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Olduvai III: Catacylsm
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Blain: When This Insane Monetary Experiment Ends You Will Have Zero Chance To Exit

Blain: When This Insane Monetary Experiment Ends You Will Have Zero Chance To Exit

This is the day the UK isn’t exiting Europe. Surprised? Not really.

Think I’ll try something different this morning – a review of the week touching on some of the key themes we should be thinking about. Let me know what you think.

But firstly let me apologise for the lack of porridge this week. On Wednesday it was being unable to find anywhere to sit with a computer in London City Airport. Yesterday it was courtesy of Flybe from Edinburgh – I’d like to thank them for leaving us standing in a cold bus while they tried to rustle up a crew. The BA flight took off on time, although I wonder if it went to Duesseldorf?

Let me start with a rant:


While everyone is panicking about US curve inversion and the possibility it is signalling recession, is the real issue even simpler and more obvious? Should we be worried about tumbling global bond yields? Aside from it being impossible for funds to meet long term liabilities, what’s not to like about lower for longer? Actually – quite a lot. Even the ECB has noticed zero bond yields haven’t exactly stimulated growth and jobs across Europe and done nothing in terms of stimulating inflation.

Equities seem blithely unconcerned despite all the cack about trade-wars, rising political anarchy, and a distinct feel this business cycle is likely to wind-down into a slough of earnings downgrades and suchlike unpleasantness. The smart money is not worried, because they understand the truth – there is nothing to worry about BECAUSE A STOCK MARKET MELTDOWN IS ACTUALLY IMPOSSIBLE!

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

The Biggest Monetary Experiments In History: Part 2

The Biggest Monetary Experiments In History: Part 2

In part one we discussed the troubling issues in Europe (in case you missed it, you can read it here).

Today… Japan

The story of Japan is really a story that begins with globalisation.

According to the Oxford Dictionary, globalisation is described as:

“The process by which businesses or other organizations develop international influence or start operating on an international scale.”

It is, in a nutshell, international trade, and one of the things it’s done is add huge swathes of the global workforce to the world’s economy.

I bring up globalisation because of what it’s done to the global labour supply.

Realise this labour supply wasn’t Joe-middle-class-Sixpack with a Beemer, a two story house in the suburbs, and a white picket fence.

When most people think of  this workforce, they picture small brown people in shabby clothes toiling in sweatshops in China, India, Bangladesh, Vietnam, Cambodia, etc.

And by and large that’s it.

We’re not talking about Joe Sixpack. No, this was Amit in Bangladesh with 45 kids, working 29 hours a day, and paid the equivalent of a Happy Meal at Mackers.

And when we got such a massive disparity in costs, market forces went to work and did what market forces do.

The supply of goods produced exploded, and the cost of labour on a relative global basis fell.

I guess we could call this a labour supply shock, and what this did was it helped keep wages suppressed in developed markets while those in developing markets rose. This is how Amit raised his living standard so he can afford his 5th wife.

Now, the flip side of suppressed wages in the developed world was, of course, ever cheaper imported goods as the cost of those has plummeted. Declining real wages in the developed world have been cushioned by deflation in consumer goods.

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

The Biggest Monetary Experiments in History: Part 1

The Biggest Monetary Experiments in History: Part 1

… and all at the same time.

Last week was a humdinger. Three things happened:


Firstly, our pasta-eating friends, after having experienced firsthand a blizzard of accelerating violent crime… and watching their previously gentrified neighbourhoods reconfigured into ghettos resembling the Maghreb, decided enough was enough and said “non piu”.

Italy turns away two more boats loaded with ‘human cargo’ https://sc.mp/2lbiUF7  via @SCMP_News

Italy turns away two more boats loaded with ‘human cargo’

Minister says the country no longer wants to be any part of the business of ‘clandestine immigration’.


And who could blame them?

A clash of cultures. One that will one day be studied by scholars sipping their coffee, scratching their heads, frowning and scorning the insanity of it all.

The below video of migrants unhappy with the accommodations provided by the Italian state is nothing unusual. It is rather a daily occurrence, not only in Italy, but across various parts of Europe, Britain, and Scandinavia.

A strange way one would say to show gratitude to the Italians who rescued them from the ocean, fed them, clothed them, and provided them shelter.

That these daily events aren’t publicised by the MSM is a topic for another day, but increasingly it’s hard to hide this sort of thing from your own people. Italy, as we all know, is predominantly Catholic, certainly Christian. And so when Luigi strolls outside for an espresso at his local cafe and finds this in the streets:

… he wonders what the hell the politicians are thinking.

When future generations look back at the reasons why the European Union and one currency system collapsed, there will be many factors to consider.

…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)

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 herehere 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…

The Futility of Our Global Monetary Experiment

The Futility of Our Global Monetary Experiment

Jeff Deist: The Fed recently announced just this past week that it would not use specific dates for targeting higher Fed funds rate this year and you almost get the sense that poor Janet Yellen is at the end of this Greenspan-Bernanke experiment and there’s not much left for her to do. I mean, what’s our sense of Yellen and her position?

David Stockman: Yeah, I agree with that. I think in some ways they’re petrified as to where they ended up or they should be. After all, we’re in an experiment of monumental proportions.

Let’s just assess where we are. If they don’t raise the interest rate in June — and I think all the signals now are pretty clear they’re going to find another reason to delay — that will mean seventy-eight straight months of zero rates in the money market. As I always say, the money-market price, that is the Federal Funds Rate or Overnight Money or a short term treasury bill, is the most important price in all of capitalism because that determines the cost of carry, the cost of speculation and gambling.

When you conduct a monetary policy that says to the speculators, to the gamblers, “come and get it,” you are guaranteed free money to carry your positions, whether you’re buying German Bonds or you’re buying the S&P 500 Stock Index or the whole array of yielding or price gaining assets that are available in the financial market. This monetary policy also sends the message that you can leverage and carry those positions for free and roll it day after day without worry because the central bank has pegged your cost and production, and in a sense has pledged on its solemn honor that it will not change without many months of warning. And that’s what this whole thing is about — changing the language and so forth. I think you have created a massive distortion in the very heart of capitalism in the financial system.


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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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