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Honest Work for Dishonest Pay

Honest Work for Dishonest Pay

Misadventures and Mishaps

Over the past decade, in the wake of the 2008-09 debt crisis, the impossible has happened.  The sickness of too much debt has been seemingly cured with massive dosages of even more debt.  This, no doubt, is evidence that there are wonders and miracles above and beyond 24-hour home deliveries of Taco Bell via Door Dash.

The global debtberg: at the end of 2017, it had grown to USD 237 trillion. Obviously this is by now a slightly dated figure, as debt issuance has continued with gay abandon this year. [PT]

But how can dosages of more debt be the cure for too much debt?  Can more Cutty Sark be the cure for a dipsomaniac?  Certainly, in both instances, and after some interim relief, the cure always proves to be much worse than the disease.

Without question, a moment of clarity is approaching that will bisect the world of today from the world of tomorrow, like the Patriot Act bisects the present world from its prior state of bliss.  Thus, what follows is a rudimentary preview of what’s in store.  But first, some context is in order…

The fake money system – a system centered on debt based legal tender and centrally fabricated interest rates – produces booms and busts of greater extremes with each progression of the business cycle.  This century alone we’ve experienced two iterations of these boom and bust scenarios.  First the dotcom bubble and bust.  Then the housing boom and crash.

The “well-contained” end of the housing boom…  [PT]

Make no mistake, these booms and busts were anything but garden variety gyrations of the business cycle.  In fact, the Federal Reserve’s finger prints are all over them.  The booms originated from Fed monetary policy misadventures.  The busts were triggered by Fed monetary policy mishaps.

…click on the above link to read the rest of the article…

Thirteen Reckonings Hanging in the Balance

Thirteen Reckonings Hanging in the Balance

A Fake Money World

The NASDAQ slipped below 8,000 this week. But you can table your reservations.  The record bull market in U.S. stocks is still on. With a little imagination, and the assistance of crude chart projections, DOW 40,000 could be eclipsed by the end of the decade.  Remember, anything and everything’s possible with enough fake money.

Driven by a handful of big cap tech companies, the Nasdaq Composite has made new highs – but the broad market (here shown in the form of the NYSE Index) has not even made it back to the January blow-off peak. It is a good bet the return of the average investor’s portfolio mirrors that of the latter. Such divergences are typically a sign of steadily weakening market internals which are seen near major trend changes.  When such a glaring divergence in performance persistently fails to be invalidated and keeps dragging on for many months, it tends to be particularly concerning for the longer term outlook, Note that even more glaring divergences exist now between US stocks vs. European and EM stocks. Despite the fact that US economic indicators remain strong and no obvious recession warnings are evident, we have yet to see such large divergences resolve without a hiccup. Usually the hiccup turns out to be quite a doozy. [PT]

Still, we consider DOW 40,000 to be about as probable as having a dinosaur step on our car as we drive to work today.  More than likely, a return to DOW 10,000 will first grace the front page of the Wall Street Journal.

In the interim, while still in the delight of this “permanently high plateau,” we’ll turn our attention to another equally suspect record that’s presently unfolding with imperfect precision.

…click on the above link to read the rest of the article…

The Degrading Facts of a Fake Money Hole in the Head

The Degrading Facts of a Fake Money Hole in the Head

Squishy Fact Finding Mission

Today we begin with the facts.  But not just the facts; the facts of the facts.  We want to better understand just what it is that is provoking today’s ludicrous world. To clarify, we are not after the cold hard facts; those with no opinions, like the commutative property of addition. Rather, we are after the warm squishy facts; the type of facts that depend on what the meaning of ‘is’ is.

Fact-related pleas… [PT]

The facts, as far as we can tell, are that we are presently living in a land of extreme confusion.  The genesis of this extreme confusion is today’s fake money system.  And the destructive effects of this fake money system have spread out like a virus into nearly all aspects of daily life.

Plain and simple, central bank fiat money creation, multiplied by commercial banks through fractional-reserve banking, propagates financial and economic chaos.  The experience of long periods of money supply expansion punctuated by abrupt, episodic contractions, has the effect of whipsawing the working stiff’s efforts to get ahead. This trifecta of offenses has debased the rewards of hard work, saving money, and paying one’s way.

Quite frankly, these facts are insulting. In particular, they are insulting for those running in the rat race for their family’s daily bread. These facts are also insulting for retirees, who worked for four decades only to have their life savings extracted by the depredations of the fake money system.

 

Early rat race conditioning [PT]

Short-Sighted Decisions

The facts are that on August 15, 1971, Tricky Dick Nixon stiffed the world unconditionally.  He defaulted on the Bretton Woods system, and terminated the agreement that allowed member nations to redeem their paper dollars, acquired through trade, for gold.  But that’s not the half of it…

…click on the above link to read the rest of the article…

Are You Prepared for the End of Fake Money?

What Is Money?

Today we begin with a fundamental question: What is money?  This, no doubt, is an important question.  And we ask it with clear intent and purpose.  Namely, we want to better understand how it’s possible for America to rack up such a massive trade deficit with China.

 

China-US imports and exports of goods. It has to be stressed that the most often cited figure is the trade deficit in goods, which is the “scariest” figure. The US surplus in services with China has grown rapidly in recent years. It was $33 billion in 2015, doubling from $16.5 billion just four years earlier. By 2017 it had grown to $38.5 billion. The idea that a trade deficit is somehow “bad” is highly dubious. “Countries” do not trade with each other anyway – individuals and companies do, and they obviously do so because they deem it advantageous for both sides. Moreover, these aggregate statistics obscure more than they reveal. The global supply chain is extremely complex – a single $3 t-shirt “Made in China” will contribute to the incomes of people in some 15 to 20 countries before a consumer in the US plucks it off a shelf at Wal-Mart. If we were to talk incessantly about the US capital account surplus – which offsets the trade deficit – would anyone complain? [PT]

America’s trade deficit with China, in 2017 alone, was $375 billion.  That’s a gap of over $31 billion a month – or $1 billion a day.  We believe having a better grasp on what money is will bring clarity to the nasty trade deficit that’s motivating today’s burgeoning trade war.

With respect to our initial inquiry we turn to Victorian economist William Stanley Jevons for edification.  In his 1875 work, Money and the Mechanism of Exchange, Jevons stated that money has four functions.  It’s a medium of exchange, a common measure of value, a standard of value, and a store of value.

…click on the above link to read the rest of the article…

Chasing the Wind

Chasing the Wind

Futility with Purpose

Plebeians generally ignore the tact of their economic central planners.  They care more that their meatloaf is hot and their suds are cold, than about any plans being hatched in the capital city.  Nonetheless, the central planners know an angry mob, with torches and pitchforks, are only a few empty bellies away.  Hence, they must always stay on point.

Watch for those pitchfork bearers – they can get real nasty and then heads often roll quite literally. [PT]

One of the central aims of central planners is to achieve effective public exhortation.  While they pursue futility, in practice.  They must do so with focus and purpose.

For example, economic reports with impressive tables and charts, including pie graphs, are important to maintaining the requisite public perception.  Central planners know that financial scientism must always be employed as early and often as possible.

Statistics, with per annum projections, particularly those that show increasing exports and decreasing imports, are critical to maintaining the proper narrative.  The USA’s embarrassing deficit in the balance of international payments will certainly diminish if it is sketched accordingly in an “official” report… right?

Yet the planners always disregard the simple observation that an economy is composed of countless, and variable, inputs.  How is a new discovery or technology, and its effect on investment and labor, to be anticipated and forecast?  How are the actions of 7 billion individuals to be modeled and displayed on a tidy diagram?

Good old Friedrich A. Hayek  – depicted above – once coined the term “scientism” to describe the futile attempts of assorted social engineers and their academic advisors to express human action in the form of barren mathematical equations and statistics. Lettuce look at something one of his followers, the late Professor Austin L. Hughes, wrote in an article published in the autumn 2012 issue of “The New Atlantis” journal: 

…click on the above link to read the rest of the article…

America Goes Full Imbecile

America Goes Full Imbecile

Credit has a wicked way

of magnifying a person’s defects.  Even the most cautious man, with unlimited credit, can make mistakes that in retrospect seem absurd.  But an average man, with unlimited credit, is preeminently disposed to going full imbecile.

 

Let us not forget about this important skill…  [PT]

Several weeks ago we came across a woeful tale of Mike Meru.  Somehow, this special fellow, while of apparent sound mine and worthy intent, racked up over $1 million dollars in student loan debt – all to become an orthodontist.

Surely, with several good text books, and a disciplined self-study program, Meru could have learned everything there was to possibly know about adjusting malpositioned teeth for roughly $200 bucks.  Instead, with the full backing of Uncle Sam’s loan program, he went full imbecile.

Yet Meru isn’t alone.  According to the Department of Education, there are 101 people in the U.S. who are a million dollars or more in federal student loan debt.  What’s more, there are 2.5 million people who owe at least $100,000.  What could they have possibly learned that could be so doggone valuable?

Did they discover how to turn nickels into dimes?  Did they solve the geometry of a four-sided triangle?  Did they learn the secrets of the universe?  Did they get an insider’s peek at something more than what happens under the sun?

Delusions of Grandeur

Only at rare moments are people capable of understanding the full implications of the catastrophes of their making.  These rare moments, often just before dawn, are the precise instants when they gain full clarity to the hopeless fact that they have gone full imbecile.  That every decision they have ever made has led them to this exact place – where they find themselves to be completely and utterly screwed.

…click on the above link to read the rest of the article…

Full Faith and Credit in Counterfeit Money

Full Faith and Credit in Counterfeit Money

There are nooks and corners in every city where talk is cheap and scandal is honorable.  The Alley, in Downtown Los Angeles, is a magical place where shrewd entrepreneurs, shameless salesmen, and downright hucksters coexist in symbiotic disharmony.  Fakes, fugazis, and knock-offs galore, pack the roll-up storefronts with sparkle and shimmer.

Several weeks ago, the LAPD seized $700,000 worth of counterfeit cosmetics from 21 different Alley businesses.  Apparently, some of the bogus makeup products – which were packaged to look like trendy brands MAC, NARS, Kyle Cosmetics, and more – were found to contain human and animal excrement.

“The best price is not always the best deal!” remarked Police Captain Marc Reina via Twitter.  Did you hear that, General Electric shareholders?

Yet the Alley, for all its dubious bustle, offers a useful public service.  It provides an efficient calibration for the greater world at large; a world that’s less upright and truthful than an honest man could ever self-prepare for.  In 30-seconds or less, the Alley will impart several essential lessons:

The price you’re first quoted is the sucker’s price.  To negotiate effectively, you must appear to care far less about buying than the merchant cares about selling.  Don’t trust someone that says, “trust me.”  And, most importantly, don’t believe what you see and read…or what you hear.

Reality Bites

For everything worthwhile, there exists a counterfeit.  This modest insight extends well beyond the boundaries of flea markets and tent bazaars.  It extends outward to news, money, prescription drugs, wars, public schools, Congress, corn ethanol, medical insurance, public pensions – you name it.  There’s plenty of fraud, phony, and fake going on.

For example, in the year 2018, the most reputable news outlets have been reduced to mere purveyors of propaganda.  The stories they spread are stories of fiction.

…click on the above link to read the rest of the article…

The Oil Curse Comes to Washington

The Oil Curse Comes to Washington

Prices rise and prices fall.  So, too, they fall and rise.  This is how the supply and demand sweet spot is continually discovered – and rediscovered.

When supply exceeds demand for a good or service, prices fall.  Conversely, when demand exceeds supply, prices rise.  Producers use the information communicated by changing prices to make business decisions.  High demand and rising prices inform them to increase output.  Excess supply and falling prices inform them to taper back production.

This, in basic terms, is how markets work to efficiently bring products and services to market.  Five year plans, command and control pricing systems, and government price edicts cannot hold a candle to open market pricing.  But not all markets are created equal.  The market for gumballs or garbage bags, for instance, is much simpler than the market for solar panels or jet engines.

What we mean is some markets are subject to more government intervention than others; especially, if there’s a large money stream that can be extracted by government coercion.  Sometimes governments nationalize an entire market – for the good of the people, of course.

Strange and peculiar price movements can indicate there’s something else besides natural supply and demand mechanics going on.  On April 6, a barrel of West Texas Intermediate (WTI) grade crude oil cost about $62.  Ten months ago, that same barrel of WTI oil cost about $43.  About 24 months ago, it was only about $30 a barrel.

Yesterday, April 26, WTI oil was about $68 a barrel.  What’s going on?

Price Fixing Accidents

Indeed, the oil market is subject to mass government interventions the world over.  The push and pull of these hindrances to regular market determined price discovery can prompt wild price distortions.  We don’t pretend to understand the many variables at play that influence the price of oil.  Still, today, we scratch for clarity and edification, nonetheless.

…click on the above link to read the rest of the article…

Paradise in LA LA Land

More is revealed with each passing day.  You can count on it.  But what exactly the ‘more is of’ requires careful discrimination.  Is the ‘more’ merely more noise?  Or is it something of actual substance?  Today we endeavor to pass judgment, on your behalf.

Normally, judgment would be passed on a Thursday, but we are making an exception. [PT]

For example, here in the land of fruits and nuts, things are whacky, things are zany. Last month, State Senator, Dick Pan, introduced Senate Bill (SB) 1424, which would require California based websites to utilize fact checkers to verify news stories prior to publishing them.

Who exactly these fact checkers would be – the moral servants that would save the world from the ills of fake news – was conveniently missing from the bill. Ironically, the control freaks in California state government can’t control themselves; they want to muck around with people’s lives unconditionally.

Nonetheless, screwball proposals like this out of Sacramento fall into the mere noise category – for now.  We estimate it will take another Presidential election cycle, or two, before such nonsense is taken seriously by the majority of state lawmakers.

At the local level, there are more demanding problems that require more demanding solutions.  Here in Los Angeles County, according to something called the Los Angeles Homeless Services Authority, there is now a homeless population of precisely 57,794.  For perspective, Chavez Ravine (i.e., the Dodger Stadium), has a capacity of 56,000.

This army of indigents, roaming about the LA LA land paradise, has become a significant embarrassment for local leaders.  Haphazard urban campsites litter the bank tops of the colossal, concrete Los Angeles River Channel between Downtown Los Angeles and Downtown Long Beach.  The massive collection of tents and makeshift shelters has become too much to ignore.

…click on the above link to read the rest of the article…

Broken Promises

Demanding More Debt

Consumer debt, corporate debt, and government debt are all going up.  But that’s not all.  Margin debt – debt that investors borrow against their portfolio to buy more stocks – has hit a record of $642.8 billion.  What in the world are people thinking?

A blow-off in margin debt mirroring the blow-off in stock prices. Since February of 2016 alone it has soared by ~$170 billion – this is an entirely new level insanity. The current total of 643 billion is more than double the level of margin debt at the tech mania peak and 15.4 times the amount of margin debt just before the crash of 1987. [PT]

Clearly, they’re not thinking.  Because thinking takes work.  Most people don’t like to work.  They like to pretend to work.

Similarly, people may say they care about debt.  But, based on their actions, they really don’t.  When it comes to the national debt, the overarching philosophy is that it doesn’t matter. Government debt certainly doesn’t matter to Congress.  Nor does it matter to the President.  In fact, their actions demonstrate they want more of it.

Big corporations with big government contracts want more government debt too. Their businesses demand it. They’ve staked their success on the expectation that the debt slop will continue flowing down the trough where they consume it like rapacious pigs.

The higher education bubble is also based on a faulty foundation of debt. The business model generally requires signing credulous 18 year-olds up for massive amounts of government backed student loans. From what we gather, federal student loan debt is closing in on $1.4 trillion.

 

Total student loans outstanding (red line – the data are only available from 2007 onward) and total federal government-owned student loans (black line). The former figure was closing in on $1.5 trillion as of Q4 2017. [PT]

…click on the above link to read the rest of the article…

Haunted by Ghosts of the Old Eastern Bloc

Ridiculous Minutia

Jerome Powell, the new Chairman of the Federal Reserve, just completed his third week on the job.  He’s hardly had enough time to learn how to operate the office coffee maker, let alone the all-in-one printer.  He still doesn’t know what roach coach menu items induce a heinous gut bomb.


The perpetually slightly worried looking new Fed chairman Jerome Powell, here seen warily inspecting the Rose Garden at the White House. Everybody wants to know if he has a “better plan” – but there is no better plan, thus no-one has one. [PT]

Photo credit: A. Brandon / AP

Yet across the planet, folks high and low are already telling him exactly how he should do his job.  What’s more, they’re passing advance judgment on things that may or may not happen. For example, the South China Morning Post recently offered the following opinion:

“President Donald Trump may have done Janet Yellen a favor by not giving her a second term as Chairwoman of the Federal Reserve.  Her successor, Jerome Powell, may have inherited a poisoned chalice.  The Fed will have to up the pace of U.S. rate hikes or risk accusations of being behind the curve as markets react to signs of rising inflation.”

When Powell showed up to work on February 5, for his first day on the job, the general consensus was that the Fed would raise the federal funds rate three times this year, at 25 basis points – or 0.25 percent – per increase. But now that consumer prices are rising at an annual rate of 2.1 percent, average hourly earnings are increasing at an annual rate of 2.9 percent, and Congress has passed a massive two year budget deal, twitchy economists are questioning if three rate hikes will be enough to keep inflation in check.

 

…click on the above link to read the rest of the article…

When Budget Deficits Will Really Go Vertical

Mnuchin Gets It

United States Secretary of Treasury Steven Mnuchin has a sweet gig.  He writes rubber checks to pay the nation’s bills.  Yet, somehow, the rubber checks don’t bounce.  Instead, like magic, they clear. How this all works, considering the nation’s technically insolvent, we don’t quite understand.  But Mnuchin gets it.  He knows exactly how full faith and credit works – and he knows plenty more.

Master of the Mint and economy wizard Steven Mnuchin and his wife at the annual ritual greenback burning festival. [PT]

In fact, Mnuchin’s wife, Louise Linton, says she admires him because “he understands the economy.”  And Mnuchin, no doubt, admires Linton, a Scottish actress 18 years younger, because “she loves SoulCycle Snapchat filters that make people look like puppies and piglets.”  Naturally, Mnuchin gets the importance of puppy and piglet filters and how this bizarre fad fits into the big picture of the economy.

Unlike Mnuchin, we find the economy, and its infinite and dynamic relationships, to be beyond comprehension.  But that doesn’t deter us from attempting to make some sense of it each week.  When it comes to Snapchat filters we know nothing – and we could care less.  Still, who are we to question Snap Inc.’s $24 billion market capitalization?

What we do understand is simple arithmetic.  So, too, we care a great deal about the increasingly precarious predicament the 115th U.S. Congress is putting the American people in.  As far as we can tell, the approaching disaster is much closer than Mnuchin will publicly recognize.

US public debtberg-to-GDP ratio – cruising for a bruising. The growth in public debt in recent years is unprecedented in peace time (arguably, the term “peace time” is not an accurate description of the current era). Lettuce not forget, this is just the debt they actually admit to, so to speak.

…click on the above link to read the rest of the article…

What Kind of Stock Market Purge Is This?

Actions and Reactions

Down markets, like up markets, are both dazzling and delightful. The shock and awe of near back-to-back 1,000 point Dow Jones Industrial Average (DJIA) free-falls is indeed spectacular. There are many reasons to revel in it.  Today we shall share a few. To begin, losing money in a multi-day stock market dump is no fun at all.  We’d rather get our teeth drilled by a dentist.  Still, a rapid selloff has many positive qualities.

Memorable moments from the annals of dentistry [PT]

For example, the days following a market correction are full of restoration and redemption.  Like the prayer of Saint Francis of Assisi, Tuesday’s 567 point DJIA bounce brought hope where there was despair, light where there was darkness, and joy where there was sadness.  President Trump even acknowledged that his powers over the stock market are less than omnipotent.

From a practical standpoint, a market correction clarifies that we live in a world that is exacting and just, as opposed to a fabricated fantasy.  A stock market purge demonstrates that the central planners haven’t entirely broken the markets just yet.  Markets still go both up and down. This important detail is always forgotten at the worst possible time.

The stock market purge also clarifies that Fed actions provoke reactions. The Fed’s rate raising and quantitative tightening efforts are having an effect.  After pumping stock and credit markets up for the last decade they are now, by design, deflating them. What a delicate and unnecessary game these central bankers play.

The tree month t-bill yield and total assets held by the Federal Reserve system – moving in opposite directions. Amazingly, many market participants seem to believe that when these data change direction, the stock market will remain unaffected. That is probably wishful thinking. [PT]

…click on the above link to read the rest of the article…

As the Controlled Inflation Scheme Rolls On

Controlled Inflation

American consumers are not only feeling good.  They are feeling great. They are borrowing money – and spending it – like tomorrow will never come.

After an extended period of indulging in excessive moderation (left), the US consumer makes his innermost wishes known (right). [PT]

On Monday the Federal Reserve released its latest report of consumer credit outstanding.  According to the Fed’s bean counters, U.S. consumers racked up $28 billion in new credit card debt and in new student, auto, and other non-mortgage loans in November. This amounted to an 8.8 percent increase in consumer borrowing.  It also ran total outstanding consumer debt up to $3.83 trillion.

US non-mortgage consumer debt – this exercise in admirable restraint seems to have served as a template for corporations and the government. [PT] – click to enlarge.

Perhaps this consumer spending binge will finally propel price inflation, as measured by the personal consumption expenditure (PCE) deflator, up to the Fed’s elusive 2 percent target.  Academic economists and central planners consider 2 percent price inflation to be the sweet spot for attaining economic heaven on earth.  We have some reservations.

Controlled inflation, or what is sometimes called financial repression, is what the Fed is after.  Because controlled inflation is the grease that keeps the gears of the debt based monetary system turning.  You see, through controlled inflation, and the subsequent slow erosion of debt burdens, borrowers can make good on their debts with dollars of diminished value.

And, of course, the biggest debtor of all is the federal government.  Controlled inflation benefits Washington more than anyone else.  The government can borrow massive amounts of money and inflate its debts away.  Yet this isn’t without consequences…

…click on the above link to read the rest of the article…

 

Why You Should Embrace the Twilight of the Debt Bubble Age

Why You Should Embrace the Twilight of the Debt Bubble Age

People are hard to please these days.  Clients, customers, and cohorts – the whole lot.  They’re quick to point out your faults and flaws, even if they’re guilty of the same derelictions.

The recently retired always seem to have the biggest axe to grind.  Take Jack Lew, for instance.  He started off the New Year by sharpening his axe on the grinding wheel of the GOP tax bill.  On Tuesday, he told Bloomberg Radio that the new tax bill will explode the debt and leave people sick and starving.

“It’s a ticking time bomb in terms of the debt.

“The next shoe to drop is going to be an attack on the most vulnerable in our society.  How are we going to pay for the deficit caused by the tax cut?  We are going to see proposals to cut health insurance for poor people, to take basic food support away from poor people, to attack Medicare and Social Security.  One could not have made up a more cynical strategy.”

The tax bill, without question, is an impractical disaster.  However, that doesn’t mean it’s abnormal.  The Trump administration is merely doing what every other administration has done for the last 40 years or more.  They’re running a deficit as we march onward towards default.

We don’t like it.  We don’t agree with it.  But how we’re going to pay for it shouldn’t be a mystery to Lew.  We’re going to pay for it the same way we’ve paid for every other deficit: with more debt.

A Job Well Done

Of all people, Jack Lew should know this.  If you recall, Lew was the United States Secretary of Treasury during former President Obama’s second term in office.  Four consecutive years of deficits – totaling over $2 trillion – were notched on his watch.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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