The End of Neoliberalism and the Rebirth of History

For 40 years, elites in rich and poor countries alike promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. Now that the evidence is in, is it any wonder that trust in elites and confidence in democracy have plummeted?

Joseph E. Stiglitz


NEW YORK – At the end of the Cold War, political scientist Francis Fukuyama wrote a celebrated essay called “The End of History?” Communism’s collapse, he argued, would clear the last obstacle separating the entire world from its destiny of liberal democracy and market economies. Many people agreed.

Today, as we face a retreat from the rules-based, liberal global order, with autocratic rulers and demagogues leading countries that contain well over half the world’s population, Fukuyama’s idea seems quaint and naive. But it reinforced the neoliberal economic doctrine that has prevailed for the last 40 years.

The credibility of neoliberalism’s faith in unfettered markets as the surest road to shared prosperity is on life-support these days. And well it should be. The simultaneous waning of confidence in neoliberalism and in democracy is no coincidence or mere correlation. Neoliberalism has undermined democracy for 40 years.

The form of globalization prescribed by neoliberalism left individuals and entire societies unable to control an important part of their own destiny, as Dani Rodrik of Harvard University has explained so clearly, and as I argue in my recent books Globalization and Its Discontents Revisited and People, Power, and Profits. The effects of capital-market liberalization were particularly odious: If a leading presidential candidate in an emerging market lost favor with Wall Street, the banks would pull their money out of the country. Voters then faced a stark choice: Give in to Wall Street or face a severe financial crisis. It was as if Wall Street had more political power than the country’s citizens.

Even in rich countries, ordinary citizens were told, “You can’t pursue the policies you want” – whether adequate social protection, decent wages, progressive taxation, or a well-regulated financial system – “because the country will lose competitiveness, jobs will disappear, and you will suffer.”

In rich and poor countries alike, elites promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. To get there, though, workers would have to accept lower wages, and all citizens would have to accept cutbacks in important government programs.

The elites claimed that their promises were based on scientific economic models and “evidence-based research.” Well, after 40 years, the numbers are in: growth has slowed, and the fruits of that growth went overwhelmingly to a very few at the top. As wages stagnated and the stock market soared, income and wealth flowed up, rather than trickling down.

How can wage restraint – to attain or maintain competitiveness – and reduced government programs possibly add up to higher standards of living? Ordinary citizens felt like they had been sold a bill of goods. They were right to feel conned.

We are now experiencing the political consequences of this grand deception: distrust of the elites, of the economic “science” on which neoliberalism was based, and of the money-corrupted political system that made it all possible.

The reality is that, despite its name, the era of neoliberalism was far from liberal. It imposed an intellectual orthodoxy whose guardians were utterly intolerant of dissent. Economists with heterodox views were treated as heretics to be shunned, or at best shunted off to a few isolated institutions. Neoliberalism bore little resemblance to the “open society” that Karl Popper had advocated. As George Soros has emphasized, Popper recognized that our society is a complex, ever-evolving system in which the more we learn, the more our knowledge changes the behavior of the system.

Nowhere was this intolerance greater than in macroeconomics, where the prevailing models ruled out the possibility of a crisis like the one we experienced in 2008. When the impossible happened, it was treated as if it were a 500-year flood – a freak occurrence that no model could have predicted. Even today, advocates of these theories refuse to accept that their belief in self-regulating markets and their dismissal of externalities as either nonexistent or unimportant led to the deregulation that was pivotal in fueling the crisis. The theory continues to survive, with Ptolemaic attempts to make it fit the facts, which attests to the reality that bad ideas, once established, often have a slow death.

If the 2008 financial crisis failed to make us realize that unfettered markets don’t work, the climate crisis certainly should: neoliberalism will literally bring an end to our civilization. But it is also clear that demagogues who would have us turn our back on science and tolerance will only make matters worse.

The only way forward, the only way to save our planet and our civilization, is a rebirth of history. We must revitalize the Enlightenment and recommit to honoring its values of freedom, respect for knowledge, and democracy.

Joseph E. Stiglitz, University Professor at Columbia University, is the co-winner of the 2001 Nobel Memorial Prize, former chairman of the President’s Council of Economic Advisers, and former Chief Economist of the World Bank. His most recent book is People, Power, and Profits: Progressive Capitalism for an Age of Discontent.

Chinese Chess Game

By John Mauldin

Every investment decision should have an exit strategy. What will you do if your idea doesn’t work? Ideally, you make that decision before you invest. Mistakes are inevitable but survivable if you recognize them quickly and act to minimize their costs.

The same is true in business, international relations… or even a chess game. Great ideas don’t always work out as expected. Then what?

In last week’s letter, we discussed some serious flaws in the decision to bring China into the world trade system. People across the spectrum mostly see this now; although they differ on what to do about it.

When the US and ultimately the rest of the Western world began to engage China, resulting in China finally being allowed into the World Trade Organization in the early 2000s, no one really expected the outcomes we see today. There is no simple disengagement path, given the scope of economic and legal entanglements. This isn’t a “trade” we can simply walk away from. But it is also one that, if allowed to continue in its current form, could lead to a loss of personal freedom for Western civilization. It really is that much of an existential question.

Doing nothing isn’t an especially good option because, like it or not, the world is becoming something quite different than we expected just a few years ago—not just technologically, but geopolitically and socially. Today I want to dive deeper into this topic and how it will change the world economy and our individual lives. This letter is a little scarier than usual, but maybe that is because I am actually writing it on Halloween.

Orderly World

We’ll start by reviewing how we got here.

My generation, and I suspect many if not most of my readers, came of age during the Cold War. The world order was pretty clear in those 40 or so years. You had the US, its NATO allies, plus a few others like Japan and Australia lined up against the Soviet Union and the Warsaw Pact countries, i.e. Eastern Europe. Most international trade and cultural exchange took place within those two blocs. Very little trade occurred between them. There were very conflicting views of governmental and economic order. One was largely democratic and market oriented, the other was totalitarian and centrally planned.

The rest of the world—most of Asia, Africa, and Latin America—essentially didn’t matter, economically or militarily. It was the site of occasional proxy conflicts between the superpowers (Vietnam, Afghanistan, etc) and in some cases, produced vital commodities like Middle Eastern oil, but they were mostly an economic non-factor. We called it the “Third World.” In practice, it was a bipolar world.

China was a huge, impoverished odd duck in those years. In the late 1970s, China began slowly opening to the West. Change unfolded gradually but by the 1990s, serious people wanted to bring China into the modern world, and China wanted to join it.

Understand that China’s total GDP in 1980 was under $90 billion in current dollars. Today, it is over $12 trillion. The world has never seen such enormous economic growth in such a short time.


Meanwhile, the Soviet Union collapsed and the internet was born. The US, as sole superpower, saw opportunities everywhere. American businesses shifted production to lower-cost countries. Thus came the incredible extension of globalization.

We in the Western world thought (somewhat arrogantly, in hindsight) everyone else wanted to be like us. It made sense. Our ideas, freedom, and technology had won both World War II and the Cold War that followed it. Obviously, our ways were best.

But that wasn’t obvious to people elsewhere, most notably China. Leaders in Beijing may have admired our accomplishments, but not enough to abandon Communism. They merely adapted and rebranded it. We perceived a bigger change than there actually was. Today’s Chinese communists are nowhere near Mao’s kind of communism. Xi calls it “Socialism with a Chinese character.” It appears to be a dynamic capitalistic market, but is also a totalitarian, top-down structure with rigid rules and social restrictions.

So here we are, our economy now hardwired with an autocratic regime that has no interest in becoming like us. The arrangement works well in many ways, but it has a downside. And technology is making that downside increasingly hard to ignore.

As Jonathan Ward, author of China’s Vision of Victory, whom I quoted at length last week, says in one of his client briefs:

As of now, many US businesses, financial institutions, and Allied nations continue to contribute to the advancement of China’s economy and industrial base: In other words, to the foundations of China’s growing global power.

This ongoing situation has roots in a prior American strategy towards China. For decades, American strategy towards China was known as “engage and hedge,” meaning that the United States would engage commercially and diplomatically, while “hedging” by maintaining our advantages in military deterrence.

But because of China’s intentions, which we overlooked, this policy amounted to funding an arms race against ourselves. We have empowered and emboldened our greatest and most dangerous rival.

Rather than converting the People’s Republic of China into a trusted friend or “responsible stakeholder,” engagement has led—and continues to lead—to the enabling of a massive strategic adversary.

Engagement will eventually lead also to the demise of our military deterrence, as China continues to convert economic and industrial power to military advancement.

The problem, as we will see, is that like generals preparing to fight the last war, we are looking at our military “hedge” through the lens of past conflicts. And while there is no question the US would prevail in any conflict that remotely resembled past wars, the rules are changing.

Just as we say in the investment world that past performance is not indicative of future results, geopolitical engagements don’t always end as we expect.
Hundred-Year Marathon

Another good resource is Michael Pillsbury’s The Hundred-Year Marathon.

He marshals a lot of evidence showing the Chinese government has a detailed strategy to overtake the US as the world’s dominant power.

They want to do this by 2049, the centennial of China’s Communist revolution.

The strategy has been well documented in Chinese literature, published and sanctioned by organizations of the People’s Liberation Army, for well over 50 years. And just as we have hawks and moderates on China within the US, there are hawks and moderates within China about how to engage the West. Unfortunately, the hawks are ascendant, embodied most clearly in Xi Jinping.

The Chinese Communist Party recently concluded its Fourth Plenum, a gathering of top party and government leaders. It left little doubt about the party’s intentions. Bill Bishop had this reaction in his Sinocism letter (an invaluable resource, by the way):

The Plenum Communique reiterated that China is facing many risks, as one would expect given that nine months ago, Xi convened a three-day meeting of just about the same audience on risks; it articulated the advantages of the PRC’s system of socialism with Chinese characteristics; it emphasized that the Party needs to lead everything, and discussed further refinements to the “Party eats the State” reforms from last year’s Third Plenum…

… On the first couple of passes, the document and its goal of advancing the modernization of China’s system and capacity for governance reads a bit like a top-level roadmap for a highly functioning authoritarian superpower.

Xi’s vision of the Chinese Communist Party controlling the state and eventually influencing and even controlling the rest of the world is clear.

These are not merely words for the consumption of the masses. They are instructions to party members.

Grand dreams of world domination are part and parcel of communist ideologies, going all the way back to Karl Marx. For the Chinese, this blends with the country’s own long history. It isn’t always clear to Western minds whether they actually believe the rhetoric or simply use it to keep the peasantry in line. Pillsbury says Xi Jinping really sees this as China’s destiny, and himself as the leader who will deliver it.

To that end, according to Pillsbury, the Chinese manipulated Western politicians and business leaders into thinking China was evolving toward democracy and capitalism. In fact, the intent was to acquire our capital, technology, and other resources for use in China’s own modernization.

It worked, too. Over the last 20–30 years, we have equipped the Chinese with almost everything they need to match us, technologically and otherwise. Hundreds of billions of Western dollars have been spent developing China and its state-owned businesses. Sometimes this happened voluntarily, as companies gave away trade secrets in the (often futile) hope it would let them access China’s huge market. Other times it was outright theft. In either case, this was no accident but part of a long-term plan.

Pillsbury (who, by the way, advises the White House including the president himself) thinks the clash is intensifying because President Trump’s China skepticism is disrupting the Chinese plan. They see his talk of restoring America’s greatness as an affront to their own dreams.

The Assassin’s Mace and Modern Warfare

“The Assassin’s Mace” is part of ancient Chinese lore. It is the story of a lone warrior-assassin who uses a hidden weapon to destroy a mighty, overwhelming enemy. Pillsbury says it resembles how China is “militarily engaging” the West.

Pillsbury is a recognized scholar of all things Chinese, particularly their military philosophy. He contends China will employ unconventional military tactics, “The Assassin’s Mace,” in any potential confrontation with the United States. Where we see strengths, they see weaknesses. His account of participating in US military wargames is worth the price of his book.

Summarizing quickly the section on the first game:

It was three hours before the war game ended, but when the final move was made, the map on the floor was like a chessboard showing checkmate, with the American king trapped and defenseless. For the first time in the history of Pentagon-sanctioned military simulations, the United States had lost a war game. To win, I had employed tactics derived from my evolving understanding of Chinese strategy. The weapons and military strategy that guided my tactics had their roots in ancient Chinese warfare, and their modern incarnations are…

… Twenty similar war games were conducted by the Pentagon over the next few years. Whenever the China team used conventional tactics and strategies, America won—decisively. However, in every case where China employed Assassin’s Mace methods, China was the victor.

What are we talking about? Pillsbury spends whole chapters citing specific documents and research, but here are few quotes. The first refers to a controversial book published by two PLA colonels, later withdrawn because of its controversy.

America saw conflict only through the lens of military means, instead of the broader strategic picture encouraged by ancient Chinese thinkers such as Sun Tzu, which emphasized intelligence, economics, and law.

“Clearly, it is precisely the diversity of the means employed that has enlarged the concept of warfare,” Qiao and Wang wrote in their controversial 1999 book Unrestricted Warfare. “The battlefield is next to you and the enemy is on the network. Only there is no smell of gunpowder or the odor of blood.… Obviously, warfare is in the process of transcending the domains of soldiers, military units, and military affairs, and is increasingly becoming a matter for politicians, scientists, and even bankers.”

Two days after the September 11 attacks, the two colonels were interviewed by a Chinese Communist Party newspaper and said of the attacks that they could be “favorable to China” and were proof that America was vulnerable to attack through nontraditional methods.

Later in the chapter:

That’s why Major General Li Zhiyun, the director of foreign military studies at China’s National Defense University, published a book of articles by sixty-four army authors detailing a long list of American military weaknesses. The book’s theme was that the United States could be defeated with an Assassin’s Mace strategy. One perceived US weakness is America’s reliance on high-tech information systems. No nation in the world has been as active as China in exploring the defenses and vulnerabilities of computer systems involving key US military, economic, intelligence, and infrastructure interests.

Again, later:

China was moving toward a free market economy and would sell off all of its massive government-run corporations, and the second was that there was no chance China would surpass the United States economically, and even if it did—by, say, the year 2100—China would be a free-market, peace-loving democracy by then anyway—at least according to the “Golden Arches Theory of Conflict Prevention” popularized by the New York Times columnist Thomas Friedman and in vogue at the time. According to Friedman’s book The Lexus and the Olive Tree, the theory states that, “No two countries that both had McDonald’s had fought a war against each other since each got its McDonald’s.”

But Thomas Friedman may have been completely wrong. Again quoting:

Once China is strong enough economically and militarily to defy the United States and its allies, Chinese officials could use cyberattacks to harass anyone whose speech they disapprove of; many people outside of China, from Asia to North America, would consequently have to watch what they say and wonder whether they’ll be punished.


One of China’s weapons in its war on free speech is censorship of the Internet. There are more than one million Chinese employed in the online censorship business. Most of the world’s Internet users are Chinese, but because Chinese government officials monitor and block access to the websites of human rights organizations, foreign newspapers, and numerous other political and cultural groups, Chinese citizens don’t have access to the same Internet that free people do. To be “harmonized” is a euphemism for being censored.

Pillsbury devoted whole chapters, as have others, to US and Western vulnerability precisely because of our technological prowess. Bill Bishop, Jonathan Ward, and others present a sober view of China’s intent and capabilities. Its investments in artificial intelligence, robotics, and other technology let Beijing leverage relatively small amounts into outsize capabilities. Further, the ability to target satellites and hack government and military computer networks should certainly bring one pause.

In any case, we have reached a crossroads. What do we do about China now?

Targeted Response

In crafting a response, the first step is to define the problem correctly and specifically. We hear a lot about China cheating on trade deals and taking jobs from Americans. That’s not entirely wrong, but it’s also not the main challenge.

I believe in free trade. I think David Ricardo was right about comparative advantage: Every nation is better off if all specialize in whatever they do best. The Chinese at one point were very good at large-scale, labor-intensive manufacturing, although they are losing their cost advantage now. We in the US have other strengths. Given time, these things sort out and everyone prospers (though it is true we have done a terrible job helping American workers make the transition. We have to improve there).

However, free trade doesn’t mean nations need to arm their potential adversaries. Nowadays, military superiority is less about factories and shipyards than high-tech weapons and cyberwarfare. Much of our “peaceful” technology is easily weaponized.

This means our response has to be narrowly targeted at specific companies and products. Broad-based tariffs are the opposite of what we should be doing. Ditto for capital controls. They are blunt instruments that may feel good to swing, but they hurt the wrong people and may not accomplish what we want.

We should not be using the blunt tool of tariffs to fight a trade deficit that is actually necessary.  The Chinese are not paying our tariffs; US consumers are. It is only because the dollar is the world’s reserve currency that we have the exorbitant privilege of running a trade deficit. We need a large trade deficit to finance our debt.

Importing t-shirts and sneakers from China doesn’t threaten our national security. Let that kind of trade continue unmolested and work instead on protecting our advantages in quantum computing, artificial intelligence, autonomous drones, and so on.

The Trump administration appears to (finally) be getting this. They are clearly seeking ways to pull back the various tariffs and ramping up other efforts.

I know there are those who want total economic disengagement. I’m sorry, but that cure might be worse than the disease. Our economies are simply too intertwined and co-dependent. Forcibly separating them would set off a cataclysmic global recession—and weaken the US at a time when we need all our strength. It would also justify the paranoia already prevalent in China’s hawkish leaders.

We need to be more strategic about our own scientific research. I’m a big fan of DARPA, which has developed many extraordinarily useful technologies, not only for the military but for businesses.

It is not inevitable that China will outpace the US. We have smart people, too, and many more around the world would like to join us. We should welcome those who hold our values and put them on the team.

Houston, Philadelphia, Dallas, and ???

I intend to be in Houston in mid-November, although details are fuzzy, and then in Philadelphia November 20–21. Then of course Dallas for family Thanksgiving and the wedding of one of Shane’s best friends the following Saturday. There are other locations on the potential list.

This letter has already run a little long, so I’ll hit the send button and get dressed as I can hear the sounds of little monsters coming to our door looking for candy. Halloween is evidently quite the big event here in Dorado Beach. I am told the adult party is one of the year’s biggest. I’m looking forward to meeting new neighbors and not worrying about anything scarier than a few costumes.

“Normal” things like Halloween trick-or-treating remind me of what we truly share as humanity… besides having to listen to The Monster Mash all night. Have a great week!

Your hoping we can find a peaceful ahead analyst,

John Mauldin
Co-Founder, Mauldin Economics

The Fed's Liquidity Response Is Too Little Too Late - But That Was Always The Plan...

by Tyler Durden

The globalists and banking elites have been running the “order out of chaos” scam for a long time, centuries in fact.

One thing that practice does is make people of otherwise average intelligence appear brilliant.

One thing that organized conspiracy does is make a group of highly vulnerable criminals appear omnipotent and untouchable.

Ultimately, it's all about time.

The globalists have had lots of time to tune and refine their methods for manipulating the collective psyche of the masses.

They make mistakes often, but as long as no one confronts them directly and removes these people from the equation, they simply set up shop elsewhere under a different name using different masks and continue their insidious work. As long society is still stricken with ignorance and assumes that such conspiracies are “impossible”, the elites have a free hand to victimize the population further.

As long as academic idiots misinterpret Occam's Razor and insist that the evidence of conspiracy does not matter because it does not fit with their narrow notion of “the simplest explanation”, they prop up the banking cartel and allow it to thrive.

On the positive side, I see an awakening taking place among a subset of the population which is savvy to the games of the globalists. I believe this subtle wave of analytical samurai has the elites worried; they realize that time for them is, for once in history, starting to run out. One day soon, they may find themselves the direct targets of a revolution, and they don't like that idea.

Hence, the globalists need a plan, a con game of epic proportions on top of one of the largest economic bubbles in recent history. The plan relies first on a tried and true weapon of the elites: Co-option of the people that oppose them.

And how does one co-opt a movement? By taking over their leadership. Second, for global change the cabal needs a global distraction, or a firestorm of numerous distractions to keep the public enthralled or in fear. Third, they need to divert blame away from themselves by presenting the public with believable scapegoats.

When it's all over, they want people dazed and shell-shocked, wondering how it happened and searching for anyone to point a finger at. The narrative will be that “it was a perfect storm of coincidences”, that it was “the evil of the political left”, or the “evil of the political right”.

They want to turn public confusion into civil war, all while they sit back and enjoy the chaos from a comfortable beach chair and wait for the moment they can swoop in and act like saviors seeking to “end the madness”.

This process is happening today, and only the most blind have problems seeing that the world has gone over the edge of an ugly precipice.

Disinformation agents call it “doom and gloom”, because that is supposed to dissuade you from taking it seriously. But the facts are the facts.

This is why I focus so much of my time on economics – While numbers and stats can be rigged, the effects of a financial crash cannot be hidden. It is undeniable, and all the critics of this information can do is try to trick people into not looking at it.

The reality is this: The US economy is in steep decline and this is an engineered event.

The Federal Reserve spent the better part of the past decade inflating what we now call the “Everything Bubble”, a bubble that spreads through almost every facet of the economy from equities to housing to GDP to employment to corporate debt, consumer debt and national debt.

I don't think anyone denies the existence of this bubble except the central banks and a few mainstream media outlets.

Jerome Powell, now the Fed chairman, warned back in 2012 that the markets had become addicted to Fed stimulus and that any tightening of liquidity by the central bank, including cutting the balance sheet or raising interest rates, would cause a sharp reversal or crash. As soon as Powell became chairman, he ignored his own warnings and tightened liquidity anyway.

People confused about why Powell would take such action knowing full well that it would trigger a crash should look into the history of the Bank for International Settlements and how it dictates the policy decisions of all its member banks.

The BIS is the “central bank of central banks” and is the central global manager of all national central banks. Powell and the Fed board do not write policy alone, they merely carry out policy decision made by the BIS.

As Powell hinted at in 2012, the Everything Bubble was popped in 2018 by the Fed through rate hikes and balance sheet cuts. Once the avalanche is triggered there is no stopping it.  The rupture in fundamentals is ongoing.  Only stocks markets and certain rigged statistics remain in blissful levitation.

The plunge in stock markets in December was stalled as corporations stepped in with stock buybacks and China pumped billions in stimulus into the global system.

However, stocks are not long for this world as buybacks are set to slow down and stimulus measures from various central banks are seeing limited gains.

  • US manufacturing has fallen to levels not seen in 10 years and has entered recession territory.
  • US housing starts fell sharply in September and new home building declined. This indicator usually precedes a fall in overall housing sales by a few months. This would mean a return to the plunge in housing sales last seen during the summer.  In other words, the recent pop in sales is a one off driven by lower mortgage rates, and is set to end.
  • US retail sales are following a similar pattern to housing markets, with a recessionary decline earlier this year, followed by a short term rebound, and now a return to negative territory as the trend reasserts itself.
  • Retail stores are closing at a record pace in 2019. Over 8500 stores are already closing this year, with a predicted 12,000 store closing by the beginning of 2020. This is often blamed on “online shopping”, but online retailer only account for around 14% of the total retail market. This hardly explains why brick and mortar stores are closing in droves.  Not only that, but major online retailers like Amazon are seeing declining profits, with projected holiday profits set to fall even further.
  • Corporate profits have tumbled in 2019 and earnings growth estimates have been drastically adjusted to the downside.  Only certain companies, like Apple, have come out of the fray untouched so far, but this is common during recession and depression level crisis events - a handful of corporations survive and consolidate while the rest collapse.
  • Corporate debt is at all time highs while cash holdings of most corporations are minimal; so much so that these companies are turning to the Fed's repo overnight loans more and more to stay liquid.
  • Consumer debt is at all time highs, with American households owing a total of more than $13 trillion.
  • While there has been a recent steepening of the 3 month to 10 year yield curve as well as the 2 year to 10 year yield curve, this is actually a bad sign. A long term inversion of the yield curve is a sure signal of economic recession. When the yield curve steepens, this is the point historically in which a sharp crash in fundamentals and markets takes place.
In other words, the crash is happening now.

Many analysts have wrongly assumed that that the Fed's recent asset purchases indicate that they are seeking to “kick the can” on the crash.

It's much too late for that.  If the Fed wanted to stall the crash then they would have initiated full bore QE4 around 8-10 months ago just after the December plunge.

International banks and central banks have been warning about dollar liquidity issues since mid-2018.

The Fed continued to tighten and did not act until the past couple of months, coincidentally, right after multiple polls showed that a majority of Americans were becoming worried about a recession.

That is to say, the Fed kept liquidity conditions as tight as possible until the public finally became aware of the crisis.  The truth is, nothing has changed as far as liquidity is concerned.

The Fed launched asset purchases to make it look like they care about trying to fix the problem.

However, the Fed's repo stimulus and balance sheet increases are not enough to make any difference.

Calling Fed repo actions “Not-QE” is a funny means pointing out that the Fed is not being straightforward about its intentions, but when comparing current repo loans and asset purchases to an event like TARP back in 2008, which by itself injected over $16 trillion in liquidity into the financial system (no audit of the other QE programs has yet been undertaken), the current stimulus is nothing but a drop in the ocean.

The Fed is definitely NOT being honest in its intentions, but not in the way many alternative analysts seem to think. 

The Fed's not trying to hide QE4 measures, the Fed is continuing to do the bare minimum necessary to appear as though they are taking action while actually accomplishing very little.

They clearly have no intention of kicking the can any longer.

The Fed WANTED a crash, and now they have it.

The reason why is perfectly logical: The central bank, under the control of globalists at the BIS, needs economic chaos to provide cover for what they call the “global economic reset”.

Essentially, it is the controlled demolition of the old world order to make way for their “new world order”.

As I've noted in previous articles, they've done all his before and openly admitted to causing crashes in the past, including the Great Depression.

After each of these financial crisis events, globalist institutions have been formed and  leaps forward in global governance have been taken.

The implosion of the Everything Bubble appears to be the last intended economic crisis event before total centralization is achieved.

This is not to say that they will be successful in their agenda; I happen to think that in the long run they will fail.

But the fact remains that the current recessionary collapse, soon to become far more destructive than it already is, was caused by the central bankers, and they did it knowingly.

The narrative of the “bumbling Fed” desperate to save itself or the system is delusional. The evidence simply doesn't support this claim.

Fed officials publicly acknowledged what would happen if liquidity tightening was pursued.

They did it anyway, and then told the public all was well. They have lied every step of the way, keeping the public completely in the dark and unprepared for the consequences.

At the same time, we have a supposedly "populist" president that attacks the Fed regularly while at the same time taking full credit for the bubble in markets. 

Donald Trump boasts daily of his influence in markets, employment, GDP, etc.

He does this even though he called the economic recovery 'a bubble' during his campaign.

He now owns the health of the economy, and by extension he has given the central bankers and the globalist a perfect gift – He has set himself and his supporters up as scapegoats for the crash. 

As he falls, he will discredit central bank critics for generations to come.

If you were wondering why the globalists stalled for ten years on crashing the system, now you know. If they launched the crisis a few years ago, they would have been blamed for it.

Today, it's hard to say.

The growing contingent of liberty activists immune to the scam (and immune to the Kabuki theater involving Donald Trump) might be able to turn the tide enough to force the hand of the elites.

Maybe they will have to back off of some of their centralization efforts, or drag out the economic downturn longer than they wanted. I suspect they have already had to do this on a number of occasions because of liberty analysts.

Ultimately, the crash is about us. It is about affecting changes to the public psychology, making us more receptive to extreme globalization.

If they don't care what we think, then why spend trillions of dollars and endless hours and manpower trying to influence our perception?

They need the vast majority of us to consent to the “new world order”, otherwise they will have failed.

Big US bank profits show they can take a punch from low rates

Investors will need to see they can endure a real downturn before giving them credit

Robert Armstrong

People pass the JP Morgan Chase & Co. Corporate headquarters in the Manhattan borough of New York City, May 20, 2015. A U.S. regulator has granted waivers to JPMorgan Chase & Co and four other major banks allowing them to continue their usual securities business, after they agreed to plead guilty to criminal charges, according to a person familiar with the matter. The regulator, the Securities and Exchange Commission, is expected to publicly confirm the waivers will be in place once the banks formally enter guilty pleas, and the announcement could come by the end of the day Wednesday, two other sources told Reuters. REUTERS/Mike Segar - GF10000101443

What did we learn from the avalanche of big US bank earnings this week? That the industry can take a hard punch — from interest rates falling to historic lows — and remain up on its feet.

Bankers and bank investors can breathe out, and start to think about whether there are more punches coming.

There was considerable anxiety coming into third-quarter results season. But the diversified giants, most notably JPMorgan Chase and Bank of America, showed real resilience. Most of the banks beat analysts’ earnings estimates, and a few of them by wide margins. Goldman Sachs, whose investment banking operation stumbled, was the notable exception.

Yes, revenue growth was lower because lending margins were tighter; lower interest rates and a flattening yield curve will have that effect. And the banks’ level of excitement about the state of the US economy has cooled somewhat. A year ago, for example, JPMorgan’s finance chief said: “We don’t see it slowing down.” This quarter, the economy was just “on a solid footing”. Such tonal downgrades were audible across the industry.

But even in the thinner air of late 2019, the banks’ business models are working. The big lenders are still collecting deposits, the lifeblood of the industry, at a healthy pace. Loan demand is holding up too. BofA’s loan book is growing at about 5 per cent, up by $43bn over the past year. Even Wells Fargo, its reputation under repair following the fake accounts scandal, is increasing its loans again.

As a result the margin compression, so far, has been moderate. Indeed, net interest income is still rising at the two biggest banks by market capitalisation, JPMorgan and BofA.

As a side note, it is interesting that the growth has different sources at the two banks. Both are harvesting prodigious flows of deposits — almost $140bn worth over the past year between them. But JPMorgan has said it thinks it wiser to invest that money into long-duration debt securities, which have modest yields but do not require much capital to be held against them. BofA, on the other hand, prefers higher-yielding, more capital-intensive loans. Only in the fullness of time, when the costs of impairments are counted, will we find out which strategy was smartest.

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The banks can also depend on the US consumer. Credit-card businesses are humming across the industry with no spikes in defaults as of yet. Several of the banks were also in a position to take advantage of falling rates during the quarter, either by underwriting a bonanza in corporate debt refinancing (BofA was particularly active here) or trading volatile rates markets (JPMorgan and Morgan Stanley). Mortgage refinancing fees are rolling in, too.

Meanwhile, the banks are buying in boatloads of stock, keeping earnings per share on the rise. At Citigroup, for example, tightening lending margins kept pre-tax income flat, but repurchases helped push up EPS by 20 per cent.

“Three quarters in a row now, people have said, ‘rates are terrible, and the banks are going to get crushed’ — then the banks report and it’s ‘oh, there are other levers the banks can pull,’” said Brian Foran, a banks analyst at Autonomous Research.

Still, this durability earned the banks a pretty meagre reward from the stock market. The S&P Banks index climbed about 4 per cent over the week, while the broader S&P was up about 2 per cent.

Part of the reason for this is surely that, in the view of the futures market, the Fed is not finished cutting rates: the forward curve indicates one more cut this year. So lending margins are likely to compress in the fourth quarter, which will include the full impact of the cut in September, and another trim on top of that.

But lower base rates will not turn the US into sub-zero Europe or Japan, where the banks and big insurers are really groaning. The bigger question is how loans will hold up if the US economy truly slows.

Both non-performing loans and reserves for losses are low. This may be the result of 10 years of cautious, post-crisis underwriting; or so the banks insist (“responsible growth” has long been BofA’s mantra). It could also be that companies do not default when refinancing debt is as easy as it is now, and consumers do not go bust when unemployment is at an all-time low. Neither condition will persist forever.

In the previous recession, banks melted down in spectacular style.

They will need to prove they can punch their way through the next one and emerge with their balance sheets intact before they will get credit for the gym work they have done over the past decade.

JPMorgan pours $130bn of excess cash into bonds in major shift

Capital rules push US bank to sell off loans from its balance sheet

Robert Armstrong in New York

JPMorgan has less room than some rivals to hold riskier assets as it returns billions of dollars to shareholders in dividends and share buybacks
JPMorgan has less room than some rivals to hold riskier assets as it returns billions of dollars to shareholders in dividends and share buybacks © AFP

JPMorgan Chase has pushed more than $130bn of excess cash into long-dated bonds and cut the amount of loans it holds, marking a major shift in how the largest US bank by assets manages its enormous balance sheet.

The moves, which have seen the bank’s bond portfolio increase by 50 per cent, are prompted by capital rules that treat loans as riskier than bonds. As it continues to return billions of dollars to shareholders in dividends and share buybacks each year, JPMorgan has less room than some rivals to hold riskier assets.

“It’s incredible,” said an executive at a large institutional investor. “The scale of what JPMorgan is doing is mind-boggling . . . migrating out of cash into securities while loans are flat.”

The dramatic change, which has occurred this year, was first flagged by JPMorgan at an investor event back in February. Then chief financial officer Marianne Lake said that, after years of industry-leading loan growth, “we have to recognise the reality of the capital regime that we live in”.

The US lender has shrunk its loans portfolio by 4 per cent, or about $40bn, year to date. At the same time as selling off mortgages, the bank has reduced the amount of cash on its balance sheet and used it to buy long-dated bonds.

Mortgage-backed securities account for the bulk of this growth. Banks can hold much less capital against mortgage bonds than the underlying home loans themselves.

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Jeffery Harte of Sandler O’Neill thinks JPMorgan’s changed approach “comes down to an economic decision: they can make more money selling [loans] than buying them”.

The bank’s closest competitor, Bank of America, has more headroom under the Federal Reserve’s capital rules and continues to grow its loan portfolio. It has added $43bn in loans so far in 2019, largely but not exclusively mortgages. The contrasting strategy, analysts said, reflects its larger cushion under the Federal Reserve’s stress-testing regime.

JPMorgan is generating strong profits and could add more risk to its balance sheet if it wanted to. But it prefers to send the ample money it generates back to its shareholders. Its plans for the year ahead include $32bn in buybacks and dividends, more than the total net income the bank earned last year.

BofA’s plan is bigger still, at $37bn and almost 140 per cent of 2018 net income, but the fact its business model is lower risk — at least in the eyes of the Fed — means that it is not treated as harshly in the stress tests.

Steven Chubak of Wolfe Research argues that the contrasting strategies have implications for investors. JPMorgan “is doing the right thing given its idiosyncratic capital constraints,” he said, but the greater freedom afforded to BofA means it has “more capacity to grow loans which typically generate a higher spread” — and as such more room for profit growth.

Not all analysts take such a benign view. Charles Peabody of Portales Partners, who forecasts a bleak outlook for the banking industry, sees JPMorgan’s balance sheet choices as part of a larger risk-reduction strategy. The bank, he said, was “acting like the [next] recession is here — everything the bank is doing points that way”.

Elizabeth Warren Proposes $20.5 Trillion Health Care Plan

Ms. Warren would impose huge tax increases on businesses and billionaires to pay for “Medicare for all,” but she said she would not raise taxes on the middle class.

By Thomas Kaplan, Abby Goodnough and Margot Sanger-Katz

Senator Elizabeth Warren of Massachusetts unveiled a “Medicare for all” plan on Friday. Credit...Elizabeth Frantz for The New York Times

WASHINGTON — Senator Elizabeth Warren on Friday revealed her plan to pay for an expansive transformation of the nation’s health care system, proposing huge tax increases on businesses and wealthy Americans to help cover $20.5 trillion in new federal spending.

The plan represents a significant bet that enough voters will favor an approach that dismantles the current system and replaces it with “Medicare for all,” a government-run health insurance program. And it comes after decades in which Democrats have largely tiptoed around policy proposals that relied on major tax increases and Republicans ran on tax cuts.

While the proposal allows Ms. Warren to say she is not raising taxes on the middle class, it opened her to renewed charges that her plan is too radical to pass through Congress. It represents an extraordinary embrace of the tax system to redistribute wealth and re-engineer one of the pillars of the American economy, with measures that would double her proposed wealth tax on billionaires and impose new levies on investment gains and even stock trades.

“This debate has moved so far and so fast within the Democratic Party, it makes your head spin,” said Larry Levitt, the executive vice president for health policy at the Kaiser Family Foundation. “Ideas that used to be political third rails are now being proposed by one of the leading candidates for president.”

Ms. Warren, of Massachusetts, is not the only Democratic presidential candidate envisioning a large new government program funded by tax increases. Senator Bernie Sanders of Vermont, Ms. Warren’s top rival in the party’s progressive wing, is the architect of Medicare for all and has also proposed sweeping changes.

Together they are presenting a profoundly different vision from the one Democrats promoted as recently as the mid-1990s when President Bill Clinton declared in a State of the Union address that “the era of big government is over.” While President Barack Obama pushed through the Affordable Care Act and managed to bring down the number of uninsured, he preserved a major role for the private sector in the country’s health insurance system.

Under Ms. Warren’s plan, private health insurance — which now covers most of the population — would be eliminated and replaced by free government health coverage for all Americans. That is a fundamental shift from a market-driven system that has defined health care in the United States for decades but produced vast inequities in quality, service and cost.

Ms. Warren would pay for the new federal spending, $20.5 trillion over 10 years, through a mix of sources, including:

•Requiring employers to pay the government a similar amount to what they are currently spending on their employees’ health care, totaling $8.8 trillion over a decade.

•Changing how investment gains are taxed for the top 1 percent of households, raising $2 trillion, and ramping up her signature wealth tax proposal to be steeper on billionaires, raising another $1 trillion.

•Creating a tax on financial transactions like stock trades, bringing in $800 billion.

Beyond the $20.5 trillion total, she is also counting on states and local governments to contribute an additional $6.1 trillion to help pay for the system.

Like Mr. Sanders, Ms. Warren would essentially eliminate medical costs for individuals, including premiums, deductibles and other out-of-pocket expenses. But it is not clear if her plan would cover the costs of free health care for everyone. It relies on ambitious assumptions about how much it can lower payments to hospitals, doctors and pharmaceutical companies, and how cheaply such a large system could be run.

Several economists have said providing free health care would cost trillions more over a decade.

“We made different assumptions, because we didn’t think these kinds of assumptions were realistic,” said Linda Blumberg, a health economist at the Urban Institute, whose detailed assessment of Medicare for all found it would require $34 trillion in added federal spending.

As Ms. Warren has risen steadily in the polls, with strong support from liberals excited about her ambitious policy plans, she has been under pressure from top rivals like former Vice President Joseph R. Biden Jr. to release details about paying for health care. She has been asked over and over whether she would raise taxes on the middle class to pay for it, but had not answered directly until now.

Her lack of specificity became a vulnerability as the primary race heated up, especially because she had established herself as the candidate with a plan for everything. Democratic rivals like Mr. Biden and Mayor Pete Buttigieg of South Bend, Ind., who prefer building on the existing system of health coverage, have pointedly criticized her on the issue, with Mr. Buttigieg calling her “extremely evasive.” Two weeks ago, with no sign that the pressure would relent, she announced she would soon release her own financing plan.

“A key step in winning the public debate over Medicare for all will be explaining what this plan costs — and how to pay for it,” Ms. Warren wrote in her plan. To do that, she added, “We don’t need to raise taxes on the middle class by one penny.”

But whether such a detailed plan will end up as a strength or a liability is unknown, and represents a gamble for a candidate who has stirred doubts about her electability among establishment Democrats. Some in the party believe that concerns about income inequality and corporate greed have become such a powerful motivator that her stance will win her converts. Others say such a strong alignment with Medicare for all will haunt her if she gets to the general election.

“This is not a symbolic proposal,” Mr. Levitt said. “This is the most specific plan for Medicare for all that’s ever been proposed by a candidate.”

“Candidates often pivot to the center on issues in the general election,” he added. “This proposal will make it more difficult for Warren to do that on health care.”

For Ms. Warren to achieve her desired health care transformation, she would need to persuade Congress to pass far-reaching legislation, an enormous political challenge and a virtual impossibility unless Democrats win control of the Senate.

Mr. Biden’s campaign quickly criticized Ms. Warren’s plan as “unrealistic.”

“The mathematical gymnastics in this plan are all geared toward hiding a simple truth from voters: It’s impossible to pay for Medicare for all without middle-class tax increases,” Kate Bedingfield, a deputy campaign manager for Mr. Biden, said in a statement. In an interview with “PBS NewsHour,” Mr. Biden said of Ms. Warren’s plan, “She’s making it up.”

Speaking to reporters in Des Moines, Ms. Warren rebuffed criticism of her proposal, saying: “Democrats are not going to win by repeating Republican talking points and by dusting off the points of view of the giant insurance companies and the giant drug companies who don’t want to see any change in the law that will bite into their profits.”

She said anyone defending the profits of the insurance and drug companies was “running in the wrong presidential primary.”

The Republican National Committee described Ms. Warren’s plan as a “fairy tale,” adding that it would have the effect of “bankrupting the country and hurting the quality of care.”

The comments sent a signal of how President Trump and Republicans would portray her: as a tax-and-spend liberal who wants to vastly expand the role of the federal government while abolishing private health insurance. Her plan’s price tag is equal to roughly one-third of what the federal government is currently projected to spend over the next decade in total.

Still, the idea of government-run health insurance excites many liberal voters. Mr. Sanders has long championed single-payer health care, and Ms. Warren has aligned herself with him on the issue.

A New York Times/Siena College poll released Friday found that about three-quarters of likely Democratic caucusgoers in Iowa supported creating a single-payer system, while about nine in 10 supported the creation of an optional government plan that any American could buy.

Asked whether they would be likelier to support a candidate who promises to replace the existing health care system with Medicare for all or a candidate who promises to improve the current system, likely caucusgoers said by a 14-point margin that they preferred the second option.

Ms. Warren’s proposal shows just how large a reorganization of spending Medicare for all represents. By eliminating private health insurance and bringing every American into a federal system, trillions of dollars of spending by households, employers and state governments would be transferred into the federal budget over the course of a decade.

Ms. Warren tries to minimize fiscal disruption by asking the big payers in the current system to keep paying. Her tax on employers is meant to replace the amount that companies now pay directly to health insurers. (Small businesses would be exempt if they are not currently paying for their employees’ health care.) She has also proposed that states pay the federal government what they currently spend to cover state workers and low-income residents under the Medicaid program.

But to help replace an estimated $11 trillion in health care spending that would be borne by American households over a decade — on premiums, deductibles and other out-of-pocket costs — Ms. Warren lays out a series of new taxes on corporations and wealthy people.

She would raise $3 trillion in total from two proposals to tax the richest Americans. She has previously said that her wealth tax proposal would impose a 3 percent annual tax on net worth over $1 billion; she would now raise that to 6 percent. For the top 1 percent of households, she would tax investment gains annually instead of when the investments are sold.

Ms. Warren is also counting on stronger tax enforcement to bring in more than $2 trillion in taxes that would otherwise go uncollected, as well as $800 billion in cuts to military spending. And she is banking on passing an overhaul of immigration laws — which itself would be a huge political feat — and gaining revenue from additional taxes paid by immigrants.

Ms. Warren’s plan would put substantial downward pressure on payments to hospitals, doctors and pharmaceutical companies. She expects that an aggressive negotiation system could lower spending on generic medications by 30 percent compared with what Medicare pays now, for example, and spending on brand-name prescription drugs could fall by 70 percent.

Payments to hospitals would be 10 percent higher on average than what Medicare pays now, a rate that would make some hospitals whole but would lead to big reductions for others. She would reduce doctors’ pay to the prices Medicare pays now, with additional reductions for specialists, and small increases to doctors who provide primary care.

Jim Tankersley contributed reporting from Washington, and Alexander Burns from New York.

Hedge funds and mutual funds converge on US stock holdings

Ownership overlap increases risk of crowded trades, which can lead to large losses

Chris Flood

NYSE-listed Chipotle is just one US company where both hedge funds and mutual funds have large overweight positions © REUTERS

The overlap in US companies owned by both hedge funds and traditional mutual funds has climbed to a fresh high in a convergence that elevates the risk of crowded trades.

About 12 per cent of the top 50 US stocks held as overweight positions by hedge funds and traditional mutual funds are owned by both sets of managers, according to Bank of America Merrill Lynch. The overlap in ownership was zero as recently as June 2015.

Savita Subramanian, head of US equity and quantitative strategy at BofA, said strong momentum effects in the US market were one possible explanation.

US stocks that have performed well have tended to attract more buyers, helping the shares of those companies to maintain their upward momentum.

“We have seen convergence of strategies that has led to a narrower and narrower cohort of stocks outperforming the market,” said Ms Subramanian.

This has also been reflected in valuations where the gap between expensive and cheap stocks, measured on a share price multiple to earnings, stands close to an all-time high.

“Valuations for growth stocks have been creeping higher while the reverse is true for value stocks. Being a value focused investor has been the best way to lose money in recent years,” said Ms Subramanian.

Companies owned by both sets of managers which are also held as large overweight positions by hedge funds include United Airlines, Charter Communications, health insurer Humana, Las Vegas-based hotels group Wynn Resorts, aircraft components manufacturer TransDigm and restaurant chain Chipotle Mexican Grill.

The tech stocks known as the Faangs (Facebook, Apple, Amazon, Netflix and Alphabet’s Google) have also been popular choices for hedge funds and mutual fund managers.

“Hedge funds like to focus on sectors where there is high volatility, such as the large US technology stocks which are widely held by mutual fund managers,” said Sara Rejal, a senior director at Willis Towers Watson, the adviser.

Ms Rejal added that more hedge funds were now running “long only” strategies, which may have increased their overlap with mutual funds. “Some hedge funds have become overly conservative because their clients don’t want large drawdowns but this has led to even worse performance and reduced their ability to generate returns,” she said.

If a hedge fund has already banked profits on successful trades, it can then choose to shrink the tracking error relative to the US market as a deliberate tactic.

“In that scenario, hedge funds tend to pad out their portfolios with the largest market capitalisation stocks, such as the Faangs, which will lead to more overlap with the holdings of mutual fund managers,” said Farouk Jivraj, head of quantitative investment strategies research at Barclays.

But overlapping holdings between hedge funds and mutual funds create the risk of crowded trades, which can lead to larger losses if a company misses an earning targets or issues a profit warning, and investors rush for the exit.

“The risk of crowding is high if the overweight position is held in a company with a smaller market value which has less liquidity. The risk is not as great if the overweight is in the biggest, most liquid stocks,” said Mr Jivraj.