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From the United States to Europe and Asia: The world’s central banks are flooding markets with liquidity and pushing deeper into unknown monetary policy territory. Jim Grant tellsGermany’s Finanz und Wirtschaft that he “fears that thisjourney will not end well.” The sharply thinking Wall Street veteran doesn’t trust the theoretical models of the central banks and warns of irrational exuberance in the financial markets adding that “the stock market is increasingly full of stocks that are borne aloft by hope rather than demonstrated performance.”
Mr. Grant, half a decade after the financial crisis hope is rising that the United States finally are on a sustainable path to economic recovery. How are chances that the US economy gets back soon its status as the growth engine of the world?
In the past, the United States has been very resilient even in the face of very unfavorable and even punitive policy measures. The United States seem to want to be prosperous despite of what’s happening in Washington. Therefore, one can never rule out a great unscripted outburst of prosperity. I hope for that to happen, but I don’t predict it. Also, I’m coming increasingly to wonder about the concept of an economy as an integrated whole. People who talk that way don’t appreciate the incredible complexity of individual choices and decisions. Until fairly recently, no one thought about what we now call the economy as anything organic and macro in whole. This wasn’t a concept that entered our collective thinking until the nineteen forties. If you go back and read what economists wrote and what newspapers reported in the early portion of the twentieth century, you see that they would talk about prosperity or depression. But they wouldn’t talk about the economy. They just didn’t see it that way.
Signs of a brighter economic environment have encouraged the Federal Reserve to finally start the tapering of its massive bond purchase program, also known as QE3. What’s your take on this, for most market participants surprising move?
The «non-taper taper», Wednesday’s announcement, is yet another Federal Reserve innovation. To remove the sting from its decision to reduce the gait of its asset purchases, the central bank has vowed to hold its policy rate at zero even when the jobless rate falls below 6½%. «Inflation or bust – or both» would appear to be the Fed’s mantra.
Janet Yellen, who will be the next Fed chairman, has already made clear that she stands behind the recent monetary policy. What can Investors expect from her?
She is the key figure head of our monetary system which is what I call the PhD-standard. In the not so distant past, until a generation or so ago, central bankers were as likely to be ordinary bankers or ordinary business people as they were academics like the college professors who are mainly running the show now in this country. Apparently, in the Federal Open Market Committee, the interest rate setting regime here, nine out of the twelve members this year never had an experience in the private sector. Janet Yellen is the quintessential academic economist who is now in charge of what we ought to call – in the interest of plain speaking – price control. They certainly mean well but they have led us on a path of price administration rather than price discovery.
What do you mean by that?
If you ask economists they will tell you that price controls are a very bad idea. But that’s exactly what these mandarins at the Fed are doing. We are embarked on a unique experiment in monetary manipulation. That kind of central banking might be more accurately called central planning. One time, I therefore asked Fed-Governor Jeremy Stein in an open meeting if he could help us understand the substantial economic difference between central banks manipulating money market interest rates on one hand and traders at commercial banks manipulation Libor at the other. He just denied answering it. Also, since interest rates are artificially low the valuation of all earning assets must be called into question. This is the difficulty investors are facing the world over. We live in a hall of mirrors thanks to the zero interest rate regime and the chronic nonstop interventions by central banks
What are the consequences of these distortions?
One distortion is that people who are in the business of dealing with distressed debt have very little to do these days because there is less and less distressed debt because there are fewer bankruptcies. That’s because interest rates are so low that companies, even in a very bad way, can survive. That reduces in an unintended fashion the dynamism of our economy. In a dynamic society entrepreneurs start things and other entrepreneurs finish them or bankers finish them for the entrepreneurs because the entrepreneurs have failed. Without failure there really can’t be any success. Otherwise you have a futile system of permanent state sponsored enterprises. So our manipulated interest rates have given us a society that, in commercial terms, is much less dynamic than it should be.
But with super low interest rates, central banks like the Fed or the European Central Bank are fighting the low inflation rates which can also cause some serious problems to the economy. The ECB just recently cut its intervention rate in half to one quarter of one percent because it expressed its concern over an inadequate rate of the depreciation of the value of the Euro. Seven tenths of one percent is not good enough, we need two percent, they think.But why is two percent of inflation a good thing? They even acknowledge that the statistical difference between seven tenths of one percent and one and a half percent might all be error. It is very difficult to measure these price indices and to assure that the data are compiled properly and seasonally adjusted in a correct way. It speaks to our collective faith in our economic technicians or to the lack of critical thought that we accept so generally theses numbers as if they were gospel.
Then again, there is still the risk of deflation looming. Examples of how harmful deflation can be are the Great Depression or more recently the economic malaise of Japan.
They never make a distinction between deflation and progress. In the last quarter of the nineteenth century thanks to everything, from the electric light to progress in the process of steal making or the telephone, prices and costs fell for the better part of thirty years. Real wages went up, some people suffered, many didn’t, society progressed and people got richer. Also, in the early nineteen sixties prices as measured by the CPI did not rise by as much as two percent for five years in a row. Nobody cared at that time. But now there is this fear fanned by the professors who run our central banks and we are all hysterics about deflation.
That’s maybe because so many governments and households are so heavily indebted these days. Why shouldn’t we have some mild form of inflation to make the deleveraging process a little bit easier?
By insisting on trying to raise the price level the Fed is in effect resisting the progress of our time. As technology advances one would expect that the cost of production would fall. Digital technology and the accession of all these hundreds of millions of hands in the world labor force ought to be forces for falling costs of making things. And as the cost of production falls so should the cost of selling things. Yet, the Fed, the ECB and other central banks resist this by using monetary policy. And as they resist the tendency of prices to fall in time of technological progress they unintentionally seed the booms and busts in financial markets.
More and more people on Wall Street are screaming alarm about new bubbles of speculation. Do you spot any sings of irrational exuberance?
The massive market of treasury securities is itself in some kind of a bubble. Other examples are junk bonds or biotechnology stocks. Another bubble is the art market as the record auction prices are indicating. A similar case is classic sport cars: Some weeks ago, a Ferrari 250 GTO commanded 52 Mio. $ in a private sale. That’s almost a 50% increase on the record that was achieved last year for another 250 GTO. Investors who are looking for tangible assets find better value in antique furniture or in historic documents.
Another reason why the Federal Reserve is going to start to taper its securities purchases might be fear of exactly such kind of bubbles. Do you think they will ever find a way back to a normal monetary policy?
They say they have everything under control. To do, what they are saying they are going to do, requires both: technique and judgment. But they did not see one clue before the disaster of the years 2007, 2008 and 2009 – absolutely nothing. These people are well intending and most respectable but they are very concrete minded and very fixated on their way of thinking. What a good investor has – and what a bureaucrat typically lacks of – is imagination.
So what could go wrong this time?
What happens if, despite the Obama administration, there is a succession of booming months in job growth and the Fed at first doesn’t react and then, when it finally tries, it’s too late: First, there is a little bit inflation and then there is some more inflation and bond yields suddenly go up. The Fed thinks it has to control this by selling bonds and contributes thereby to the rise in interest rates and the fall in bond prices. And suddenly, there’s a disaster in the bond market.
But there seems to be really not that much investor nervousness in the bond market these days.
What one can observe about interest rates is that they have tended to rise and fall in generation length intervals, at least throughout Europe and North America. Since the early eighties they have been falling now most of the past 31 years. So, one would expect that we are closer to the end of this bull market than to the beginning. Therefore, bond yields are likely to go up in the future, which makes bonds look like a very poor investment.
Also, the setback in the gold market does not flash red lights for inflation. What’s next for the archaic metal after the terrible performance in 2013?
Gold is just an enigma, isn’t it? As an asset it yields nothing and pays no dividend. Therefore, you can’t value it like a common stock or bond. To me, gold is an investment in the almost certain failure of the PhD-standard in central banking. The gold price is down some 25% this year and gold stocks have been destroyed. In fact, the bear market in gold equities is the only bear market I know of these days. But when the world gets a full-on glance of the new Fed Chairman Yellen and understands the measure of the policies that central bankers will likely continue to implement, the gold price will go up a lot against the dollar. Only if the central bankers ever achieve to solve all the problems with fiat money and if governments end their tendency to over-issue uncollateralized debt then gold gets obsolete. But I certainly don’t agree with that promise. I think gold will yet shine as a monetary alternative and maybe serve in my grand children’s life time again as an anchorage to the world’s monetary system.
How should investors behave in such an environment?
At «Grant’s Interest Rate Observer», our ambition is to identify assets that are priced in such ways that you can afford a margin of error, knowing that one is likely to be early or even wrong about certain aspects of a particular situation. With a properly conservative valuation you are protected to a degree against such kind of human errors. A friend of a friend once had a great saying. What this fellow said was: Successful investing is all about having everyone agreeing with you – later. We are trying to live that kind of philosophy: to think of a thing that is now out of favor but has a reason to be in favor.
What would be such a thing?
Russian oil stocks like Lukoil, Gazprom and Rosneft exhibit several of desirable characteristics. There is insider buying – oddly enough. The business seems to be viable or even more than viable. Corporate governance is awful and investor sentiment is almost universally depressed. So here are cheap stocks in an environment of great skepticism toward them and with the added appeal of substantial insider accumulation. Once we looked at these stocks we were even more attracted since these companies are soundly financed which mitigates the risk of being wiped out through bankruptcy.
Russian oil stocks are a little bit exotic, though. What about investment ideas for Western Europe or for the United States?
Nobody knows what is going to happen in Europe. Additionally, we can’t find a lot of buying opportunities. Stocks have already gone up and they don’t seem to reflect the risks of the still precarious macro environment. Of course, there are always risks. But the question is if you are being adequately compensated for that risk. One stock that stands out is the Italian energy company Eni. The ideal hedge against the possible consequences of an overly aggressive monetary policy would be a value-laden equity that could prosper in any macro-economic setting but could shine in an inflationary one. Eni conforms to that description.
And what’s your take on the US stock market?
In the US we’re seeing more to do on the short side than on the long side. As an example it could pay off to take a closer look at story stocks. A story stock is a stock that is highly valued by the price earnings or price revenue calculation. Its price is manly driven by the quality of the narrative brokers are telling about it. So we just recently compiled an index of such kind of stocks because we think the stock market is increasingly full of stocks that are borne aloft by hope rather than demonstrated performance. Examples for such story stocks are Tile Shop Holdings or Boulder Brands.
The Federal Reserve will probably reduce its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said.
The median forecast in a Bloomberg survey of 41 economists matches the $10 billion reduction announced two days ago as the Fed began to unwind the unprecedented stimulus that has defined Ben S. Bernanke’s chairmanship.
The Federal Open Market Committeesaid in a statement it will slow buying “in further measured steps at future meetings” if the economy improves as forecast. The Fed may taper its buying by about $10 billion per gathering, Bernanke said at a press conference in Washington on Dec. 18.
“If we’re making progress in terms of inflation and continued job gains, then I imagine we’ll continue to do, probably at each meeting, a measured reduction” in purchases, Bernanke said, calling $10 billion in the “general range” for a “modest” reduction. If the economy slows, the Fed may “skip a meeting or two,” and if the economy accelerates it may taper a “bit faster.”
“Doing this would avoid the drama of having to come to a consensus at each meeting,” Saporta said. “It may have been difficult enough to agree on the timing, size and composition of the first taper, so maybe no one has the appetite to do that on an ongoing basis.”
A report today showed third-quarter growth exceeded expectations. Gross domestic product climbed at a 4.1 percent annualized rate, the strongest since the final three months of 2011 and up from a previous estimate of 3.6 percent, Commerce Department figures showed in Washington.
The Standard & Poor’s 500 Index rose 0.4 percent to 1,816.33 at 10:17 a.m. in New York, while the yield on the 10-year Treasury note fell 0.02 percentage point to 2.91 percent.
Bernanke’s second four-year term ends Jan. 31, and Vice Chairman Janet Yellen is awaiting Senate confirmation to succeed him.
The Fed coupled its decision to taper bond purchases with a stronger commitment to keep its benchmark interest rate low. Bernanke said the decision was intended to “keep the level of accommodation the same overall.”
Unemployment fell to a five-year low of 7 percent in November as employers added 203,000 workers to payrolls. Inflation measured by the personal consumption expenditures index was 0.7 percent in October and has remained below the Fed’s 2 percent objective for almost a year and a half.
The Fed’s balance sheet rose to a record $4.01 trillion as of Dec. 18, up from $2.82 trillion when it began the third round of purchases. The FOMC began QE3, as the program is known, in September 2012 with monthly purchases of $40 billion in mortgage bonds and added $45 billion in Treasury purchases starting in December 2012.
The balance sheet will expand to about $4.4 trillion by the time the program ends, according to median estimates in the survey. Economists forecast purchases in the third round eventually will reach $800 billion in mortgage bonds and $789 billion in Treasuries.
The Federal Reserve’s balance sheet reached a record $4 trillion, as the central bank pushed on with its unprecedented asset-purchase program.
The Fed’s holdings rose $14.1 billion to $4.01 trillion in the past week, the Fed said today in a statement in Washington. Policy makers said yesterday they will slow monthly purchases of Treasuries and mortgage bonds to $75 billion in January, the first cut to the $85 billion pace they maintained for a year.
“We’re going to be living with a big Fed balance sheet for a long time,” said Josh Feinman, the New York-based global chief economist for Deutsche Asset & Wealth Management, which oversees $1.2 trillion, and a former Fed senior economist. “They’re still missing their dual mandate on both sides and that would call for easy monetary policy with unemployment too high and inflation too low.”
Chairman Ben S. Bernanke has raised assets from $2.82 trillion before the third round of quantitative easing began in September 2012 and quadrupled them since 2008 to attack unemployment after the 2008-2009 recession. He said yesterday the Fed may take “similar moderate steps” at each meeting to slow QE, which also carries potential risks.
“As the balance sheet of the Federal Reserve gets large, managing that balance sheet, exiting from that balance sheet become more difficult,” Bernanke said at his press conference. “There are concerns about effects on asset prices, although I would have to say that’s another thing that future monetary economists will want to be looking at very carefully.”
The assets exceed the U.S. government’s budget and are bigger than the gross domestic product of Germany, which has the world’s third-largest economy. Still, the European Central Bank, Bank of Japan and Bank of England hold more assets relative to the size of their economies, third-quarter data compiled by Haver Analytics show.
Policy makers said yesterday even expanding the balance sheet at a slower pace would keep supporting the labor market.
“The committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery,” the Federal Open Market Committee said in its policy statement.
To contact the editor responsible for this story: Chris Wellisz at email@example.com
The unelected central planners at the Federal Reserve have decided that the time has come to slightly taper the amount of quantitative easing that it has been doing. On Wednesday, the Fed announced that monthly purchases of U.S. Treasury bonds will be reduced from $45 billion to $40 billion, and monthly purchases of mortgage-backed securities will be reduced from $35 billion to $30 billion. When this news came out, it sent shockwaves through financial markets all over the planet. But the truth is that not that much has really changed. The Federal Reserve will still be recklessly creating gigantic mountains of new money out of thin air and massively intervening in the financial marketplace. It will just be slightly less than before. However, this very well could represent a very important psychological turning point for investors. It is a signal that “the party is starting to end” and that the great bull market of the past four years is drawing to a close. So what is all of this going to mean for average Americans? The following are 8 ways that “the taper” is going to affect you and your family…
1. Interest Rates Are Going To Go Up
Following the announcement on Wednesday, the yield on 10 year U.S. Treasuries went up to 2.89% and even CNBC admitted that the taper is a “bad omen for bonds“. Thousands of other interest rates in our economy are directly affected by the 10 year rate, and so if that number climbs above 3 percent and stays there, that is going to be a sign that a significant slowdown of economic activity is ahead.
2. Home Sales Are Likely Going To Go Down
Mortgage rates are heavily influenced by the yield on 10 year U.S. Treasuries. Because the yield on 10 year U.S. Treasuries is now substantially higher than it was earlier this year, mortgage rates have also gone up. That is one of the reasons why the number of mortgage applications just hit a new 13 year low. And now if rates go even higher that is going to tighten things up even more. If your job is related to the housing industry in any way, you should be extremely concerned about what is coming in 2014.
3. Your Stocks Are Going To Go Down
Yes, I know that stocks skyrocketed today. The Dow closed at a new all-time record high, and I can’t really provide any rational explanation for why that happened. When the announcement was originally made, stocks initially sold off. But then they rebounded in a huge way and the Dow ended up close to 300 points.
A few months ago, when Fed Chairman Ben Bernanke just hinted that a taper might be coming soon, stocks fell like a rock. I have a feeling that the Fed orchestrated things this time around to make sure that the stock market would have a positive reaction to their news. But of course I absolutely cannot prove this at all. I hope someday we learn the truth about what actually happened on Wednesday afternoon. I have a feeling that there was some direct intervention in the markets shortly after the announcement was made and then the momentum algorithms took over from there.
Of course QE3 is not being ended, but this tapering sends a signal to investors that the days of “easy money” are over and that we have reached the peak of the market.
And if you are at the peak of the market, what is the logical thing to do?
Sell, sell, sell.
But in order to sell, you are going to need to have buyers.
And who is going to want to buy stocks when there is no upside left?
4. The Money In Your Bank Account Is Constantly Being Devalued
When a new dollar is created, the value of each existing dollar that you hold goes down. And thanks to the Federal Reserve, the pace of money creation in this country has gone exponential in recent years. Just check out what has been happening to M1. It has nearly doubled since the financial crisis of 2008…
The Federal Reserve has been behaving like the Weimar Republic, and this tapering does not change that very much. Even with this tapering, the Fed is still going to be creating money out of thin air at an absolutely insane rate.
And for those that insist that what the Federal Reserve is doing is “working”, it is important to remember that the crazy money printing that the Weimar Republic did worked for them for a little while toobefore ending in complete and utter disaster.
5. Quantitative Easing Has Been Causing The Cost Of Living To Rise
The Federal Reserve insists that we are in a time of “low inflation”, but anyone that goes to the grocery store or that pays bills on a regular basis knows what a lie that is. The truth is that if the inflation rate was still calculated the same way that it was back when Jimmy Carter was president, the official rate of inflation would be somewhere between 8 and 10 percent today.
Most of the new money created by quantitative easing has ended up in the hands of the very wealthy, and it is in the things that the very wealthy buy that we are seeing the most inflation. As one CNBC article recently stated, we are seeing absolutely rampant inflation in “stocks and bonds and art and Ferraris and farmland“.
6. Quantitative Easing Did Not Reduce Unemployment And Tapering Won’t Either
The Federal Reserve actually first began engaging in quantitative easing back in late 2008. As you can see from the chart below, the percentage of Americans that are actually working is lower today than it was back then…
The mainstream media continues to insist that quantitative easing was all about “stimulating the economy” and that it is now okay to cut back on quantitative easing because “unemployment has gone down”. Hopefully you can see that what the mainstream media has been telling you has been a massive lie. According to the government’s own numbers, the percentage of Americans with a job has stayed at a remarkably depressed level since the end of 2010. Anyone that tries to tell you that we have had an “employment recovery” is either very ignorant or is flat out lying to you.
7. The Rest Of The World Is Going To Continue To Lose Faith In Our Financial System
Everyone else around the world has been watching the Federal Reserve recklessly create hundreds of billions of dollars out of thin air and use itto monetize staggering amounts of government debt. They have been warning us to stop doing this, but the Fed has been slow to listen.
The greatest damage that quantitative easing has been causing to our economy does not involve the short-term effects that most people focus on. Rather, the greatest damage that quantitative easing has been causing to our economy is the fact that it is destroying worldwide faith in the U.S. dollar and in U.S. debt.
Right now, far more U.S. dollars are used outside the country than inside the country. The rest of the world uses U.S. dollars to trade with one another, and major exporting nations stockpile massive amounts of our dollars and our debt.
We desperately need the rest of the world to keep playing our game, because we have become very dependent on getting super cheap exports from them and we have become very dependent on them lending us trillions of our own dollars back to us.
If the rest of the world decides to move away from the U.S. dollar and U.S. debt because of the incredibly reckless behavior of the Federal Reserve, we are going to be in a massive amount of trouble. Our current economic prosperity greatly depends upon everyone else using our dollars as the reserve currency of the world and lending trillions of dollars back to us at ultra-low interest rates.
And there are signs that this is already starting to happen. In fact, China recently announced that they are going to quit stockpiling more U.S. dollars. This is one of the reasons why the Fed felt forced to do something on Wednesday.
But what the Fed did was not nearly enough. It is still going to be creating $75 billion out of thin air every single month, and the rest of the world is going to continue to lose more faith in our system the longer this continues.
8. The Economy As A Whole Is Going To Continue To Get Even Worse
Despite more than four years of unprecedented money printing by the Federal Reserve, the overall U.S. economy has continued to decline. If you doubt this, please see my previous article entitled “37 Reasons Why ‘The Economic Recovery Of 2013’ Is A Giant Lie“.
And no matter what the Fed does now, our decline will continue. The tragic downfall of small cities such as Salisbury, North Carolina are perfect examples of what is happening to our country as a whole…
During the three-year period ending in 2009, Salisbury’s poverty rate of 16% was about 3% higher than the national rate. In the following three-year period between 2010 and 2012, the city’s poverty rate was approaching 30%. Salisbury has traditionally relied heavily on the manufacturing sector, particularly textiles and fabrics. In recent decades, however, manufacturing activity has declined significantly and continues to do so. Between 2010 and 2012, manufacturing jobs in Salisbury — as a percent of the workforce — shrank from 15.5% to 8.3%.
But the truth is that you don’t have to travel far to see evidence of our economic demise for yourself. All you have to do is to go down to the local shopping mall. Sears has experienced sales declines for 27 quarters in a row, and at this point Sears is a dead man walking. The following is from a recent article by Wolf Richter…
The market share of Sears – including K-Mart – has dropped to 2% in 2013 from 2.9% in 2005. Sales have declined for years. The company lost money in fiscal 2012 and 2013. Unless a miracle happens, and they don’t happen very often in retail, it will lose a ton in fiscal 2014, ending in January: for the first three quarters, it’s $1 billion in the hole.
Despite that glorious track record, and no discernible turnaround, the junk-rated company has had no trouble hoodwinking lenders into handing it a $1 billion loan that matures in 2018, to pay off an older loan that would have matured two years earlier.
And J.C. Penney is suffering a similar fate. According to Richter, the company has lost a staggering 1.6 billion dollars over the course of the last year…
Then there’s J.C. Penney. Sales plunged 27% over the last three years. It lost over $1.6 billion over the last four quarters. It installed a revolving door for CEOs. It desperately needed to raise capital; it was bleeding cash, and its suppliers and landlords had already bitten their fingernails to the quick. So the latest new CEO, namely its former old CEO Myron Ullman, set out to extract more money from the system, borrowing $1.75 billion and raising $785 million in a stock sale at the end of September that became infamous the day he pulled it off.
So don’t believe the hype.
The economy is getting worse, not better.
Quantitative easing did not “rescue the economy”, but it sure has made our long-term problems a whole lot worse.
And this “tapering” is not a sign of better things to come. Rather, it is a sign that the bubble of false prosperity that we have been enjoying for the past few years is beginning to end.
An economist recently recommended that I read a paper by three Fed researchers titled: “Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis.” It was presented at a major conference last year and made the rounds again in the economics blogosphere this year with generally positive reviews. It seems to have been influential.
The authors – Christopher Foote, Kristopher Gerardi and Paul Willen – argue that the financial crisis was caused by over-optimistic expectations for house prices, while other factors such as distorted incentives for bankers played only minor roles or no roles at all. In other words, it was a bubble just like the Dutch tulip mania of the 1630s or South Sea bubble of the early 1700s, and had nothing to do with modern financial practices.
Then the authors make absolutely sure of their work being well-received by those who matter. The financial crisis is surely a touchy subject at the Fed, where the biggest PR challenge is “bubble blowing” criticism from those of us who aren’t on the payroll (directly or indirectly). But Foote, Gerardi and Willen are, of course, on the payroll. They tell us there’s little else that can be said about the origins of the crisis, because any “honest economist” will admit to not understanding bubbles.
Here’s their story:
[I]t is deeply unsatisfying to explain the bad decisions of both borrowers and lenders with a bubble without explaining how the bubble arose. …Unfortunately, the study of bubbles is too young to provide much guidance on this point. For now, we have no choice but to plead ignorance, and we believe that all honest economists should do the same. But acknowledging what we don’t know should not blind us to what we do know: the bursting of a massive and unsustainable housing bubble in the U.S. housing market caused the financial crisis.
We don’t often critique papers like this (who cares about Fed research outside of academic economists?) But what the heck, the bolded sentences above – in particular, the hypocritical reference to “honest economists” – deserve at least a few words of rebuttal.
We’ll limit our comments to two areas. First, we’ll offer a redline edited version of a key section in the authors’ conclusion, mostly to share a different perspective on the financial crisis. Second, we’ll point out an example of dishonesty from these economists who brazenly claim that their own perspective is the only one that can be called honest.
Where did the bubble come from?
In practice, the authors don’t completely “plead ignorance” about the causes of bubbles as they claim to do. They offer a few “speculative” ideas about the housing bubble, writing:
One speculative story begins with the idea that some fundamental determinants of housing prices caused them to move higher early in the boom. Perhaps the accommodative monetary policy used to fight the 2001 recession, or higher savings rates among developing countries, pushed U.S. interest rates lower and thereby pushed U.S. housing prices higher. Additionally, after the steep stock market decline of the early 2000s, U.S. investors may have been attracted to real estate because it appeared to offer less risk. The decisions of Fannie Mae and Freddie Mac may have also played a role in supporting higher prices…
This smells to us like a strategy of gently acknowledging criticism (of the Fed’s interest rate policies), while at the same time attempting to neutralize it. The authors imply that low interest rates were an unavoidable byproduct of the Fed’s recession fighting, and then shift some of the blame to foreigners in developing countries before moving on to other possible explanations.
But even if you believe the Fed’s anti-recession measures were worthwhile, the authors’ story is nonsense. It needs corrections for the facts that the Fed continued to slash rates nearly two years after the 2001 recession and then maintained an ultra-easy stance for a few years after that. It also begs the question of why the Fed responded to high foreign savings rates – which were the flip side to U.S. current account deficits and primary source of disinflation – with even greater stimulus. Moreover, there’s much more to the Fed’s role in the housing boom than these factors.
As we see it, the financial crisis validated certain principles that aren’t reflected in mainstream models but feature in fringe areas such as Austrian business cycle theory orbehavioral economics. Economists in these areas offer far more detailed explanations for the housing bubble than the “speculative story” above. For example, recent Nobel Prize winner Robert Shiller filled a whole book with bubble theories. While Foote, Gerardi and Willen would presumably call these economists dishonest, we beg to differ. Borrowing from non-mainstream ideas, here’s our edited version of the excerpt:
If this version is accurate, the Fed’s failures include three whoppers:
- Monetary policy was too stimulative throughout the boom.
- Two decades of Greenspan/Bernanke “puts” created a mentality that risky bets couldn’t lose (moral hazard).
- The Fed applauded rather than stopping the deterioration in lending standards, blithely disregarding its status as only institution that was mandated to set nation-wide lending requirements.
As you might expect, Foote, Girardi and Willen weave a story that either denies or diverts attention from all three failures. One part of the story is their claim that bubbles can’t be explained and anyone who thinks otherwise is dishonest. If the defining feature of the crisis can’t be explained, then it can’t be blamed on the Fed, right?
Other parts of the story are embedded in 12 “facts” that are said to describe the crisis. As written, many of the “facts” are strictly true. Some may have even added to the public debate because they weren’t widely known in policy circles, even as they were understood in the fixed income business. Others, though, can only distort that debate. The worst of the so-called facts are somewhere in between flat wrong and technically accurate but interpreted in ways that don’t stand up to scrutiny.
Lending standards didn’t really change during the boom?!?
We’ll point out a single example, from pages 9-11 of the paper and sub-titled, “Fact 4: Government policy toward the mortgage market did not change much from 1990 to 2005.” In this section, the authors deny that policymakers dropped the ball on lending standards. They don’t mention central bankers explicitly (that would be too obvious?), choosing instead to absolve the Clinton administration of blame for its ill-fated National Home Ownership strategy. Of course, their argument also exonerates the Fed if you happen to believe it.
The argument depends partly on a history lesson that begins like this:
It is true that large downpayments were once required to purchase homes in the United States. It is also true that the federal government was instrumental in reducing required downpayments in an effort to expand homeownership. The problem for the bad government theory is that the timing of government involvement is almost exactly 50 years off. The key event was the Servicemen’s Readjustment Act of 1944, better known as the GI Bill, in which the federal government promised to take a first-loss position equal to 50 percent of the mortgage balance, up to $2,000, on mortgages originated to returning veterans.
The authors then tell a nostalgic tale about loan-to-value (LTV) ratios in the 1950s and 1960s, before skipping ahead to the 1990s and 2000s. For the latter period, we’re told to believe that lending standards didn’t decline in a meaningful way:
Figure 6 shows LTV ratios for purchase mortgages in Massachusetts from 1990 to 2010, the period when government intervention is supposed to have caused so much trouble … But inspection of Figure 6 does not support the assertion that underwriting behavior was significantly changed by that program [Clinton’s National Homeownership Strategy].
Here’s the key chart that goes with this claim:
Here are a few reasons why the thesis doesn’t fit the reality:
- The authors share data for only one state (Massachusetts), while failing to mention that it didn’t have much of a housing bust. Consider that Boston is one of only four cities (out of 20) in the S&P/Case-Shiller Home Price Index for which prices didn’t fall by more than 20%. During the bear market period for the full index, the Boston component fell only 16%, less than half the 34% drop in the national index.
- The authors’ sweeping argument relies on not only a single state, but also a single indicator (LTV ratios). You might wonder: What were the credit scores of borrowers at each LTV level? How did their incomes compare to monthly mortgage payments? Were their incomes verified? These types of questions need answers before you can draw general conclusions about underwriting behavior.
- Even the cherry-picked data – Massachusetts LTV ratios! – doesn’t support the authors’ conclusions. It shows that the incidence of ratios greater than 100% tripled during the housing boom, from about 8% of all Massachusetts mortgages to about 25%. The claim that this change isn’t significant is incredulous.
- LTV ratios in the 1950s and 1960s, while interesting, are irrelevant to the early 21stcentury housing boom. Different era, different circumstances, different implications.
Needless to say, the authors’ attempt at defending fellow public officials falls well short. Lending standards declined sharply during the boom, and this was encouraged by both the federal government and the Fed. No amount of data mining can change these facts.
Overall, the Fed staffers’ paper fits a common pattern. It’s stuffed with enough data to be taken seriously, but inferences are based more on spin than objective analysis. The approach aligns conclusions with an establishment narrative, while protecting the authors’ establishment status. The last thing you would call this paper is an honest piece of research.
As long as we’re at it, here’s an extra edit, this one offering another perspective on Foote, Gerardi and Willen’s conclusions about our knowledge of bubbles (from the first excerpt above):
The rich continue to grow richer, and as David McWilliams (of Punk Economics) so eloquently explains in this brief clip, this has pushed the Fed into a corner. As the Federal Reserve gets a new chair and decides what to do next, whether to print $85 billion a month more or not, McWilliams examines the heist that is the new normal financialized economy – who gets all the loot and why today’s kidnappers wear Prada. “Wake up,” he blasts, explaining the uncomfortable reality of what happens when financial kidnappers dress up as loyal patriots and extort money in the name of the common good.
“Today’s ransom is the billions of dollars in the form of QE; today’s hostage is the US economy which the kidnappers threaten to kill by a collapse in asset prices if they don’t get more and more free money… and who is paying the ransom… it is the Federal Reserve…
The message from Wall Street – the kidnapper – is: if you don’t give us what we want, we will killl the economy.”
If You Don’t Trust the Fed, Here’s an Inside View That Confirms Your Worst Suspicions | CYNICONOMICS
If You Don’t Trust the Fed, Here’s an Inside View That Confirms Your Worst Suspicions
Earlier this year the notion that the Fed might modestly taper its purchases drove significant upheaval across financial markets. This episode should engender humility on all sides. It should also correct the misimpression that QE is anything other than an untested, incomplete experiment.
– Former FOMC Governor Kevin Warsh, writing in the Wall Street Journal on November 13.
If I may paraphrase a sainted figure for many of my colleagues, John Maynard Keynes: If the members of the FOMC could manage to get themselves to once again be thought of as humble, competent people on the level of dentists, that would be splendid. I would argue that the time to reassume a more humble central banker persona is upon us.
– Dallas Fed President Richard Fisher, speaking in Chicago on December 9.
I fault the Fed for its lack of intellectual leadership on the economy and, in particular, Bernanke’s lack of forthrightness about the limits of the Fed’s ability to address slow growth and fiscal disequilibrium.
– Former St. Louis Fed President William Poole, speaking in Washington D.C. on March 7.
Does anyone else see a common theme?
Last month, we offered a plain language translation of the Warsh op-ed, because we thought it was too carefully worded and left readers wondering what he really wanted to say. Translation wasn’t necessary for Fisher’s speech, which contained a clear no-confidence vote in the Fed’s QE program. Poole’s comment was from a seminar question-and-answer session earlier this year, but it reached our inbox only last week in a transcript published in the latest Financial Analysts Journal. The Q&A was attached to an article that I’ll discuss here, because it makes claims we haven’t heard from others with FOMC experience.
Here’s an example:
Ben Bernanke talks a lot about risk management and the tradeoff between benefits and costs; he maintains that the need to balance these two issues justifies proceeding with the current policy. But Bernanke does not discuss the risk of political intervention in Fed policy despite numerous examples of the Fed giving in to political pressure and waiting too long to change its policy, which results in a detrimental outcome for the economy.
Essentially, pressure on the Fed will come from inside the government and may not be very visible; it may be limited to a few op-ed articles from the housing lobby. [FFW – presumably, Poole intended “it” to refer to the visible part of the pressure.] The true amount of political pressure will be largely hidden.
Poole is more or less saying that we have no idea what’s truly behind the Fed’s decisions. But he doesn’t stop there. He’s willing to make a prediction that you wouldn’t expect from an establishment economist:
[T]he real issue is the politics of monetary policy … I believe that the Fed will not successfully resist the political winds that buffet it. I am not a political expert or a political analyst by trade. My qualification for speaking on this topic is that I have followed the interactions between monetary policy and politics for a very long time. As with all things political, the politics of the Fed means that realities often fail to match outward appearances … I believe the Fed is likely to overdo its current QE policy of purchasing $45 billion of Treasuries and $40 billion of MBSs per month.
So there you have it: a 10-year FOMC veteran wants us to know that central banking isn’t all about the latest hot research on the wonders of unconventional measures. On the contrary, monetary policy is no different than other types of policymaking; it’s guided by hidden political forces.
If you don’t mind our saying so, we feel a bit vindicated. Our very first Fed post ten months ago included the following:
As for the flip-flop [the Fed’s commitment to lifting the stock market through QE so shortly after claiming no responsibility for stock prices in recent bubbles], it’s easy to find a logical explanation. The banks want QE. Influential political and economic leaders want QE. Therefore, the path of least resistance is to give them QE. On the other hand, market manipulation to prick the Internet and housing bubbles would have been widely unpopular. Therefore, policymakers rejected the idea that they should manipulate markets and prick bubbles. No one likes to be unpopular.
More generally, QE seems to me to be explained by Bernanke (and his colleagues) being unable to sit still. This is natural behavior when you have to continually justify decisions. It’s not easy to explain to Congress, the media or public why you’re doing nothing but waiting for past policies to work. It won’t be long before people portray you as weak and indecisive and tell you to “Get to work, Mr. Chairman.” But once you start implementing new policies, especially if they’re in a direction that’s expedient for everyone in the short-term, then those criticisms go away. They’re replaced by adjectives like bold and proactive. And who doesn’t want to be known as bold and proactive?
We haven’t returned to this theme often, partly because it can’t be tested like we can test the Fed’s economic beliefs. Regular readers know that we do quite a lot of empirical work. We try our best to follow David Hume’s maxim that: “A wise man, therefore, proportions his belief to the evidence.”
As we see it, the Fed’s economic beliefs are proportioned more closely to political factors than real-life evidence. You might replace Hume with Upton Sinclair, who said “it is difficult to get a man to understand something when his salary depends on him not understanding it.”
In other words, politics and personal incentives are a huge part of the picture, and not just in central banking but in the economics profession more generally.
The theories underpinning current policies, which have built up over the last 80 years or so, can’t be properly understood without thinking through the motivations behind key developments. Some of the motivational factors are obvious, while others are more subtle, but I won’t clutter this post with our musings on the hidden drivers in economics. Detlev Schlichter offered a nice summary in his book, Paper Money Collapse:
It would be naïve to simply assume that the exalted position of [mainstream economic] theories in present debate is the result of their superiority in the realm of pure sciences. This is not meant as a conspiracy theory in the sense that professional economists are being hired specifically to develop useful theories for the privileged money producers in order to portray their money printing as universally beneficial. But it would be equally wrong to assume that the battle for ideas is fought only by dispassionate and objective truth-seekers in ivory towers and that only the best theories are handed down to the decision makers in the real world, and that therefore whatever forms the basis of current mainstream discussion must be the best and most accurate theory available. No science operates in a vacuum. The social sciences in particular are often influenced in terms of their focus and method of inquiry by larger cultural and intellectual trends in society. This is probably more readily accepted in the other major social science, history. What questions research asks of the historical record, what areas of inquiry are deemed most pressing and how historians go about historical analysis is often shaped by factors that lie outside the field of science proper and that reflect broader social and political forces.
Moreover, ever since mankind began writing its histories they have served political ends. History frequently provides a narrative for the polity that gives it a sense of identity or purpose, whether this is justified or not, and the dominant interpretations of history can be powerful influences on present politics. Similarly, certain economic theories have become to dominate debate on economic issues because they fit the zeitgeist and specific political ideologies. This is not to say that economics cannot be a pure, objective science. It certainly can and should be. Whether theories are correct or not must be decided by scientific inquiry and debate, and not in the arena of politics and public opinion. But it is certainly true that many economists do depend for their livelihoods on politics and public opinion, and that they cannot operate independently of them.
Schlichter is one of many authors and bloggers willing to discuss the awkward realities lurking behind economic theory and central banking. But these ideas are considered taboo by most mainstream media outlets. They’re not discussed in establishment venues or spoken by establishment figures.
Or so I thought.
Poole’s refreshingly honest take on the Fed’s inner workings – from someone who truly knows what goes on behind the curtains – is more than welcome.
Although the U.S. stock market continues to hit new nominal highs on a nearly daily basis, the U.S. economy bumps along at a lackluster pace. This disconnect has been achieved by a massive Fed experiment in monetary stimulation. Through the combination of seemingly endless maintenance of zero interest rates and the injection of some $1trillion a year of synthetic money into fixed-income markets, the Fed is hoping that the boom it is creating on Wall Street will lead to a boom on Main Street. In reality, this a very dangerous economic gamble of enormously high stakes. As we have seen in the recent past, financial bubbles can leave catastrophe in their wake.
However, there are many in the financial establishment who disagree with the professor, including, most interestingly, Professor Karl Case, the co-creator of the famous Case-Shiller Home Price Index. Most markets either believe that current share prices are fully justified by corporate metrics or they believe the Fed has expertise, and the ability, to prevent an ugly sell-off if things turn out badly. This debate has become the defining conversation as we head into the end of the year.
However, those who believe that QE will produce positive results to compensate for the risks are finding their position to be increasingly difficult to defend. At the International Monetary Fund’s November annual conference in Washington, Mr. David Wilcox, reputed to be one of the Fed’s most important economic advisors, offered insight into some problems facing QE. In essence, he maintained that the Fed’s QE-3 program is producing only very limited results in terms of U.S. economic growth. At the same time, he seemed to hint that unlimited QE could create serious financial market distortions.
Many market observers, including myself, think that the Fed’s open-ended QE program has been a massively expensive failure. As a result, market watchers have become increasingly eager for the program to be wound down, and many do not understand the Fed’s reluctance to taper its monthly bond purchases.
Although many of the more open-minded members of the Fed’s Open Market Committee may have lost faith in the ability of QE to deliver tangible gains in the real economy, they have also shown some concern that a diminishing of QE could trigger stock and bond market turmoil. There can be little doubt that such an outcome could usher in a new round of recession. In other words the “good” that the Fed sees in QE may merely be the prevention of a potentially worse reality.
A majority of investors have seemed to convince themselves that QE has become an unneeded crutch that the Fed will be more than happy to abandon by the end of next year. Many believe that such an outcome will place limited downward pressure on stocks, bonds and real estate. These views are Pollyannish in the extreme. The recent sell-off in the bond market should attest to that. On the other hand, some investors, including some aggressive hedge funds, seem to be operating under the belief that QE will not be ended any time soon, if ever. They have even borrowed massively to invest on booming financial markets that stand already at record highs. Today, total New York Stock Exchange margin debt stands at $412 billion, an all-time record.
The disagreements of the investing public are of little weight in comparison to the opinions of the FOMC members themselves (such is the world we have created). The key point for 2014 is how many voting members of the new Yellen-led FOMC will follow her down the Keynesian cul-de-sac. Should a majority of the FOMC feel forced, in the national interest, to vote against an expansion of the Bernanke-era stimulus policies (which we believe Ms. Yellen is sure to propose), financial markets could be in for a severe shock.
Those who wish to continue equity investing in face of this risk might be well-advised to ensure they have adequate hedging policies in place. Investors in both equities and bonds must question how the Fed can coax a market into a continued boom in a manner disconnected from economic reality.
John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.
Hunting season is off to a good start this week, and I’m not just talking about deer hunting. It seems that former Fed officials declared open season on their ex-colleagues.
First, Andrew Huszar, who once ran the Fed’s mortgage buying operation, let loose in yesterday’s Wall Street Journal. Huszar apologized to all Americans for his role in the toxic QE programs.
And then today, the WSJ struck again, this time with an op-ed by former FOMC Governor Kevin Warsh.
Instead of excerpting the Huszar essay, we’ll only share the apt words of commenter Ernest Moosa, who wrote:
Every reader needs to understand and grasp what is being said here. We have been on the wrong economic path for five years, and without the desired results, our leadership says “FULL SPEED AHEAD”. We have wasted so much time and money that future generations will point to us and say this is how a great country can be destroyed in less than a decade with no shots even being fired. Deplorable.
Moosa hit the nail on the head, and we recommend reading the op-ed in its entirety if you haven’t already done so.
As for Warsh’s editorial, it was tough to read without wondering what he’s thinking. Warsh is a former Morgan Stanley investment banker whose 2006 to 2011 stint on the FOMC spanned the end of the housing boom and the first few years of “unconventional” policy measures. After such a solid grounding in the ways of the Fed and Wall Street, he recently morphed into a critic of the status quo. His criticisms are welcome and we believe accurate, but they’re also oh so carefully expressed. They’re written with the polite wording and between-the-lines meanings that you might expect from such an establishment figure. He seems to be holding back.
So, what does he really want to say?
Here are our guesses, alongside excerpts from the editorial on each of nine topics that Warsh covered:
“The purchase of long-term assets from the U.S. Treasury to achieve negative real interest rates is extraordinary, an unprecedented change in practice since the Treasury-Fed Accord of 1951.
The Fed is directly influencing the price of long-term Treasurys—the most important asset in the world, the predicate from which virtually all investment decisions are judged. Earlier this year the notion that the Fed might modestly taper its purchases drove significant upheaval across financial markets. This episode should engender humility on all sides. It should also correct the misimpression that QE is anything other than an untested, incomplete experiment.”
What he really wants to say:
We’d all be better off if the central banking gods (myself included) hadn’t been so damn arrogant to think that we actually understood QE. We don’t, and it never should have been attempted.
The Fed’s focus on inflation
“Low measured inflation and anchored inflationary expectations should only begin the discussion about the wisdom of Fed policy, not least because of the long and variable lags between monetary interventions and their effects on the economy. The most pronounced risk of QE is not an outbreak of hyperinflation. Rather, long periods of free money and subsidized credit are associated with significant capital misallocation and malinvestment—which do not augur well for long-term growth or financial stability.”
What he really wants to say:
The inflation target is stupid. It’s not the CPI that’s killing us, it’s the credit booms and busts. The best way out of this mess is to lose the inflation target and go back to the old-fashioned approach of “taking the punch bowl away when the party gets going.”
Pulling off the exit from extraordinary measures
“[T]he foremost attributes needed by the Fed to end its extraordinary interventions and, ultimately, to raise interest rates, are courage and conviction. The Fed has been roundly criticized for providing candy to spur markets higher. Consider the challenge when a steady diet of spinach is on offer.”
What he really wants to say:
Pundits who praise the courage of our central bankers are clueless. The true story is that we consistently take the easy way out. If the current cast of characters wanted to show courage, they’d man up and replace the short-term sugar highs with long-term thinking.
The Fed’s relationship to the rest of Washington
“The administration and Congress are unwilling or unable to agree on tax and spending priorities, or long-term structural reforms. They avoid making tough choices, confident the Fed’s asset purchases will ride to the rescue. In short, the central bank has become the default provider of aggregate demand. But the more the Fed acts, the more it allows elected representatives to stay on the sidelines. The Fed’s weak tea crowds out stronger policy measures that can only be taken by elected officials. Nobel laureate economist Tom Sargent has it right: ‘Monetary policy cannot be coherent unless fiscal policy is.’”
What he really wants to say:
And if we don’t man up, you can count on Congress to continue with its egregious generational theft and destroy our nation’s finances, just as me, Stan and Geoff have been warning.
Who benefits from QE and who doesn’t?
“Most do not question the Fed’s good intentions, but its policies have winners and losers, which should be acknowledged forthrightly.
The Fed buys mortgage-backed securities, thereby providing a direct boost to balance sheet wealth of existing homeowners to the detriment of renters and prospective future homeowners. The Fed buys long-term Treasurys to suppress yields and push investors into riskier assets, thereby boosting U.S. stocks.
The immediate beneficiaries: well-to-do households and established firms with larger balance sheets, larger risk appetites, and access to low-cost credit. The benefits to workers and retirees with significant fixed obligations are far more attenuated. The plodding improvement in the labor markets offers little solace.”
What he really wants to say:
Unbelievably, my ex-colleagues still don’t acknowledge their policies are killing the middle class to the benefit of the plutocracy. Their silence on this is wholly unacceptable and has to stop (and so do the policies).
Domestic versus global policy considerations
“[T]he U.S. is the linchpin of an integrated global economy. Fed-induced liquidity spreads to the rest of the world through trade and banking channels, capital and investment flows, and financial-market arbitrage. Aggressive easing by the Fed can be contagious, inclining other central banks to ease as well to stay competitive. The privilege of having the dollar as the world’s reserve currency demands a broad view of global economic and financial-market developments. Otherwise, this privilege could be squandered.”
What he really wants to say:
We really need to climb out of our shell and look at things from a global perspective. The rest of the world knows that we’re selling a bill of goods and won’t continue buying it forever. If we don’t change, you can say goodbye to the dollar.
“Since QE began, Fed policy makers have tried to explain that asset purchases and interest rates are different. Hence their refrain that tapering is not tightening, and that very low interest rates will continue after QE. Investors do not agree. Once the Fed begins to wind down its asset purchases, these market participants are likely to reassert their views with considerable force.
Recently, the Fed has elevated forward guidance as a means of persuading investors that it will indeed keep interest rates exceptionally low even after QE. Forward guidance is intended to explain how the central bank will react to incoming data. Fed projections for example, may show below-target inflation and a residual output gap justifying very low interest rates several years from now. But words are not equal to concrete policy action. And the Fed hasn’t received many awards for prescience in recent years.”
What he really wants to say:
Forward guidance is a load of crap. First, you won’t convince the market of any of your dumb ideas. Investors can and will think for themselves. Second, talk is cheap. And talk that’s based on the Fed’s ability to foresee the future? C’mon now, that’s ridiculous.
“[T]ransparency in communications about future policy is not a virtue unto itself. The highest virtue is getting policy right. Given manifest uncertainties about the state of the economy, oversharing policy deliberations is not useful if markets are led astray, or if public commitments reduce policy makers’ flexibility to call things the way they see them.”
What he really wants to say:
Transparency, shmansparency. I’ve had it up to here with taper, untaper, maybe taper, maybe not taper. I’ll trade a transparent central bank for one that knows what it’s doing any day.
Obama’s nomination of Janet Yellen as the next FOMC chair
“The president has nominated a person with a well-deserved reputation for probity and good judgment. The period ahead will demand these qualities in no small measure.”
What he really wants to say:
The president made a bad choice.
These are only our guesses, not actual thoughts from Kevin Warsh, who hasn’t told us what he really wants to say. We don’t even know if he hunts. (We’re guessing no.
Canadian Billionaire Predicts The End Of The Dollar As Reserve Currency; Warns “It’s Likely To Get Ugly” | Zero Hedge
- The End Of The Dollar As Reserve Currency: “It’s Likely To Get Ugly” (lunaticoutpost.com)
- Billionaire Goodman: US Will Lose Reserve Currency Status, Chaos Will Ensue (libertariannews.org)
- Ned Goodman: Nearing End of USD as Reserve Currency [VIDEO] (valuewalk.com)
- This Is How It Will End (planet.infowars.com)