QUESTION: Mr. Armstrong; At the WEC you said the Fed would allow its balance sheet to eventually shrink, it was trapped and could not sell off its holdings. Yellen seems to have come out and said the same thing. Is this advice you have given in Washington?

XM

ANSWER: What Yellen has said is that the main tool for setting monetary policy would remain the fed funds rate, not shrinking its balance sheet. It cannot shrink its balance sheet right now for that would be deflationary. Yes, she said that the Fed would likely reduce the size of  its balance sheet over time, but it would KEEP reinvesting proceeds from MATURING Treasuries and mortgage-backed securities for now to “maintain accomodative conditions.”

This is Yellen confirming what I have warned about. The central banks are trapped. They can NEVER sell the bonds they bought, and the best they could do is allow them to mature. However, that would still be deflationary and result in sending rates higher. Yellen’s comments make it appear that the Fed will raise rates to what it perceives to be a neutral rate before making adjustments to the size of the balance sheet.

Therefore, looking at our arrays, it appears the May/June period may be the next target for a rate hike. However, keep in mind that we have the French elections. That can send the dollar rising even more as the Euro caves in. Make no mistake about this. The position of Yellen is responding to the domestic conditions and the breakup of the EU is looking ever more imminent. Therefore, Draghi has been proven to be completely wrong in his attempts to manage the economy of Europe. Instead of creating a recovery, he has deepened the divide and brought the EU to the brink of collapse. Raising rates on Yellen’s party is doing exactly what I warned would unfold. As the dollar strengthens and Europe looks more questionable, the capital flows to the dollar creating the appearance of an asset bubble.

The mainstream media have declared outright war on Trump. The higher the stock market, the more they will turn and blame trump saying he is just making his rich friends richer. This will feed back and compel the Fed to raise rates more to stop the asset bubble, which in turn will attract more capital to the dollar while sending emerging markets over the cliff.

Welcome to the new exciting world of international capital flows.

On January 18, 2017, new rules governing the seizure of bank accounts in the European Union went into effect (The EU Regulation No 655/2014 of May 15, 2014). This regulation sought to circumvent the independent legal rights of people, denying them the right to be heard in a court of law in their own country. This has created a European Account Preservation Order (EAPO) which is to facilitate cross-border debt recovery in civil and commercial matters. The European Commission described the EAPO as a “simple and cost-effective way to block funds that are owed” by a creditor in another member state. What this really means is that a CREDITOR no longer needs to run to an Italian court to sue an Italian debtor. In other words, this order dismembers the sovereignty of the member states legal courts.

Until now, a creditor who is owed money by a debtor in another EU country had to apply to a court in the debtor’s state of residence in accordance with the domestic law of that member state if he wanted to freeze the debtor’s bank accounts. In the Commission’s opinion, this was often too time-consuming and too expensive. In the United States, you still must go after a debtor in their home state and apply by the local laws.

The new European procedure was designed to be quicker, cheaper, and more efficient for creditors, but it then would demand that someone in Italy would have to hire a lawyer in Germany to defend them there. The costs are being shifted to the debtor rather than the creditor under this EAPO.

Basically, it has become possible for your accounts in your bank to be seized domiciled in the European Union doing away with all local legal protection. The danger here is someone in Germany can freeze your bank account in Italy in proceedings commenced in another member state and ex parte – meaning without you even appearing.

Any court of a member state can grant an EAPO, provided that it has jurisdiction to hear the underlying case on its merits under the European Union’s rules on jurisdiction. Therefore, under the Brussels I Regulation Recast, Germany has implemented the EAPO procedure in Sections 946 to 959 German Code of Civil Procedure (ZPO).

There is not even a limitation for the application for a EAPO can be made at any stage of the main proceedings. Therefore, you can be in a court in Italy and a court in Germany can freeze your account in the middle of a litigation or even before main proceedings have been issued, denying you the right to use funds to hire a lawyer. Article 7 (1) of the Regulation reads:

“The court shall issue the Preservation Order when the creditor has submitted sufficient evidence to satisfy the court that there is an urgent need for a protective measure in the form of a Preservation Order because there is a real risk that, without such a measure, the subsequent enforcement of the creditor’s claim against the debtor will be impeded or made substantially more difficult.”

If the application is made before or during proceedings, and no judgment has therefore been obtained yet, the applicant must also show, in accordance with Article 7 (2), that they have a bona fide good case and are likely to succeed on the merits:

“Where the creditor has not yet obtained in a Member State a judgment, court settlement or authentic instrument requiring the debtor to pay the creditor’s claim, the creditor shall also submit, sufficient evidence to satisfy the court that he is likely to succeed on the substance of his claim against the debtor.”

The interesting aspect of this EAPO mechanism is how it actually also creates the right to search for bank accounts of a debtor throughout Europe. Article 14 provides for a request to obtain bank account information:

 “Where the creditor has obtained in a Member State an enforceable judgment, court settlement or authentic instrument which requires the debtor to pay the creditor’s claim and the creditor has reasons to believe that the debtor holds one or more accounts with a bank in a specific Member State, but knows neither the name and/or address of the bank nor the IBAN, BIC or another bank number allowing the bank to be identified, he may request the court with which the application for the Preservation Order is lodged to request that the information authority of the Member State of enforcement obtain the information necessary to allow the bank or banks and the debtor’s account or accounts to be identified.”

However, the EAPO is NOT available in the entire EU. Denmark and Britain have opted out of this Regulation. Ireland is really screwed since they could have opted out, but chose not to do so.