s anomalous uptrend suddenly reverses.  Contrary to popular belief, this doesn’t  require a news catalyst.  Once all  available near-term buyers are sucked in, sellers assume control by  default.  Most bull markets top without  any crisis or even bad news to spark  the initial selling!  And that quickly  feeds on itself as late buyers rush to cut their losses.

Pretty much every technical or sentimental  indicator you want to look at these days confirms the euphoria blinding stock  traders.  Last week I focused on the  excessive valuations, stocks are very expensive so the  foolish traders chasing this topping are buying high.  This week I’m examining psychology, the extraordinary  greed and complacency driven by a one-sided melt-up.  And its resulting overboughtness.

This first chart looks at the benchmark  S&P 500 in blue and its definitive sentiment gauge, the VIX  implied-volatility index, in red.  The  span encompasses the SPX’s entire mighty cyclical bull market since March  2009

full article at source: http://www.marketoracle.co.uk/Article40502.html

Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks

By: Dr_Martenson

I  am very disappointed by, but not surprised at, the latest transfer of wealth to   the bankers from everyone else.  The most recent gold bear raid has vastly   enriched the bullion bankers, once again, at the expense of everyone trying to   protect their wealth from global central bank money printing.

The central plank of Bernanke‘s magic recovery plan has been to get everybody   back borrowing, spending, and “investing” in stocks, bonds, and other financial   assets.  But not equally so, as he has been instrumental in distorting the   landscape towards risk assets and away from safe harbors.

That’s why a 2-year loan to the U.S. government will only net you 0.22%, a   rate that is far below even the official rate of inflation.  In other words,   loan the U.S. government $10,000,000 and you will receive just $22,000 per year   for your efforts and lose wealth in the process because inflation reduced the   value of your $10,000,000 by $130,000 per year.  After the two years is up, you   are up $44,000 but out $260,000, for net loss of $216,000.

That wealth, or purchasing power, did not just vanish:  It was taken by the   process of inflation and transferred to someone else.  But to whom did it go?    There’s no easy answer for that, but the basic answer is that it went to those   closest to the printing press.  It went to the government itself, which spent   your $10,000,000 loan the instant you made it, and it went to the financiers who   play the leveraged game of money who happen to be closest to the Fed’s printing   press.

This almost completely explains why the gap between the rich and everyone   else is widening so rapidly, and why financiers now populate the top of every   Forbes 400 list.  There is no mystery, just a process of wealth transfer of   magnificent and historic proportions; one that has been repeated dozens of times   throughout history.

This Gold Slam Was By and For the Bullion Banks

A while back, I noted to Adam that the gold slams that were first detected   back in January were among the weakest I’d ever seen.  Back then I was seeing   the usual pattern of late-night, thin-market futures dumping, which I had seen   before in 2008 and 2011, two other periods when precious metals were slammed   hard………………………

full article at source: http://www.marketoracle.co.uk/Article39982.html

Comment:

By Thomas Clarke

Your article on the manipulation of gold is excellent and is of course spot on as I am totally convinced that the markets are been manipulated by the large finance  houses with their massive pre market and after hours trades conducted by the super computers that can trade in millionths of a second.

To combat this I have been trading just one stock and I am always hedged. I would not be in the markets without this hedging tool and to-day was an excellent example of how this particular stock was battered down, no doubt by the very moneymen who own this company in the first place. It is a case of shake the tree and see what apples fall off before picking off the low lying fruit on the cheap !I am always surprised by the constant flow of stupid money, new money coming in to this same trap! Today if you are looking for guidance in earnings you will be disappointed as there is no truth to be found on any Bank balance sheet, you should try reading something from Hans Christian Andersen or the story of the wizard of OZ at least it’s more entertaining.

Don’t thrust anything the main media tells you in fact I have been doing quite well doing the exact opposite but as I cannot time the market I give myself enough time to become right and of course I’m always hedged so all I really need then is to have enough time and If I run out of time ? why I just roll the position with the profit I make on the winning side so some time in the future the position goes into reverse and I collect on the other side!

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