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Economists spend inordinate time gauging the business cycle that they believe drives the US economy. However, the real engine running in the background (and nearly entirely forgotten) is the population cycle. The positive population cycle is such a long running macro trend thousands of years in the offing that it’s taken for granted. It is wrongly assumed that upon every business cycle downturn, accommodative monetary and fiscal policies will ultimately spur greater demand and restart the business cycle once the excess capacity and inventories are drawn down. However, I contend that the population cycle has been the primary factor in ending each recession…and this most macro of cycles is now rolling over. Without this, America (nor the world) will truly emerge from the next recession…instead it will morph into an unending downward cycle of partial recoveries…contrary to all contemporary human experience.

The evidence for my contention begins with the 25-54yr/old US population, which peaked in December 2007 and remains below that peak ever since (this population is presently about 400k fewer than Dec of ’07). However, total US full time employment is now 3.6 million above the previous peak in 2007. This 25-54 to FT employment relationship is now 1:1…just as it was in 1980 and 1970.

Annual change in 25-54yr/old US population vs. annual change in total full time US employees (below). The macro population cycle provided millions of new adults (consumers) and their increased demand restarted the more frequent gyrations of the micro business cycles…until 2008 and again now in 2017. Some may take note that the Federal Reserve cost of money (the Federal Funds Rate in blue) generally followed the population cycle, only making some deviations for the business cycle along the way.

But the change per 8 year periods of the 25-54yr/old population and total US full time employment turns out to be not so dissimilar. In fact, it’s a pretty nice correlation.

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

Legendary technical investor Robert Prechter is awaiting a depression-like shock in the U.S.

April 23, 2017

Legendary technical investor Robert Prechter is awaiting a depression-like shock in the U.S.

He tells Avi Gilburt in a Q&A that today’s mood of optimism will give way to a funk that will rival that of the 1930s

Robert Prechter with the 61,000 sheets of paper generated in the editing process for his new book, “The Socionomic Theory of Finance.”

A June 2015 profile of Robert Prechter, the world’s foremost proponent of Elliott Wave technical analysis, turned out to be the most popular investing story on MarketWatch for the week in which it was published.

One of the reasons is that, at the time, Prechter said the bull market in U.S. stocks was in a “precarious position” as a “mania” gripped investors, who pushed stocks to sky-high levels of overvaluation. The market has only risen since then, and it even got a bump from the November 2016 election of businessman Donald Trump as president.

I recently interviewed Prechter, who released a ground-breaking book, “The Socionomic Theory of Finance,” at the end of December. In the 813-page book, which took 13 years to write, he proposes a cohesive model that takes into account trends in sociology, psychology, politics, economics and finance. I highly recommend the book.

As I’ve explained here, Elliott Wave theory says public sentiment and mass psychology move in five waves within a primary trend, and three waves in a counter-trend. Once a five, or V, wave move (the waves are sometimes described in Roman numerals) in public sentiment is completed, it is time for the subconscious sentiment of the public to shift in the opposite direction, which is simply a natural cause of events in the human psyche, and not the operative effect from some form of “news.”

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

What Should Be the Correct Money Supply Growth Rate?

April 14, 2017

WHAT SHOULD BE THE CORRECT MONEY SUPPLY GROWTH RATE?

Most economists believe that a growing economy requires a growing money stock, on grounds that growth gives rise to a greater demand for money, which must be accommodated.

Failing to do so, it is maintained, will lead to a decline in the prices of goods and services, which in turn will destabilize the economy and lead to an economic recession or, even worse, depression.

Since growth in money supply is of such importance, it is not surprising that economists are continuously searching for the right, or the optimum, growth rate of the money supply.

Some economists who are the followers of Milton Friedman – also known as monetarists – want the central bank to target the money supply growth rate to a fixed percentage. They hold that if this percentage is maintained over a prolonged period of time it will usher in an era of economic stability.

The idea that money must grow in order to sustain economic growth gives the impression that money somehow sustains economic activity.

According to Rothbard,

Money, per se, cannot be consumed and cannot be used directly as a producers’ good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing[1].

Money’s main job is simply to fulfill the role of the medium of exchange. Money doesn’t sustain or fund real economic activity. The means of sustenance, or funding, is provided by saved real goods and services. By fulfilling its role as a medium of exchange, money just facilitates the flow of goods and services between producers and consumers.

Historically, many different goods have been used as the medium of exchange. On this, Mises observed that, over time,

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

Eric Peters: “If China And The World Bank Are Right, We’re Headed For A Depression”

March 12, 2017

Eric Peters: “If China And The World Bank Are Right, We’re Headed For A Depression”

“Some people blindly invested offshore and were in a rush to do so,” explained China’s central bank chief, justifying his recent capital controls.

“Some of this outbound investment was not in line with our own policies and had no real gain for China.” No doubt he’s right. The tycoons fleeing Chinese capital markets have done so selfishly. “So to regulate capital flows, I think it is normal,” concluded the central banker.

Chinese credit relative to GDP has doubled in the past decade to 300%. Which remains less than the US at 350%, but the rate of Chinese credit growth is as unsustainable as it is difficult to reverse — without tanking the economy. The tycoons are running from this dynamic. Because such loops almost always end badly.

Anyhow, after so many years of secular stagnation fears, global investors have grown conditioned to run. They’ve been running away from fear for so long, they’ve forgotten how to run toward greed. Which has left them blindly holding over $10trln of bonds, which yield negative interest.

Now, this might make sense in a deflationary depression. But the global economy has not seen such strong synchronized cyclical growth in years. Inflation is likewise firming everywhere.

But China lowered its growth target again. As the World Bank warned that today’s strong global upswing in confidence and financial markets are not enough to pull the world out of a “low-growth trap.” If they’re right, we’re surely headed for depression. Because all this new debt requires robust economic strength to shoulder the weight.

But European debt markets are still largely priced for depression. And with JP Morgan’s CEO Jamie Dimon announcing the return of animal spirits in America’s economy, it seems more likely that this cycle ends like every other. With a blind run toward greed.

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

The Reason The Elite Hate Trump So Much Is Because He Is Opposed To The One World Agenda Of The Globalists

February 11, 2017

The Reason The Elite Hate Trump So Much Is Because He Is Opposed To The One World Agenda Of The Globalists

Have you ever wondered why the elite hate Donald Trump so much? There have certainly been many politicians throughout the years that have been disliked, but with Trump there is a hatred that is so intense that it almost seems tangible at times. During the campaign, they went to extraordinary lengths to destroy him, but it didn’t work. And now that he is president, the attacks against him have been absolutely relentless. So why is there so much animosity toward Trump? Is it just because he is not a member of their club?

The truth, of course, is that it runs much deeper than that. Ultimately, the elite hate Trump because he is opposed to their demonic one world agenda. Many among the elite are referred to as “globalists” because their eventual goal is to unite the whole world under a single planetary system. These globalists truly believe that they know better than all the rest of us, and they want to impose their way of doing things on every man, woman and child on the entire planet.

So they get really angry when Donald Trump talks of “building a wall” or establishing a travel ban from certain countries because they eventually want a world without any borders at all.

And they get really angry when Donald Trump says that he wants to pull the United States out of international trade deals, because the elite were using those international trade deals to slowly integrate all nations into a single one world economy.

And they really don’t like when Donald Trump criticizes Islam, because Islam is going to be a key component of the one world religion that they plan to establish.

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

Beyond the Zombie Economy

July 17, 2016

Beyond the Zombie Economy

The present day metaphor is the ‘Zombie’ economy depicting the economic system as an unthinking monster in relentless pursuit of a single objective. Part of the Anti-Austerity and Media Activism series with Goldsmiths.

Flickr/S
J Pinkney. Some rights reserved.

Economic metaphors are important to illustrate the distinct features of specific economic systems that exist at particular times. The Great Depression, for instance, uses a psychological framing of ‘depression’ to depict the dynamics of an economic system incapable of recovering from financial collapse. The present day metaphor is the ‘Zombie’ economy depicting the economic system as an unthinking monster in relentless pursuit of a single objective – here, short-term profits are synonymous with human brains. This builds on from the well-used ‘Zombie Banks’ metaphor made popular in the 2000s to describe the Japanese financial system, in which endless public subsidies to banks resulted in systemic erosion of economic vitality – the lesson was feeding the Zombie only breeds more.

There are, of course, other metaphors used to describe contemporary capitalism; like the ‘Vampire Squid’ used to illustrate the role of financial institutions in sucking the life out of the global economy. Sanguineous metaphors are very popular historically for depicting the role of finance within the economy as ‘bleeding it dry’; the Vampire, like the Zombie, is a monster with a singular rational objective ‘to feed’ and the humans are always its prey. Of course, Keynes preferred the ‘animal spirits’ metaphor to explain the same inhumane aspects of markets that must be controlled to sustain a market civilization.

Two books in particular articulate different aspects of the Zombie economy metaphor. The fist is John Quiggin’s Zombie Economics: how dead ideas still walk among us, which systematically unpicks how defunct economic theories are clung to by policy makers and politicians.

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

You are currently living through the dumbest monetary experimental end game in history (including Havenstein and Gono’s)

June 18, 2016

You are currently living through the dumbest monetary experimental end game in history (including Havenstein and Gono’s)

We have seen several explanations for the financial crisis and its lingering effects depressing our global economy in its aftermath. Some are plain stupid, such as greed for some reason suddenly overwhelmed people working within finance, as if people in finance were not greedy before 2007. Others try to explain it through “liberalisation” which is almost just as nonsensical as government regulators never liberalised anything, but rather allowed fraud, in polite company called fractional reserve banking, to grow unrestrained. Some point to excess savings in exporting countries as the culprit behind our misery. Excess saving forces less frugal countries reluctantly to run deficits, or so the argument goes.

While some theories are pure folly, others are partial right, but none seem to grasp the fundamental factor that pulled and keep pulling the world into such unsustainable constellations witnessed in global finance, trade and capital allocation.

Whenever we try to explain the reasons behind the crisis, such as the build-up in non-productive and counterproductive debt (see here, here and here for more details) people ask us why did this happened now, and not earlier? It is a fair question that we have thought about and believe have one simple answer. Bottom line, the world economy is running on a system with no natural correcting mechanisms.

As we are never tired of pointing out, the Soviet Union only had one recession, the one in 1989. The system was stable, until it was not. A system that does not correct internal imbalances grows just like a parasitic cancer, eventually killing its host. If unsustainable capital allocations are allowed to continue unchecked, the pool of real savings will at some point be depleted. At that point recession hits because the structure of production is too capital intensive relative to the level of real saving available.

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

How Will You Cope With A Lower Standard of Living?

June 18, 2016

How Will You Cope With A Lower Standard of Living?

The forces are mounting that will eventually overwhelm most Americans and send their standard of living to unknown depths. Americans that have only known the post WWII prosperity are ill equipped and educated to deal with depression level living. Easy credit and instant gratification have created a nation of whining, self absorbed, entitlement minded people with no moral or mental toughness.

Doug Casey believes we are headed for what he calls a super depression created by the ending of a debt super cycle. The bigger the debt cycle the bigger the depression that follows. That’s how reality works and most people are not prepared for reality.

When this depression, which has already started, gets momentum, it will overwhelm the plans of a society that is expecting to get things like social security, pensions and payouts from retirement plans they have paid into for many years. All of those things will disappear almost overnight and leave society gasping and stupefied over what to do. Their reactions will be to yell and scream and try to identify who to blame but the only person they should blame is the one in the mirror.

Many very smart people have raised the alarm and done their best to warn the sleeping public, but those slumbering masses have ignored the warnings and hit the snooze button one more time. The masses do not understand economics, do not want to understand economics and they will pay dearly for that ignorance in the coming days.

When the real unemployment rate becomes common knowledge as it increases substantially, people will be left to survive on what resources they have saved up outside the banking system that cannot be stolen by the politicians and bankers. That is a key point here. The assets you have outside the system that cannot be stolen from you with a few key strokes on some computer.

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

Japan: A Future of Stagnation

June 18, 2016

Japan: A Future of Stagnation

Take a declining population with declining rates of productivity growth and load it up with debt, and you get a triple-whammy recipe for permanent stagnation.

One of our longtime friends in Japan just sold the family business. The writing was on the wall, and had been for the past decade: fewer customers, with less money, and no end of competition for the shrinking pool of customers and spending.

Our friend is planning to move to another more vibrant economy in Asia. She didn’t want to spend the rest of her life struggling to keep the business afloat. She wanted to have a family and a business with a future. It was the right decision, not only for her but for her family: get out while there’s still some value in the business to sell.

I have written a number of entries on Japan’s economic downward-spiral and its largely hidden social depression over the past decade, most recently: Global Bellwether: Japan’s Social Depression (September 25, 2014)

Lessons from Japan: Decades of Decay, Unavoidable Collapse (April 26, 2016)

The Keynesian Fantasy is that encouraging people to borrow money to replace what they no longer earn is a policy designed to fail, and fail it has. Borrowing money incurs interest payments, which even at low rates of interest eventually crimps disposable earnings.

Banks must loan this money at a profit, so interest rates paid by borrowers can’t fall to zero. If they do, banks can’t earn enough to pay their operating costs, and they will close their doors.

If banks reach for higher income, that requires loaning money to poor credit risks and placing risky bets in financial markets. Once you load them up with enough debt, even businesses and wage earners who were initially good credit risks become poor credit risks.

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

Without Recovery There Is Every Need To Examine The Worst Case

May 18, 2016

Without Recovery There Is Every Need To Examine The Worst Case

There is a great deal that is wrong with mainstream economic commentary, starting with its unwavering devotion to orthodox economics and unshakable faith in their “stimulus.” No matter how little is actually stimulated there is never any doubt that the media will simultaneously forget the last one while lavishing praise on the next one. It is, however, the actual economic commentary itself that may be the most damaging. Because nothing works, every news story is printed from the shallowest, narrowest perspective. It is a grave disservice to the public and journalism.

As an example, on July 15, 2015, the Wall Street Journal published an article on Industrial Production that wasn’t unique or atypical. If you read these kinds of stories you find them utterly devoid of differences, so this effort was entirely symptomatic. At the time, industrial production for June 2015 was estimated to have risen 0.3% month-over-month, ending a string of six consecutive M/M declines. That fact more than the degree of the rise was cheerfully reported as if meaningful.

U.S. industrial production rose in June, a sign that the improving economy is helping the sector break out of a slump.

Industrial production, a measure of output in the manufacturing, utilities and mining sectors, rose a seasonally adjusted 0.3% from May, the Federal Reserve said Wednesday.

Even though the article noted that one month was nowhere near enough to overcome those prior declines, it didn’t matter because it was finally a plus sign conforming to the mainstream “narrative.”

The pickup comes as other measures show improvement in the economy this spring, with employment continuing to climb and wages creeping up as the labor market tightens…

“Weakness in manufacturing appears to be past its peak,” wrote Jim O’Sullivan, chief U.S. economist for High Frequency Economics in a note to clients.

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

“We Haven’t Seen This Is In Our Lifetimes” – CEO Says “Alberta Is In A Depression”

April 25, 2016

“We Haven’t Seen This Is In Our Lifetimes” – CEO Says “Alberta Is In A Depression”

Regular readers know that we’ve covered Alberta’s decline at length (refresher here), so there is no need to give much of a backstory other than to say that the situation seems to get worse for the Canadian province as each day passes even as oil has rebounded in the past two months.

Toronto’s “Condo King” Brad Lamb tried to put things into context when he said the situation is “worse than 2008.” However, on Friday we received an even more gloomy (albeit realistic) description of the economic situation in Canada’s energy hub, Alberta. In a very blunt interview with BNN, Murray Mullen the CEO of trucking company Mullen Group, said that the situation has moved well past recession, and should be described as a depression.

“Well, if you’re involved in the oil patch directly, drilling activity or anything like that I think we’ve gone beyond recession and it’s more a depression. The facts are that this latest round of commodity price collapse that happened the first part of this year I think really put the nail in the coffin for the industry.”

“The damage has already been done basically for this year. Even though it seems like the oil price and even natural gas is starting to recover, there was no room for error because commodity prices had fallen so low in 2015, and then when it happened in 2016, and it’s not just crude oil, it’s natural gas also. We’re just kind of trapped in a difficult market dynamic that we haven’t seen in probably most of our lifetimes.”

“There’s no investment activity going on below $40, it just goes to zero.”

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

100 Years of Mismanagement

April 21, 2016

100 Years of Mismanagement

Lost From the Get-Go

There must be some dark corner of Hell warming up for modern, mainstream economists. They helped bring on the worst bubble ever… with their theories of efficient markets and modern portfolio management. They failed to see it for what it was. Then, when trouble came, they made it worse. But instead of atoning in a dank cell, these same economists strut onto the stage to congratulate themselves.

Keynes The scalawag himself. Keynes provided governments with the “scientific” fig leaf fore interventionism that economists had previously denied them. The cost in terms of economic and technological progress is incalculable. Photo via MIT Press

“The Greatest Depression that could so easily have happened in 2009 but did not is the tribute that the world owes to economics”, wrote Arvind Subramanian in The Financial Times.

Arvind Arvind Subramanian: congratulating mainstream economists (a sub-set of society that includes him) for failing to foresee a mess their own advice has produced. The chutzpa of this guy is really admirable. He is of course correct that it is difficult to make forecasts (in fact, economics as a science has nothing to do with making predictions), but anyone who didn’t see the 2008 crisis coming had to be blind as a fricking bat. Even housewives could see it coming, but a very long list of prominent professional economists and “policymakers” evidently couldn’t. Fine, but these are the same people that insist that they know what to do about it. That is decidedly not so. They have now produced what will turn out to be an even greater mess. Photo credit: Bijoy Ghosh

We were lost from the get-go, trying to interpret the sentence. It is as tangled and puerile as the staggering conceit behind it. Then, Mr. Subramanian sets up the stage props:

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

The Keynesian House Of Denial

April 18, 2016

The Keynesian House Of Denial

We use the term “Keynesian” loosely to stand for economic interventionists of all schools. The followers of JM Keynes and Milton Friedman alike fit that category. So do some of the more rabid supply siders who claim the power to stimulate ultra-high economic growth with the tools of tax policy alone.

The common denominator is economic statism. That is, the assumption that the state, including its central banking branch, is indispensable to economic progress and prosperity.

As the various denominations of the Keynesian economic church have it, capitalism is always veering toward the ditch of under-performance and recession when left to its own devices and natural tendencies; and, if neglected by the wise policy-makers of the central state too long, it lapses toward outright depression and collapse.

Our purpose here is not to correct the particular philosophical and analytic errors associated with each of these Keynesian or statist variants. On any given day we make it pretty clear the central banking based mutation of modern Keynesianism is predicated on two cardinal errors. Namely, the myth of demand deficiency and the false presumption that central bank pegging of interest rates, yield curves and other financial prices will enhance macro-economic performance while not harming the efficiency, stability and efficacy of money and capital markets.

That’s completely wrong. The very worst thing the state can do is meddle with and falsify financial market prices. Sooner or later cheap debt, repressed volatility, stock market “puts” and artificially inflated asset prices drain the genius of markets out of capitalism. What remains in the financial system is raw speculation for the purpose of rent gathering and leverage for the purpose of supercharged gambling.

On the other hand, what gets lost is true capital formation, honest price discovery and allocative efficiency. These are the building blocks of true macroeconomic expansion and rising wealth.

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

Young people are growing ever more depressed. Is modern life to blame?

March 16, 2016

Young people are growing ever more depressed. Is modern life to blame?

Our mental health has suffered over the past 80 years. The causes are complex, but it’s exhausting to live in a society where asking for help equals failure

Three women walking in front of graffiti

‘If modern life is unkind to our mental health, it’s no doubt in part because so many young people fear that admission of vulnerability will affect their employment, or their relationships, at a time when their futures are already far less clearer than those of their parents.’ Photograph: Alamy

Anxiety and depression are isolating illnesses, but sufferers are hardly alone: according to a new book, the number of young Americans who’ve struggled with these mental health issues over the last 80 years has increased steadily. Sociologist Jean Twenge, the author of Generation Me: Why Today’s Young Americans Are More Confident, Assertive, Entitled – and More Miserable Than Ever Before, told New York magazine this week that her research had led her to conclude that “modern life is not good for mental health”. By measuring the frequency of symptoms associated with anxiety and depression – poor sleep, memory problems, concentration problems, and difficulty learning – Twenge came to believe that our forefathers and mothers were much happier that we are today. Or, at least, that they were less depressed and anxious.

This upswing in mental illness doesn’t surprise me. I am one of those young Americans. Or rather, I was: 20 years ago, I was first diagnosed with and treated for major depression. I was 14. I’m less young, now, but I know that it’s likely that I’ll always be depressive.

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

Why Negative Rates Can’t Stop the Coming Depression

March 11, 2016

Why Negative Rates Can’t Stop the Coming Depression

A bird in the hand is worth two in the bush.

– Anonymous.

In our upcoming issue of The Bill Bonner Letter, we explore the strange territory of “NIRP” – negative-interest-rate policy.

About $7 trillion of sovereign bonds now yield less than nothing. Lenders give their money to governments…who swear up and down, no fingers crossed, that they’ll give them back less money sometime in the future.

Is that weird or what?

Into the Unknown

At least one reader didn’t think it was so odd.

“You pay someone to store your boat or even to park your car,” he declared.

“Why not pay someone to look out for your money?”

Ah…we thought he had a point. But then, we realized that the borrower isn’t looking out for your money; he’s taking it…and using it as he sees fit.

It is as though you gave a valet the keys to your car. Then he drove it to Vegas or sold it on eBay.

A borrower takes your money and uses it. He doesn’t just store it for you; that is what safe deposit boxes are for.

When you deposit your money in a bank, it’s the same thing. You are making a loan to the bank. The bank doesn’t store your money in a safe on your behalf; it uses it to balance its books.

If something goes wrong and you want your money back, you can just get in line behind the other creditors.

The future is always unknown. The bird in the bush could fly away. Or someone else could get him.

So, when you lend money, you need a little something to compensate you for the risk that the bird might get away.

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

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