James G. Rickards is the editor of Strategic Intelligence,the newest newsletter from Agora Financial. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellersCurrency Wars and The Death of Money. Jim also serves as Chief Economist for West Shore Group.

• The fatal conceit of central bankers…
• A hair-raising admission you weren’t meant to hear…
• Then James G. Rickards reveals the idiotic mathematical mumbo jumbo Janet Yellen relies on to set Fed policy…

Central banks operate under the false belief that they can fine-tune economies. If things get too hot (inflation), they dial down the thermostat. If things get too cool (deflation), they dial it up.

But reality is quite different…

The economy is not a linear system that can be adjusted like a thermostat.  It’s a complex dynamic system, more like a nuclear reactor.  Once it starts to melt down, no amount of playing with the controls can stop it.

The world is sinking into recession, dragged down by sagging growth in China.  Meanwhile, central banks are fiddling with the thermostats by printing money.

James Rickards has had private conversations with central bankers for years in which they admitted they had no idea what they were doing. They have described monetary policy to me as an “experiment” (their word, not mine). They didn’t use the phrase “guinea pig,” but that’s how they treat investors.

But until now, He has never heard a Fed official admit this in public. At this point, the whole charade is too obvious to deny. Reuters has a story on a central banker speaking on the record admitting they are making up policy on the fly. And don’t really understand how the economy works today.

Today, Jim Rickards reiterates his forecast — Janet Yellen will not raise rates this year. I said that categorically in late 2014. It wasn’t a wild guess. And he is not making a wild guess this year, either. Read on below for the math that backs up his forecast…

The one equation that shows why Yellen won’t raise rates: [S2=S1(1-S1)r]…

Yellen’s (Federal Reserve Board) Feedback Loop

What is popularly called a “feedback loop” is technically known to applied mathematicians as a recursive function. In plain English, the output of an equation becomes the input for the next iteration of the same equation.

Running numerous iterations of the same equation with computers, “numerous” can mean millions of times. And when computers produce graphical representations of the outputs, one gains insights into the nature of the process represented by the equation.

Some graphs move to a value and stay there forever, what complexity theorists call a “fixed point attractor.” Some graphs are utterly chaotic.

Some others replicate almost mystical patterns at increasing and decreasing scale, such as the famous scale-invariant Mandelbrot set, shown below.

Each graph reveals a different dynamic.

A simple, but useful version of this is the equation S2 = S1 (1 – S1) r.

If you set values of S1 = 0.75, and r = 0.1 and solve for S2, the result is 0.01875.

Next, take this value for S2, and plug it into the right hand side of the equation in place of S1. Then solve it again to get S3.

Repeat the process (each output = next input), and you’ll observe an interesting phenomenon.

The graph of the outputs moves to zero and stays there forever. There is no escape from the feedback loop. Zero is the fixed-point attractor.

While mathematics can be an end in itself, one purpose is to provide models of real-world dynamics in ways that help one understand those dynamics. Recursive functions (a basic tool of complexity theory) are useful if one sees capital markets and economic processes as complex dynamic systems.

In fact, capital markets pass the four tests of complex systems — diverse agents, connectivity, interaction, and adaptive behavior — with flying colors. Complexity theory is a far more useful way to understand capital markets than the obsolete, and ultimately harmful stochastic equilibrium models in use for the past eighty years.

Those stochastic equilibrium models assume complete markets — a grossly false assumption — and are unable to account for the extremely nonlinear dynamics of economic phenomena. Willem Buiter of the London School of Economics has described this type of macroeconomic modeling as “a privately and socially costly waste of time and resources” that “may have set back by decades serious investigations of aggregate economic behavior and economic policy-relevant understanding.”

What does this mathematical digression have to do with Federal Reserve interest rate policy? The issue is whether the Fed, by intervening in markets to a greater extent than ever, has created a feedback loop between itself and the markets from which there is no escape.

The Fed policy rate has been stuck at zero for seven years. For the past two-and-one-half years, the Fed has expressed its desire to raise rates. But “desire” is not analysis, it’s wishful thinking. Analysis reveals that whenever the Fed talks tough on rates, the dollar strengthens, the U.S. imports deflation, exports slow, the economy weakens, and the Fed is ultimately deterred from pulling the trigger on a rate hike.

Then the Fed goes dovish. This happened in September 2013 when Bernanke shocked markets by not starting the taper.

It happened again in September 2015 when Yellen shocked markets by not raising rates. This surprise was followed by a dovish press conference, more dovish minutes, and super-dovish speeches by Fed Governors Lael Brainard and Dan Tarullo.

Markets then rallied in anticipation of continued zero rate policy. This stabilization caused the Fed to go hawkish again. You get the idea. Wash, rinse and repeat.

Based on the October employment report, market expectations of a rate hike in December are at the highest level since the “taper tantrum” of May 2013. Now it’s November. Fed officials are reading the market rallies as an all-clear sign and are signaling that the rate hike is back on the table. But markets (at least for the moment) have had a different reaction from a few months back.

The dollar is still strong, and emerging markets are still in the doldrums.

They’re reading the new Fed hawkishness as a sign of economic strength and bidding up stocks even with cheap money while it lasts. The dollar is still strong, and emerging markets are still in the doldrums.  A December rate hike might be a done deal in a linear system where good news is followed by good news in ways easy to extrapolate into a predictable outcome.

Yet, in complex systems with recursive functions, good news on employment can turn into the bad news of a strong dollar, imported deflation, slower exports, etc. in ways we’ve seen before. That’s the feedback loop at work. In fact, the strong October employment report finds little confirmation in other data. On balance, recession indicators still have the upper hand.

Can the Fed break out of this feedback loop just by raising rates without regard to economic fundamentals? Not really. Raising rates into weakness will amplify the weakness, and force the Fed to cut rates in 2016. It’s back to zero with greater amplitude.

Central banks operate in the false belief that they can “fine tune” economies. If things get too hot (inflation), they dial down the thermostat. If things get too cool (deflation), they dial it up. The reality is different. The economy is not a linear system that can be adjusted with a thermostat. It’s a complex dynamic system, more like a nuclear reactor. Once it starts to meltdown, no amount of playing with the controls can stop it. A global recession has begun and central banks are fiddling with the thermostats by printing money.

James Rickards has had private conversations with central bankers for years in which they admitted they had no idea what they were doing. They have described monetary policy to me as an “experiment” (their word, not mine). They didn’t use the phrase “guinea pig” but that’s how they treat investors.

The only way out of this systemic feedback loop is to alter the system. This cannot be done with monetary policy. A structural problem requires structural solutions. These involve fiscal, and regulatory policies within the purview of the White House and Congress. Given the current political dysfunction in the United States, there is no prospect of that.

Perhaps Yellen will raise rates in December. But I doubt it.

Her equilibrium models tell her one thing.  But the complexity models used by James Rickards tells another.

G20 warns of threats to global economic recovery

DOW JONES NEWSWIRES  18 APR, 4:40 AM
ECONOMY GLOBAL NEWS

The world’s top finance leaders warned Friday that currency volatility, low inflation and high debt levels threaten to undermine an already uneven global economic recovery.

In an official statement after two days of meetings, finance ministers and central bankers from the Group of 20 largest economies backed more easy-money policies in wealthy nations as critical accelerants for growth.

 “In many advanced economies, accommodative monetary policies are needed to anchor inflation expectations and support recovery,” said the G-20 statement.

The G-20, which acts as the world’s economic executive board, affirmed its support for central bank stimulus in Europe, Japan and the US Officials are increasingly worried that the global economy could get stuck in a long period of anemic output, given the slowdown in many of the largest emerging markets that have been key drivers of global growth.

But as the US Federal Reserve contemplates when it should start raising borrowing costs for the first time in nearly a decade, the G-20 expressed concern that an easy-money exit could send shock waves through markets across the globe.

 “In an environment of diverging monetary policy settings and rising financial-market volatility, policy settings should be carefully calibrated and clearly communicated to minimize negative spillovers,” the group said.

WASHINGTON (AP) — World finance officials said Saturday they see a number of threats on the horizon for a global economy still clawing back from the deepest recession in seven decades, and a potential Greek debt default presents the most immediate risk.

After finance officials wrapped up three days of talks, the International Monetary Fund’s policy committee set a goal of working toward a “more robust, balanced and job-rich global economy” while acknowledging growing risks to achieving that objective.

The Greek finance minister, Yanis Varoufakis, held a series of talks with finance officials on the sidelines of the spring meetings of the 188-nation IMF and World Bank, trying to settle his country’s latest crisis.

Mario Draghi, head of the European Central Bank, said it was “urgent” to resolve the dispute between Greece and its creditors.

A default, he said, would send the global economy into “uncharted waters” and the extent of the possible damage would be hard to estimate. He told reporters that he did not want to even contemplate the chance of a default.

Earlier in the week, IMF Managing Director Christine Lagarde had rejected suggestions that her agency might postpone repayment deadlines for Greece. On Saturday, she cited constructive talks with Varoufakis and said the goal was to stabilize Greece’s finances and assure an economic recovery and “make sure the whole partnership hangs together” between Greece and its creditors.

In its closing communique, the policy-setting panel for the World Bank expressed concerns about the unevenness of global growth and pledged to work with the IMF to provide economic support for poor nations that have been hit hard by falling commodity prices.

But international aid group Oxfam expressed disappointment that the IMF and World Bank did not devote more time to exploring ways to lessen widening income gaps.

“Given that rising inequality continues to make the headlines everywhere in the world, it is surprising how the issue remained almost totally absent from these spring meetings,” said Nicolas Mombrial, head of the Washington office of Oxfam International.

Greece is in negotiations with the IMF and European authorities to receive the final 7.2 billion euro ($7.8 billion) installment of its financial bailout. Creditors are demanding that Greece produce a credible overhaul before releasing the money.

The country has relied on international loans since 2010. Without more bailout money, Greece could miss two debt payments due to the IMF in May and run out of cash to pay government salaries and pensions.

Fears that Greece could default and abandon the euro currency group sent shockwaves through global markets Friday. After being down nearly 360 points, the Dow Jones industrial average recovered a bit to finish down 279.47.

U.S. Treasury Secretary Jacob Lew said that a Greek default would “create immediate hardship” for Greece and damage the world economy.

In a speech Saturday to the IMF panel, Lew urged South Korea, Germany, China and Japan to do more to increase consumer demand in their own countries instead of relying on exports to the United States and elsewhere for growth.

 “We are concerned that the global economy is reverting to the pre-crisis pattern of heavy reliance on U.S. demand for growth,” Lew said. “As we all know, such a pattern will not lead to strong, sustainable and balanced global growth.”

The negotiations over Greece’s debt have proved contentious but all sides have expressed optimism that the differences can be resolved.

A number of countries directed criticism toward the U.S. for the failure of Congress to pass the legislation needed to put into effect IMF reforms that would boost the agency’s capacity to make loans and increase the voting power of such emerging economic powers as China, Brazil and India.

Agustin Carstens, the head of Mexico’s central bank and the chair of the IMF policy panel, said that “pretty much all of the members expressed deep disappointment” that a failure of Congress to act is blocking implementation of the reforms. The IMF panel directed IMF officials to explore whether any interim reforms could be put into effect pending congressional action.

The finance ministers urged central banks including the Federal Reserve to clearly communicate future policy changes to avoid triggering unwanted turbulence in financial markets.

Lagarde told reporters Saturday that the Federal Reserve had made it clear that it planned to “always communicate and help everybody anticipate” its future moves on interest rates.

Fed Chair Janet Yellen along with Lew represented the U.S. at the finance meetings.

___  Associated Press writer Luis Alonso contributed to this report.

WASHINGTON—The world’s top finance leaders warned Friday that currency volatility, low inflation and high debt levels threaten to undermine an already uneven global economic recovery.

In an official statement after two days of meetings, finance ministers and central bankers from the Group of 20 largest economies backed more easy-money policies in wealthy nations as critical accelerants for growth.

“In many advanced economies, accommodative monetary policies are needed to anchor inflation expectations and support recovery,” the G-20 said.

The G-20 affirmed its support for central-bank stimulus in Europe, Japan and the U.S. Officials are increasingly worried that the global economy could get stuck in a long period of anemic output, given a weak recovery in some rich countries and a slowdown in many of the largest emerging markets that have been key drivers of global growth.

The International Monetary Fund warned this past week that if the Federal Reserve raised short-term rates sooner or more quickly than markets anticipate, it could cause a rapid jump in longer-term interest rates and a whirlwind of volatility as investors adjust their portfolios across assets and markets.

The IMF noted the large gap between the Fed’s expectations for rate increases and market expectations.

Renewed G-20 support for easy-money policies—essentially backing currency depreciation as a tool for promoting growth—underscores concern about the global economy getting stuck in a low-growth rut. It also marks an implicit acknowledgment of the failure across the globe to enact longer-lasting structural overhauls to major economies after years of relying on short-term spending and other temporary stimulus programs.

Treasury Secretary Jacob Lew, in a statement prepared for the IMF’s policy-setting committee, warned that long-standing efforts to rebalance the global economy are at risk given the reliance of key economies on exports. Some economies “appear increasingly dependent on external demand to boost growth, rather than pursuing more balanced policies to catalyze domestic demand,” Mr. Lew said. “We are concerned that the global economy is reverting to the precrisis pattern of heavy reliance on U.S. demand for growth.”

The dollar has surged in the past year as the U.S. economy has shown signs of strengthening and markets expect the Fed to raise rates. Combined with weak growth and aggressive easy-money policies in Europe and Japan, the U.S. currency has experienced one of the fastest and strongest surges in decades.

Still, U.S. officials are concerned enough about a prolonged stagnation in its leading trading partners that they have encouraged easy-money policies overseas even though the subsequent dollar strengthening weighs on American exports and growth.

In its latest outlook published this week, the IMF said global economic growth will accelerate only marginally this year as slowing output in major emerging markets and a feeble expansion in wealthier countries drag down near-term prospects.

The low-growth worry is also trumping other risks fomenting in global markets amid the accelerating divergence in exchange-rate values and interest rates. For example, many emerging markets bulked up on dollar-denominated debt, a liability that increases with the rise of the dollar’s value, especially for emerging-market governments and firms whose revenue are in local currencies. Some countries have also pegged the value of their currencies to the dollar, damping their competitiveness and growth prospects.

Those competing pressures are putting authorities in policy binds, and could “trigger a cascade of disruptive adjustments,” the IMF said.

Write to Ian Talley at ian.talley@wsj.com

Billionaires Decry Blatant Wall Street Theft of Retirement Assets

In a shocking interview with PBS, billionaire mutual fund icon Jack Bogle, revealed that Wall Street is unapologetically stealing from millions of hard-working Americans. Bogle showed how “70% of your market returns” go straight to the pockets of Wall Street, and only 30% actually goes to you, the investor.

And Bogle should know.

Bogle, who founded the Vanguard Group in 1974, has had a decades-long insider’s view of the entirely corrupt fee structure on Wall Street.

So he knows how American retirees are being fleeced by hidden fees that most investors never see.

And at a recent private event, Steve Forbes echoed this same shocking claim.

Forbes pointed out that these fees are compounding, and over time are devastating to retirement nest eggs.

The typical Wall Street 2% management fee, compounded over the long term, will “cut your returns in half or more. If you would normally have $100,000, you could end up with, say, $30,000 or $40,000 because of what fees eat up.”

Of course Bogle and Forbes aren’t the only industry icons sounding the alarm.

Warren Buffett made it clear that the only way to make money over the long term is to invest “without paying fees to a mutual fund manager.”

Forbes took these comments even further when he and industry veteran John Shubert exposed the biggest threat to your retirement during the exclusive Investment Crisis Summit held by Newsmax Finance.

During the summit, Forbes and co-host Shubert revealed groundbreaking research that proves Wall Street’s compounding fees are only part of a larger “flaw” in the financial system.

It’s this “flaw” that makes it completely legal for Wall Street to siphon off up to 70% of your profits.

Editor’s Note:Forbes and Shubert Give Proof on Wall Street’s Loophole for Legally Grabbing Your Profits.

Before you dismiss the notion that Wall Street could legally take your profits as a matter of course, consider the facts Forbes and Shubert revealed during the summit.

Citing new research from the Harvard Business School and London School of Economics, they pointed out that this industry “flaw” is a “permanent condition” of the market.

Meaning it can’t be fixed.

And investors who don’t take steps today to overcome this flaw could lose more than just 70% of their profits. They could end up losing their ability to retire altogether.

At the summit, attendees also discovered how outdated regulations actually force Wall Street fund managers to underperform their benchmarks.

Shubert showed how 80% of the stocks held in mutual funds are nothing more than dead-weight stocks, providing no excess return for investors.

That means for every $100 you invest, only $20 is actually working for you to generate market-beating returns. The remaining $80 is simply fodder for Wall Street’s fee machine.

To drive the point home, Forbes and Shubert clearly illustrated how dead-weight stocks and fees make it mathematically impossible for fund managers to beat the market.

Summit attendees were fuming after learning how the system is working against them. But they became overwhelmingly confident once they learned how to take simple steps to avoid the financial carnage that unwitting mutual fund investors could experience in their retirement years.

Shubert said, “It’s a clear and actionable blueprint that sidesteps Wall Street fees and makes sure all of your money is put to work.”

“When we first held the summit, people were outraged by what they learned and asked us to make the recording of the summit public so they could share it with friends and family,” said Newsmax Financial Publisher Christian Hill.

“The real concern,” Hill added, “is that more than 96 million people own mutual funds. And the ones who have no idea they’re being fleeced will be the hardest hit when they need the money the most, at retirement.

“It’s scary to think so many Americans will end up with a lot less money than they thought at retirement. But we want the average American to be prepared, and that is why we will continue to push the exclusive video recording from the Investment Crisis Summit to as many outlets as we can. We want the word to spread.”

Read Latest Breaking News from Newsmax.com http://www.newsmax.com/Finance/MKTNews/Bogle-Forbes-Buffett-Shubert/2015/02/23/id/626341/#ixzz3TtoDJcq7

On RAI with Paul Jay, Chris Hedges discusses the psychology of the super rich; their sense of entitlement, the dehumanization of workers, and mistaken belief that their wealth will insulate them from the coming storms:

http://therealnews.com/t2/index.php?o…
 

CNBC Source:
http://www.cnbc.com/id/102341687

The video:

http://video.cnbc.com/gallery/?video=3000346909

Saad Shalash | Reuters

A customer counts Iraqi dinars at a money changer in Baghdad.

Investors bought the currency through the firm BH Group, which charged a 20 percent markup on average, according to prosecutors. Some of the scammers also touted false military achievements, prosecutors say.

By the time the scheme unraveled, federal officials say victims handed over nearly $24 million to the con men for the Iraqi currency they thought would make them rich.