Pulse on the Market Place – May 2014 LMR

Great update from the Lara Murphy Report (LMR) as usual. This month we’re particularly interested in the Pulse, as well as Bob Murphy’s complete review of Thomas Piketty’s book, Capital In the 21st Century, which is flying off bookshelves around the world. We’ll have this for you so be sure and come back in a few days to check it out or add us to your RSS feed so you don’t miss Piketty. We’ll also post a link to our Twitter, Facebook and LinkedIn feeds.

For now – know that we are all watching for the bubble to deflate.

Remember, if you know what is happening – you will know what to do!

Here’s a glimpse of some of the articles in this month’s LMR …

Housing “Rebound”

Since The Last Bubble was such a hoot …

According to the Wall Street Journal: “The Obama administration and federal regulators are reversing course on some of the biggest post-crisis efforts to tighten mortgage-lending standards amid concern they could snuff out the fledgling housing rebound and dent the economic recovery. On [May 13], Mel Watt, the newly installed overseer of Fannie Mae and Freddie Mac said the mortgage giants should direct their focus toward making more credit available to homeowners, a U-turn from previous directives to pull back from the mortgage market. In coming weeks, six agencies, including Mr. Watt’s, are expected to finalize new rules for mortgages that are packaged into securities by private investors. Those rules largely abandon earlier proposals requiring larger down payments on mortgages in certain types of mortgage-backed securities.”

If one wanted to purposely set the U.S. economy up for another boom and crash, it would be hard to beat the policies coming from the federal government and the Federal Reserve since the crisis struck in September 2008. As we explain in our book, How Privatized Banking Really Works, and as we’ve been pounding home in the Lara-Murphy Report ever since its inception, the Keynesian “stimulus” measures are not medicine. Instead, they are poison for the economy. It’s not a “fledgling housing recovery” and “economic recovery” worth pursuing if they are built on government-backed relaxations of lending standards.

Step back and think about it: The avowed purpose of Fannie Mae, Freddie Mac, and the other housing-specific regulations and subsidies is to encourage mortgage lending to, and home purchases by, consumers who would otherwise not be able to enter this market. Furthermore, the avowed purpose of lowering interest rates through Federal Reserve inflation is to stimulate financiers to take out loans and invest in projects on which they otherwise would pass. Now say what you will after years of such policies being in place, but don’t you dare then wonder—when everything falls apart—why “the free market” allowed such reckless lending and risky investments.

Soros Dumps Banks 

Does George Soros read LMR?

The Wall Street Journal reports that billionaire investor and international man of mystery George Soros dumped shares of CitiGroup, JP Morgan, and Bank of America, and took long positions in gold mining and tech stocks. The moves happened in the first quarter of 2014, according to recent SEC filings.

Geithner Pressured

Giethner alleges he was asked to lie

Former Obama Administration Treasury Secretary Timothy Geithner’s new memoir Stress Test: Reflections on Financial Crises, contains the following revelation: “I remember during one Roosevelt Room prep session before I appeared on the Sunday shows, I objected when [Obama Communications Advisor] Dan Pfeiffer wanted me to say Social Security didn’t contribute to the deficit. It wasn’t a main driver of our future deficits, but it did contribute…Pfeiffer said the line was a ‘dog whistle’ to the left, a phrase I had never heard before. He had to explain that the phrase was code to the Democratic base, signaling that we intended to protect Social Security.”

The irony here is that this “shocking” revelation is nothing of the kind—Geithner knows this is no big deal, because everybody already knows people in DC lie through their teeth from the moment they get on the work site. (It’s calling “spin” or “framing the narrative.”)

Fed Time Bomb 

Philly Fed President Plosser warns on excess reserves

The President of the Philadelphia Federal Reserve, Charles Plosser, recently met with reporters in Washington. According to the Wall Street Journal’s MarketWatch blog:“The way Charles Plosser sees it, the Federal Reserve is sitting on a ticking time bomb that could severely damage the economy unless the central bank reacts quickly to defuse the looming threat.…

“These reserves are not inflationary right now,” Plosser said in a meeting Tuesday with reporters in Washington. Yet if borrowing begins to surge and those reserves start to pour out of the banking system, Plosser worries, “that’s going to put pressure on inflation.” The result: the Fed could be forced to raise interest rates faster and earlier than it would like and perhaps slam the breaks on the economic recovery.

This is an issue we have been stressing from Day One here at the LMR. Contrary to their assurances, Fed officials do not have an “exit plan.” We may limp along in stagnation as Japan has been doing, but if and when there is a genuine return to normal economic conditions, the trillions in excess reserves will fuel bank lending and money growth in the hands of the public. The Fed will then be forced to choose between crashing the financial sector by rapidly undoing its balance sheet expansion, or it will have to let the dollar get pummeled. Either way, it’s going to be ugly.

For more LMR, visit: https://usatrustonline.com