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Canada’s “Enron-style” Economics: Most Wealth Redistribution Occurs Off the Books
Canada’s “Enron-style” Economics: Most Wealth Redistribution Occurs Off the Books
The Trudeau Administration’s reappointment of Bill Morneau as the country’s Finance Minister last week was by far its most important.
During his first term, Morneau managed to hold together a shaky Canadian economy, which for the past three decades has relied on driving borrowing and spending increases at a pace faster than economic growth just to keep the system afloat.
It’s a Ponzi scheme, and insiders know it.
The question is whether Morneau—whose education, financial background, and previous work at the C.D. Howe Institute position him as one of the brightest lights in a weak Trudeau cabinet—can keep the game going.
Morneau’s biggest challenge will be operating in an environment in which estimated off-the-books annual wealth transfers* caused by the federal government’s suppressed interest rate policies are twice the size of his official budgets.
“Taxes on idiots”
The challenge is that it is hard to manage off-book wealth distribution, because so few people know that it exists.
That’s no accident. Economists figured out long ago that voters would never pay for bloated public spending if they knew its true cost.
Over the years, governments have thus developed a variety of revenue sources that voters can’t see. Corporate and payroll taxes are one example. Lotteries and casinos, which have been described as “taxes on idiots”, are another.
Supressed interest rates, which rob pensioners and retirees of the benefits of a lifetime of thrift, act much the same way.
Yet while economists distinguish between fiscal (overt) and monetary (off the books) policy, few have ever tried to quantify the difference.
In truth, as we noted last week , the process is complicated.
…click on the above link to read the rest of the article…
The Most Important Chart in Economics?
The Most Important Chart in Economics?
Earlier this month, the U.S. Federal Reserve quietly released the Financial Accounts of the United States. Like most government data, the 198-page report (known to insiders as the Z1) is almost impossible to understand.
However, to the economists and accountants who wade their way through the mess, the implications are clear.
America has been growing government, business and household debts faster than its economy for more than four decades. Despite the huge runup in asset prices during that time, the country is essentially bankrupt.
The impending disaster becomes even clearer when presented visually.
The above chart, compiled on the St-Louis Fed’s FRED site, strongly suggests that economists have been pushing a GDP expansion that has been fueled almost uniquely by debt.
The three stages of scam economics
The story of how the American government and the Federal Reserve—with the quiet backing of university academics—fueled this elaborate Ponzi scheme unfolded in three stages.
Tax and spend
The first signs emerged in the 1960s and early 1970s, when American companies, after an almost three-decade free ride, began to get competition in international markets from countries such as Japan and Germany, which had been bombed back to the stone ages during World War II.
By that time, the American public had gotten used to constantly-rising living standards. For politicians, asking voters to work harder or to curtail constant demands for “more” became increasingly more difficult.
Governments responded with what became known as “tax and spend” economic policies.
Taxing the hard-earned savings of workers and passing the cash to bureaucrats to spend instantly created “sugar highs,” due to the short-term effects of dumping extra cash into the economy.
…click on the above link to read the rest of the article…
No “Poloz Put?” Ignore BoC Warning At Your Peril
No “Poloz Put?” Ignore BoC Warning At Your Peril
Governor Stephen Poloz’s warning last week that the Bank of Canada wouldn’t backstop fluctuating stock markets drew little attention.
“Is there a Poloz Put?” the central bank head asked rhetorically. “No.”
At first glance, the fact that only one BNN Bloomberg producer and a few smaller media picked up the story is hardly surprising.
Canada is a mere bit player in global central banking and financial markets, and the opinions of any Canadian official generally carry little weight outside of local circles.
However, in December 2017 Poloz provided investors a similar warning about Bitcoin, then trading near its all-time high, but which subsequently fell by more than 80%.
Investors would thus be foolish to ignore him now.
Consider:
One of the Fed’s main policy tools
First, a little background. The idea that governments are key drivers of stock prices may appear ludicrous to those who believe that Western economies are free markets.
However, as Moody Analytics notes, higher asset prices and resulting wealth effects are one of the Federal Reserve’s main policy tools for achieving its inflation and economic growth targets.
For U.S. stock traders operating today, most of whom have never seen a crisis that government hasn’t bailed them out of, the Fed’s most important manipulation is the existence of a tacit “put,” which ensures that asset prices won’t fall too far.
Former Federal Reserve Chairman Alan Greenspan, Ben Bernanke and Janet Yellen all intervened to boost asset prices at key points when the heavily-indebted U.S. economy appeared set to implode.
The Bank of Canada’s policies are less overt. While the central bank claims that it “does not target asset prices,” asset price manipulation is clearly direct “collateral damage” resulting from its other policy objectives.
…click on the above link to read the rest of the article…
Trump buys into the Krugman con
Leading economic indicators suggest that the Republicans are headed into the fall mid-term election season with the wind at their backs.
Real GDP growth hit 4.1% during the second quarter. The unemployment rate recently slipped to 3.9%, and the US Federal Reserve is finally starting to meet its inflation targets.
Things are so good that U.S. president Donald Trump calls it “the greatest economy in the history of America.”
Yet while all appears well on the surface, there are growing concerns among gold investors about the sustainability of the current pick-up.
Works well in practice… but does it work in theory?
Part of the problem relates to the old joke about French university professors. “It works well in practice,” they reportedly ask. “But does it work in theory?”
The same question underlies Trump’s economic practices. They are clearly generating short-term results. But they don’t appear to adhere to any underlying philosophy.
Republicans liken Trump’s tax cuts and his deregulation efforts with policies implemented by the Reagan Administration. However, the comparison is far from perfect.
For one, the Trump Administration’s growing tariffs on imported goods, which amount to hidden sales taxes, are gradually undoing the effects of his earlier tax cuts.
Worse, the Trump Administration’s practice of choosing which sectors will benefit from protective tariffs and which won’t amounts to a drastic increase in government intervention in the economy.
Making government great again
Taking a step back, Trump’s policies incorporate many of the “big government” themes advocated by mainstream economists from both major political parties during much of the past four decades.
Led by Paul Krugman, a Nobel Prize winner, New York Times columnist and professor at CUNY, the economics profession has consistently advocated growth in government spending, borrowing and credit creation in the hopes of spurring economic growth.
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Canada’s crazy Libertarians want to legalize lemonade stands, baby-walkers and Bitcoin
Canada’s crazy Libertarians want to legalize lemonade stands, baby-walkers and Bitcoin
Maxime Bernier’s near-win of the Conservative Party leadership suggests that Canadians increasingly are tempted by smaller government. But maybe Bernier is in the wrong party. So says Tim Moen, the dynamic leader of the Libertarian Party of Canada, whose upcoming convention, will take place between July 5thand 7th, 2018 at The Westin Ottawa. Following is an edited version of Moen’s comments.
What will be the key themes of the upcoming convention?
In a word: “energy.” Libertarians have long been a small niche in Canadian politics, which is dominated by special interests. But recent events have energized our base. Maxime Bernier’s near win of the Conservative Party leadership and his subsequent repudiation by the party’s establishment provided Canadians with a key message: those who want liberty, free markets and smaller government will be more at home in the Libertarian Party.
Your recently provided Bernier a chance to run for the Libertarian Party’s leadership by offering to step aside. What makes you think he would do a better job than you?
Maxime has a national profile, well-established credentials and excellent knowledge of the threats posed by the Bank of Canada’s disastrous monetary policies. Libertarians are a party of ideas not of personalities. We work with anyone who is willing to build a better country. If that means stepping aside to take on new talent, I’d do so in a second.
We are seeing increasing signs that Canadians agree. For example the Ontario Libertarians ran a near-full slate in the last election. There is also considerable interest in our Ottawa event. Journalist Brian Lilley is scheduled to appear as is Matt Bufton of the Institute for Liberal Studies. We also reached out to the Canadian Taxpayer Federation, the Canadian Federation of Independent Business, the Blockchain Association of Canada. Even to the local Bitcoin community!
…click on the above link to read the rest of the article…
Is the U.S. in a depression? (How John Williams became America’s most important statistician)
Is the U.S. in a depression? (How John Williams became America’s most important statistician)
America’s economy has been progressing steadily. First quarter real GDP growth came in 2.2%. The official unemployment rate is 3.8%. Inflation, according to the Fed’s preferred measure is 2%.
But how accurate are those numbers?
“Nonsensical,” says John Williams, founder of Shadow Government Statistics, who has been tracking U.S. government data for more than three decades.
Williams reckons that, using traditional calculation methodologies, true inflation is likely running above 6% and the unemployment rate over 20%.
Most importantly, Williams’ calculations suggest that the US economy has been in a two decade-long depression. His line of reasoning is worth a look.
Underestimating inflation
Williams argues that U.S. statistical agencies overestimate GDP data by underestimating the inflation deflator they use in the calculation.
Manipulating the inflation rate, Williams argues in Public Comment on Inflation Measurement , also enables the US government to pay out pensioners less than they were promised, by fudging cost of living adjustments.
This manipulation has ironically taken place quite openly over decades, as successive Republican and Democratic administrations made “improvements” in the way they calculated the data.
These adjustments (such as hedonic adjustments to inflation calculations, or not counting people who have stopped looking for work as part of the labor force) inevitably cast the government’s numbers in a more favorable light.
However, mainstream media journalists tend to have a poor grasp of mathematics. They were thus unable to grasp the depth of the problem, let alone explain the issues to the public.
Politicians have thus been able to fudge economic data openly. For example, the chart below shows U.S. GDP growth as measured by official sources.
The following chart (produced by Williams) shows GDP growth as calculated using a GDP deflator, corrected for an approximately two percentage point understatement.
…click on the above link to read the rest of the article…
Poloz to Queen’s University debt slaves: don’t worry about the “poverty effect”
“These are exciting times,” Poloz told a large crowd at Queen’s University . “Students here will shape the future. I cannot wait to see how it turns out.”
Afterwards, during a press conference with local and student media, Poloz brushed aside speculation about a possible “poverty effect” caused by rising interest rates.
Poloz cited a strengthening Canadian economy and downplayed suggestions that central bank rate-tightening cycles—which crashed global stock markets in the early and mid-2000s—would do so again.
Yet while the extent of a “poverty effect” in the overall economy may be open for debate, there are growing signs that central bank actions are impoverishing Canadian youth.
Consider:
Trickle down central banking
During the 1980s, economists derided US President Ronald Reagan’s policies—which cut taxes in the hope that they would spur economic growth—as “trickle down economics.”
Yet the Canadian government has adopted similar tactics.
The Bank of Canada’s “wealth effect” policies are intended to drive up asset prices in the hope that richer consumers will spend more, thus boosting the overall economy.
For example, if a Queen’s University economics professor sees his stock portfolio double, he might then buy extra lattés at the campus Starbucks, thus creating more jobs.
Sadly, the wealth effect hasn’t been working for the country’s youth— 44% of the 4.5 million Canadians aged between 15 and 24 are out of work.
Worse, trickle down central banking requires constant borrowing, at a pace faster than GDP growth.
As Renaud Brossard , executive director of Generation Screwed noted recently, such policies stick Canadian youth with nearly all of the country’s debts.
…click on the above link to read the rest of the article…
Generation Screwed to Morneau: stop shoveling government debts on Canada’s kids
Generation Screwed to Morneau: stop shoveling government debts on Canada’s kids
Bill Morneau, Canada’s Minister of Finance, told a touching story recently about being alone while his daughters were away at university.
A poster about women’s rights that he saw in one of the girls’ rooms as he toured the empty house provided inspiration for a slew of new spending programs in his 2018-2019 budget, Morneau said.
The speech drew considerable admiration from the bureaucrats, lobbyists and lawyers gathered at the Conseil des Relations Internationales de Montreal’s event, many of whom profited directly from the extra spending.
This seasoned audience of Ottawa swamp creatures recognized the Finance Minister’s personal story as political staging.
They all knew that Morneau was leaving out the fact that his daughters’ generation will have to pay back most, if not all, of the $18.1 billion that their parents are borrowing to finance the government’s “Equality and Growth” deficit.
Politicians running up government debts in order to pay themselves raises (and shovel cash to their pals) is an old story. The good news, as we first reported two years ago , is that some millennials are fighting back.
A youth movement that preaches fiscal responsibility
“I’m not okay with Bill Morneau borrowing additional money to channel to special interest groups,” said Paige Hunter, McGill Coordinator at Generation Screwed , a youth movement that preaches fiscal responsibility. “Going further into debt isn’t in anyone’s interest.”
Renaud Brossard, Generation Screwed’s executive director, agreed. “We jokingly call this an ‘everything is fine’ budget,” said Brossard. “There is no plan to address the country’s long-term debt, and there is no recognition that there may be another recession around the corner.”
Generation Screwed has grown considerably since Brossard first joined four years ago, while still a student. The organization, which is sponsored by the Canadian Taxpayers Federation , now has 17,000 Twitter and Facebook followers.
…click on the above link to read the rest of the article…
Stephen Poloz Right To Be Worried
Bank of Canada governor Stephen Poloz cited numerous worries plaguing the economy during his speech to Toronto’s financial elites yesterday at the prestigious Canadian Club.
However, the title of Poloz’s presentation, “Three things keeping me awake at night” seemed odd, given positive recent Canadian employment, GDP and other data.
Poloz highlighted high personal debts, housing prices, cryptocurrencies and other causes for concern, along with actions that the BoC is taking to alleviate them. His implicit message was (as always) “We have things under control.”
But if that’s all true, then Canada’s central bank governor should be sleeping like a baby. So, what is really keeping Mr. Poloz up at night? Three possibilities come to mind.
The Poloz Bubble
Firstly, far from just a housing bubble, Canada’s economy shows signs of being in the midst of an “everything bubble.” Bitcoin, for example, hovered near CDN $23,000 this week. Stock and bond valuations are not far behind in their relative loftiness.
Worse for Poloz, who took office four years ago, his fingerprints are all over those bubble-like levels.
Canadian stock, bond and house prices were already at dizzying heights when Stephen Harper hired Polozwith the implicit expectation that he would juice up the economy, in preparation for what Canada’s then-Prime Minister knew would be a tough upcoming election.
Poloz didn’t disappoint, promptly delivering a nice Benjamin Strong-styled “coup de whiskey” to asset prices in the form of two interest rate cuts, which brought the BoC’s policy rate down to just 0.50% during the ensuing months.
Although Harper lost the election, loose BoC policy continues to provide the Canadian government with free money to borrow and spend as it wishes.
More broadly, the Poloz BoC’s current policy, like that of the US Federal Reserve, is to boost asset prices even higher in the hope that the resulting wealth effect will trickle down to spur economic activity among ordinary Canadians.
…click on the above link to read the rest of the article…
Kotlikoff: America in Worse Financial Shape than Russia or China – Peter Diekmeyer
America’s 2017 fiscal gap will come in near $6 trillion, nine times higher than the $666 billion deficit announced by the US Department of the Treasury last week, says Laurence Kotlikoff, an economics professor at Boston University.
“Our country is broke,” says Kotlikoff, who estimates total US government debts at more than $200 trillion, when unfunded liabilities are included. “We are in worse shape than Russia, China or any developed nation.”
Worse, says Kotlikoff, who has testified before Congress, government officials are well-aware that many of America’s debts and accruing liabilities are being written off the books.
However, for the most part, they are keeping their mouths shut.
A two-tier reporting system
The upshot is a de facto “two-tier” financial reporting system, in which politicians and insiders have access to key data buried in footnotes about unfunded liabilities, which indicate that there are huge problems in the economy.
The public, on the other hand, in slews of Presidential and Congressional Speeches and publications, is led to believe that while things are tough, overall everything is OK.
According to Kotlikoff, a long-time activist for fiscal rectitude, the problem stems in large part from the fact that the US government has been spending almost all of Americans’ approximately $795 billion in social security payroll taxes to pay current bills, rather than investing them to fund retirees’ benefits.
The upshot is that on a net basis, the US government has no money to pay all the benefits that have been promised. Politicians know that defaults will occur, they just haven’t figured out how to finesse this.
…click on the above link to read the rest of the article…
Richard Sylla: 70% to 80% Chance of Another Global Financial Crisis
Richard Sylla: 70% to 80% Chance of Another Global Financial Crisis
When Janet Yellen, Chairman of the US Federal Reserve, said in June that she does not expect another financial crisis in our lifetime, eyebrows were raised.
None more so than Richard Sylla’s.
Sylla, a professor emeritus at the Stern School of Business and co-author with Sydney Homer of the magisterial A History of Interest Rates, has studied past business cycles. He is thus able to put today’s events in a broader context.
“A lot of the same things are going on right now as before the 2008 crisis,” said Sylla, who puts the probability of a repeat, in our lifetimes, at between 70% and 80%.
“People figure that central banks avoided a Great Depression last time and can do it again,” said Sylla. “So they are not worried.”
The most important price in the economy
Sylla’s work is particularly important because interest rates, which have a direct influence on all economic activity, are simply the most important prices in the economy.
For example, the average American who bought a $250,000 home and financed it for 30 years at 3.83%, would pay just over $175,000 interest during that time. That’s almost as much as the cost of the house itself.
Interest rate levels also affect the real prices of cars, as well as all other consumer, business and government purchases – hence the ever-present temptation among policy-makers to keep rates low.
US Treasuries: yields at least 8% in a free market?
History provides a hint of the scale of the Fed’s current interventions, which could be depressing interest rates by at least 5.0 percentage points across the yield curve. The result is the transfer of trillions of dollars a year from American savers to borrowers.
…click on the above link to read the rest of the article…
An Accountant Smells a Rat – Peter Diekmeyer
Twenty years ago Doug Noland was so worried about imbalances surrounding the dot.com boom that he began to title his weekly reports “The Credit Bubble Bulletin. Years later, he warned the world about the impending 2008 crisis.
However a coming implosion, he says, could be the biggest yet.
“We are in a global finance bubble, which I call the grand-daddy of all bubbles,” said Noland. “Economists can’t see it. They can’t model money and credit. However, to those outside the system, the facts are increasingly clear.”
Noland points to inflating real estate, bond and equity prices as key causes for concern. According to the Federal Reserve’s September Z.1 Flow of Funds report, the value of US equities jumped $1.5 trillion during the second quarter to $42.2 trillion, a record 219% of GDP.
Noland’s Credit Bubble thesis
Noland may be right. A report by the International Institute of Finance released in June estimated that global government, business and personal debts totaled $217 trillion earlier this year. That’s more than three times (327%) higher than global economic output.
Adding to the complexity is the fact that not all debts are fully recorded. For example, according to a World Economic Forum study, the world’s six largest pension saving systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to experience a $224 trillion funding shortfall by 2050.
Noland’s warnings come during a time of exceptional public trust in governments, central banks, regulators and other institutions. Market volatility is trending at near record lows.
In June, Federal Reserve Chair Janet Yellen spoke for many when she said that she did not see a financial crisis occurring “in our lifetimes.”
Unburdened by “econometrics groupthink”
So why would Noland, who during his day job runs a tactical short book at McAlvany Wealth Management, see things that government, academic, and central bank economists don’t?
…click on the above link to read the rest of the article…
Bank of Canada Shuts Out Free Market Economists from Key Policy Conference – Peter Diekmeyer
Bank of Canada Shuts Out Free Market Economists from Key Policy Conference – Peter Diekmeyer
Next week’s Bank of Canada policy conference appears set to deliver standard talking points. Not a single free market economist has been invited and a BOC spokesperson confirmed that the alternative-financial press is also being shut out.
The BOC event, titled Monetary Policy Framework Issues: Toward the 2021 Inflation Target Renewal , takes place during a critical time for Canada’s central bank.
Bank of Canada economists emerged from the 2008 financial crisis red-faced, after having failed to predict the event in advance, despite the clear warning signs and having some of the country’s most respected practitioners on staff.
The BOC then had to bail out Canada’s big five banks, whose solvency the monetary authority is charged with overseeing.
Questions regarding Poloz’s “trickle down”economics
Things do not appear to have improved much under the reign of Stephen Poloz, its current Governor.
The Bank of Canada ranks last among the G-7 central banks in terms of its gold holdings, this during a time of record high Canadian household debts and one of the planet’s biggest housing bubbles.
There are also increasing questions regarding Mr. Poloz’s “trickle down” economics strategy, which consists of leveraging “considerable economic stimulus” to boost asset prices, in the hope that a resulting “wealth effect” will trickle down to the poor and the young.
Government-financed academics, officials and a government financed NGO
A quick look at the presenters at the upcoming event reveals the usual “broad range of opinions” that Canada’s central bank consults.
The 20 panelists, almost all of whom are financed or regulated by government, include:
- Four Canadian government employees
- Eight academics from Canadian universities, which draw the vast majority of their funds from government.
- One presenter from a Canadian think tank that received a reported $30 million in government money
- One representative representing Canada’s big banks, which were bailed out by governments during the last financial crisis.
…click on the above link to read the rest of the article…
