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QE/ZIRP Is Crushing the Global Supply Chain, Product Quality and Profits

QE/ZIRP Is Crushing the Global Supply Chain, Product Quality and Profits

We will soon wish we were allowed an honest business cycle recession once the current overcapacity implodes the global economy.

We all know the quality of many globally sourced products has nosedived in the past few years. I addressed this in Inflation Hidden in Plain Sight (August 2, 2016): not only is inflation (i.e. getting less quantity for your money compared to a few years ago) visible in shrinking packages, it’s present but largely invisible in declining quality.

When products fail in a matter of months, we’re definitely getting less for our money, as what we’re buying is a product cycle, not just the product itself. We buy a product expecting it to last a certain number of years, and when it fails in a matter of weeks or months, this failure amounts to theft and/or fraud.

When a costly repair is required in a relatively new product, we’re getting less for our money, and when the repair itself fails (often as a result of a sub-$10 or even sub-$1 part), we end up paying twice for the inferior product.

Why has the quality globally sourced products nosedived? The obvious response is corner-cutting to lower costs to maintain profit margins, but this simply poses the next question: what’s changed in the past eight years that’s made corner-cutting essential to maintaining profit margins?

The answer may surprise you: central bank stimulus: QE (quantitative easing) and ZIRP (zero interest rate policy. Gordon Long and I discuss this dynamic inBankers Crippling the Global Supply Chain (34:50).

Nearly free money was intended to bring demand forward as a means of boosting a stagnant global economy. But there are unintended consequences of this policy: nearly free money doesn’t just distort demand–it also distorts supply.

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

Recycling Societies for Power and Profit

Recycling Societies for Power and Profit

A curious diplomatic spectacle is playing out, as the imperial senate tussles over how hot to make it for the Saudis, and how close to hold the vassal sheikhs’ feet to the fire.

Once again we are shown how weak and vulnerable is the position of terrorist patsy, whether it be an individual or a nation state.

The Saudis clearly had no real, operative connection to 9/11. Bandar Bush merely obliged the real plotters by providing patsies, or at least identity thefts of alleged hijacker identities.1

Saudi Arabia is also being strung up now for helping finance the founding of Al Qaeda to fight the Soviets in Afghanistan. Of course they were invited to do this by the US, and being staunchly anti-communist, and eager to spread their doctrine, they obliged whole-heartedly.

Interestingly, the Saudi retort was about money, about dumping $750 of US assets so they can’t be frozen.

The whole argument is presumably about money. The empire may be trying to twist arms to get a better deal to prop up the petrodollar economy. Another dream scenario for Wall Street would be a color revolution overthrowing the Saudi princes, and installing the usual post-revolutionary kleptocracy to privatize the oil wells and anything else of value on the Arabian peninsula.

Now this got me thinking about a recurring pattern: How the New World Order has supplanted older orders throughout modern history.

By an “old order” I visualize a stable society, with a coherent ethical or religious foundation, including a mission to advance the interests of the individual society, and maintain its independence. It is strongest and most stable when it has progressive leaders who invest in social capital. When good leaders are lacking, societies decline, leaving them weak and susceptible to revolutionary overthrow.

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

Profits for the Economic Club: How US Military Spending Benefits the Few

Profits for the Economic Club: How US Military Spending Benefits the Few

In his January 2016 State of the Union Address, President Obama smugly declared that “We spend more on our military than the next eight nations combined,” which was a startling and repulsive boast.  What is less surprising is the Pentagon’s decision to refocus military spending, thus boosting profits for military industry companies.

Then on February 2 Obama’s Defence Secretary Ashton Carter gave a speech on defense affairs at the Economic Club in Washington, which is proud of the fact that it provides “a forum for prominent business and government leaders who have influenced economic and public policy both here and abroad. Members represent over 600 businesses and organizations [in Washington, DC] that are at the forefront of the private sector economy.”

Having no sense of humor, Mr Carter would fail to see the wonderful irony in choosing that location to define his priorities in national military affairs,  but its significance didn’t escape the financial market’s wheeler dealers, and values of defense industry corporations received a hike all round.

In his speech Carter said that “the Pentagon plans to spend about $2 billion over the next five years to buy more Raytheon Company Tomahawk missiles and upgrade their capabilities, bringing the inventory of the missiles to above 4,000.”  At midday on February 2, Raytheon shares stood at 123.47.  By 4 p.m. next day they had increased to 128.07.

After his comforting chat to the Club of “prominent leaders” of military-focused commercial enterprises, Reuters reported that Mr Carter “flew to the Naval Air Weapons Station China Lake in California to get updates on new high-end weapons being developed and tested there, including precision Long Range Anti-Ship Missiles built by Lockheed Martin Corp. He said the [defense] department would spend nearly $1 billion over the next five years to buy the new missiles.”

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

Coal Mining’s Financial Failures: Two Thirds of World’s Production Now Unprofitable

Coal Mining’s Financial Failures: Two Thirds of World’s Production Now Unprofitable

Both major types of coal — the coking coal used for making steel and the thermal coal burned in coal-fired electrical power plants — were included in Wood Mackenzie’s analysis. The estimate may be conservative, as the group excluded some costs incurred during mining, and focused primarily on the sharp drop in the price of coal.

Demand for thermal coal is also expected to slump further, in part because coal-fired power plants are expected to be required to meet increasingly strict standards for their emissions of toxic air pollution and greenhouse gasses.

And coking coal, which often sells for more than thermal coal, has been hard hit by the sudden downturn of China’s steel industry, which makes roughly half of the world’s steel.

A recovery for the steel industry may not come for years, analysts say. “It doesn’t help that Chinese steel production is about to see the most dramatic decline to the lowest in 20 years,” Herman Hildan, an Oslo-based analyst at Clarksons Platou Securities, told Bloomberg News about the steel industry’s prospects. “Demand growth is collapsing.”

Prices for some types of coking coal have already plunged more than 75 percent since 2011.

The Wood Mackenzie analysts concluded that now, “more than 65 per cent of world coal production operates at a loss.”

The situation is even more grim for some American coal mining regions, like Central Appalachia, where Wood Mackenzie concluded in March that 72 percent of the coal produced was being sold at a loss.

The firm does not expect a turnaround for the coal industry anytime soon.

“We’re bearish on 2016,” Matt Preston, who manages North American coal research at Wood Mackenzie, told The Billings Gazette.

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

Con 21

Con 21


Nickolay Lamm Jefferson Memorial under 25 feet of water 
French Foreign Minister Laurent Fabius just announced, in Paris, a “legally binding agreement” that no-one has agreed the financing for. We can hear a couple thousand lawyers across the globe snicker. But it’s all the COP21 ‘oh-so-important’ climate conference managed to come up with. No surprises there. They couldn’t make the 2ºC former goal stick, so they go for 1.5ºC this time. All on red, double or nothing. Because who really cares among the leadership, just as long as the ‘targets’ are far enough away that they can’t be held accountable.

I’ve been writing the following through the past days, and wondering if I should post it, because I know so many readers of the Automatic Earth have so much emotion invested in these things, and they’re good and fine emotions. But some things must still be said regardless of consequences. Precisely because of that kind of reaction. No contract is legally binding if there’s no agreement on payment. Nobody has a legal claim on your home without it being specified that, if, when and how they’re going to pay for it.

I understand some people may get offended by some of the things I have to say about this – though not all for the same reasons either-, but please try and understand that and why the entire CON21 conference has offended me. After watching the horse and pony show just now, I thought I’d let ‘er rip:

I don’t know what makes me lose faith in mankind faster, the way we destroy our habitat through wanton random killing of everything alive, plants, animals and people, through pollution and climate change and blood-thirsty sheer stupidity, or if it is the way these things are being ‘protested’.

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

Food Sovereignty: This is What Anarchy Looks Like

Food Sovereignty: This is What Anarchy Looks Like

“This is what democracy looks like” goes the popular protest chant.  However, it’s not democracy that captures the imagination, provides answers, and drives today’s resistance  movement.  Something much more interesting has been taking place during protests, forums and intentional communities. In his book The New Left the anthropologist David Graeber states that anarchy has become the logical and probably last hope of the international resistance to capitalism.  Mondeggi, an agricultural squat in the Tuscan countryside celebrating its first year this summer demonstrates how that might just be the case.

Anarchy is completely misunderstood amongst the larger public. The word in modern vocabulary has come to mean chaos. This is ironically the opposite of Anarchy, which could be described  as organic order of horizontal self-governance. The misunderstanding comes partly due to political theory ignorance, propaganda from the right, and due to some of the “violent” acts of some historical anarchists such as blowing up bridges and factories in the context of oppressive monarchies, world wars, and Fascist regimes. These extreme strategies are ironically much less drastic that the systematic widespread organized violence of the various state regimes through history.

Chomsky argues that Anarchism is based on the assumption that any structure of authority and domination has to justify itself. All such structures have a burden of proof to bear and if they can’t bear that burden they’re illegitimate.  If they are illegitimate they should be dismantled and replaced by alternative structures which are free and participatory and are not based on authoritarian systems.

Democracy allows for the exploitation and destruction of the environment that is taking place today because of the financial interests of a few organizing the nations states according to the bottom line of international profit. Direct democracy does allow for taking some of the responsibility and control of affairs yet it still maintains the existence of the state.

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

 

Corporation vs. Nation: The Ultimate Showdown

Corporation vs. Nation: The Ultimate Showdown

A secluded private courthouse in Washington DC is currently the scene of a gargantuan legal battle that could have serious ramifications for all of us. Yet virtually nobody knows about it.

On one side of the battle is the tiny, poverty-crippled Central American nation of El Salvador; on the other is Pacific Rim, a Canadian mining company that was acquired by the Australian corporation Oceana Gold in 2013. At stake is the basic issue of who owns what in tomorrow’s world.

Putting Gold Before Water

In 2009, Pacific Rim filed a private lawsuit – what is referred to in the impenetrable jargon of modern globalism as an Investor-State Dispute Settlement (ISDS) – against the government of El Salvador for $301 million, equivalent to just over 2% of the country’s $24 billion GDP. As BBC World reports (in Spanish), the amount is equivalent to three years’ combined public spending on health, education and security.

The company argues that El Salvador unfairly denied its mining permit after it began an exploration process for gold mining, costing it hundreds of millions of dollars of “potential future profits.”

ISDS was originally intended to insulate investors from the costly consequences of expropriation, but it is now increasingly being used by companies to claim future profits foregone as a result of government legislation aimed at protecting the public, as well as to intimidate governments into changing or abandoning such legislation.

In the case of El Salvador, the government changed its mining legislation in order to safeguard the nation’s water supply. As Ciara Nugent writes in the Argentina Independent, a startling 97% of its water is currently unsuitable for human consumption, primarily as a result of the mining activities of companies like Pacific Rim. The miner’s proposed new project, due to take place in the northern San Isidro de Cabañas region, would have implied risks of contamination to the little water that remains:

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

 

Nestle Pays Only $524 to Extract 27,000,000 Gallons of California Drinking Water

Nestle Pays Only $524 to Extract 27,000,000 Gallons of California Drinking Water

Los Angeles, CA — Nestle has found itself more and more frequently in the glare of the California drought-shame spotlight than it would arguably care to be — though not frequently enough, apparently, for the megacorporation to have spontaneously sprouted a conscience.

Drought-shaming worked sufficiently enough for Starbucks to stop bottling water in the now-arid state entirely, uprooting its operations all the way to Pennsylvania. But Nestle simply shrugged off public outrage and then upped the ante by increasing its draw from natural springs — most notoriously in the San Bernardino National Forest — with an absurdly expired permit.

 

Because profitof course. Or, perhaps more befittingly, theft. But you get the idea.

Nestle has somehow managed the most sweetheart of deals for its Arrowhead 100% Mountain Spring Water, which is ostensibly sourced from Arrowhead Springs — and which also happens to be located on public land in a national forest.

In 2013, the company drew 27 million gallons of water from 12 springs in Strawberry Canyon for the brand — apparently by employing rather impressive legerdemain — considering the permit to do so expired in 1988.

But, as Nestle will tell you, that really isn’t cause for concern since it swears it is a good steward of the land and, after all, that expired permit’s annual fee has been diligently and faithfully paid in full — all $524 of it.

And that isn’t the only water it collects. Another 51 million gallons ofgroundwater were drawn from the area by Nestle that same year.

There is another site the company drains for profit while California’s historic drought rages on: Deer Canyon. Last year, Nestle drew 76 million gallons from the springs in that location, which is a sizable increase over 2013’s 56 million-gallon draw — and under circumstances just as questionable as water collection at Arrowhead.

 

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

Cincinnati’s experiment with an economy that works for everyone

Community members gathered for an owners meeting at Apple Street Market in February. (Facebook / Apple Street Market)

With the 2016 presidential campaigns underway, economic populism has taken center stage. Bernie Sanders, calling for a $1 trillion investment in a sustainable infrastructure jobs program along with publically funded health care and college education, has forced Hillary Clinton to offer vague support for similar measures, while even some Republican candidates, like Marco Rubio, have asserted the need to stop the “fall of the [American] worker.” Not content to wait for national politicians to follow through on non-binding proposals, 1worker1vote — a joint venture launched in 2009 by the United Steelworkers, or USW, and Mondragon USA — has been pursing a grassroots agenda to move populist discontent beyond protest and toward the building of new institutions.

The 1worker1vote network has developed and is beginning to implement a “union co-op” model, which calls for a business structure that combines worker, and sometimes community, ownership with union representation. With the model, 1worker1vote hopes to demonstrate the viability of a democratic economy, both in terms of ownership and management, capable of eventually replacing the corporate-managed economy that generates astounding wealth for those at the top while leaving nearly a quarter of the country living in poverty and half the population stuck in a debt trap with zero net assets.

“Profit should be for people, not for profit’s sake, and capital, while important, is subordinate to labor,” explained Ellen Vera, a founding member of both 1worker1vote and one of its member coops, the Cincinnati Union Cooperative Initiative, or CUCI.

The claim conjures images of the clashes between labor and capital of a bygone era, and, more recently, growing grassroots protest for a democratic global economy that began in 1994 with the Zapatistas in Chiapas, Mexico and have continued during the first years of the new millennium with the global justice and Occupy movements.

 

 

Farming: A Not-For-Profit Enterprise?

Farming: A Not-For-Profit Enterprise?

I am just musing now, as in a-muse, not advocating and criticizing. What if the economics of money profit and loss, under capitalism, or socialism, or a monarchy or any other system, doesn’t really work for farming. Maybe growing food is supposed to be a not-for-profit enterprise, a part of our personal duty, like bathing and brushing our teeth. Or a sport like amateur golf done for fun not for money.

The usual reaction among farmers when I bring up this notion is a chorus of snickers and joking agreement that the best to be said for farming is that you die rich so the kids have something to fight over. And there’s more than a little truth in that. So why am I considered supremely naive to just come right out and say that maybe owning land is a good investment and is the only way farming is profitable financially. Even when farms are huge and seemingly sure-fire moneymakers at least some years, they continue to rely heavily on subsidies to make ends meet.

Not-for-profit farming would be based on a different economic model for farmland. “Profit” would come from the satisfaction and enjoyment and recreational value of possessing or owning land, not squeezing it to death for money profit. Then the land and the farmer’s life on it would not be subject to money manipulation and would not need the highest yields or the biggest machinery to survive.  It would just need more not-for-profit food producers.

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

 

 

 

Free Trade Deals Put Profits Over Public Interest

Free Trade Deals Put Profits Over Public Interest

‘Poison pill’ strategy ties hands of future governments.

Opponents of so-called free trade deals have always struggled with the question of why these international treaties don’t generate more alarm and vocal opposition from Canadians. These treaties, after all, trump all other Canadian authority to make laws — provincial legislatures, Parliament, the courts and even the Constitution. If, instead of being bored by news of another ho-hum “trade deal,” Canadians were told that a panel of three international trade lawyers would be reviewing all new laws and determining, in secret, which ones passed muster by meeting with the approval of their giant corporate clients, would they react differently?

That is effectively what all of these corporate rights treaties establish: extra-judicial rulings whose objective is to protect the profits against laws passed in the public interest. The clauses that allow such suits are referred to as investor-state dispute settlement (ISDS). This is not hyperbole — that is the actual, stated objective of ISDS: if a new law affects the expected future profits of a foreign owned company, it can sue the federal government for damages. And the decision is made by a panel of trade lawyers whose bias is, naturally, in favour of facilitating corporate interests — because that is who they normally work for. They aren’t environmental lawyers or labour lawyers or human rights lawyers. They’re trade lawyers. Foxes judging the right of other foxes to kill chickens.

Twenty years after NAFTA — the first free trade agreement to include ISDS — came into effect there are many examples of laws duly passed by legislatures in the public interest that have been ruled in violation of NAFTA. Some are more egregious than others — but they all challenge and assign financial penalties against laws that one government or another thought were important enough to implement.

 

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

U.S. Households Under Pressure: Stagnant Incomes, Rising Basic Expenses

U.S. Households Under Pressure: Stagnant Incomes, Rising Basic Expenses

How do you support a consumer economy with stagnant incomes for the bottom 90%, rising basic expenses and crashing employment for males ages 25-54? Answer: you don’t.

Frequent contributor B.C. passed along a sobering set of charts that provide context for How The Average U.S. Consumer Spends Their Paycheck. The basic story is well-known to the bottom 90%: most of the household income goes to taxes, housing, food and transportation, with healthcare and insurance, pensions and retirement contributions rounding out the big-ticket items. (Higher education is, as we all know, paid with student loans by all but the top-tier of families.)

Here’s the question this raises: is the sliver that’s left enough to support a $17 trillion consumer economy? The answer is obvious: no.

 

Stagnant household income has a number of systemic causes, including the generational decline of full-time employment (A Rising Share of Young Adults Live in Their Parents’ Homeand the concentration of wage gains in the top 10%. These dynamics are not easily addressed, for the simple yet profound reason that the amount of human labor that generates a meaningful profit in a stagnant, over-indebted, financialized economy is declining.

The only way most enterprises can sustainably earn a profit is to offload costly human labor (with its immense burdens of healthcare, pensions, workers compensation, disability insurance, etc., and the heavy regulatory burdens of workplace rules) and replace it with networked software and smart machines.

The types of human labor that generate hefty profits are increasingly scarce, and as a result entry-level pay and employment are both capped by the high costs of human labor (even at minimum wage) and the relatively meager profits generated by conventional labor.

 

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

Our Financial Future: Infinite Greed Meets a Funny Thing Called Karma

Our Financial Future: Infinite Greed Meets a Funny Thing Called Karma

All those angered by the mere question of the viability of this predatory pillaging in the name of capitalism are incapable of even admitting this cultural crisis exists.

Somewhere along the line, we lost the ability to distinguish between earning a profit and maximizing private gain by any means, i.e. Infinite Greed. If you insist on making this distinction now, you anger a lot of people, as it blows the capitalist cover of Infinite Greed.

If you make the distinction between earning a profit and maximizing private gain by any means, then you realize the status quo is neither sustainable nor good: it is unsustainable and evil. This angers everyone who has rationalized their investment in (and defense of) an evil system, because, well, it’s hard to feel all warm and fuzzy about your choices if the phony facade falls and the evil of the system you’ve defended is starkly revealed.The distinction between earning a profit and maximizing private gain by any means angers not just the few benefiting from the useful delusion that Infinite Greed is simply profit on overdrive; it seems to anger everyone who believes the Status Quo of burning mountains of coal to power towel warmers, sitting in traffic burning petrol two hours a day and central banks enriching the already wealthy is not just sustainable but gol-darned good.

Every enterprise must earn a profit to survive. A worker-owned collective must earn a profit, as it needs money to reinvest in the business and reward those who have invested their capital (human, social, financial, intellectual, etc.) in the enterprise.

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

 

 

Oil Majors’ Profits Take A Beating

Oil Majors’ Profits Take A Beating

The first quarterly earnings reports since the collapse of oil prices are in and the numbers show a significant deterioration in profits for the oil majors.

Royal Dutch Shell went first on January 29, revealing a big jump from the same quarter a year ago, but down from the third quarter of 2014. In fact, Shell announced that it would cut $15 billion in spending over the next few years, an about-face from just a few months ago when it stated that it would leave capital expenditures unchanged in 2015. Shell’s CEO, concerned about the poor state of oil and gas markets, said that it may even consider withdrawing itself from significant assets held around the world, retrenching and focusing on North America.

On the same day, ConocoPhillips also reported gloomy numbers. It plans onslashing 2015 spending by an additional 15 percent, which comes after a December announcement of a 20 percent cut in expenditures for the year.

Related: Schlumberger To Retake Oil Services Crown With New Deal

Chevron followed that up on January 30, posting its worst showing in five years. The $3.5 billion in earnings for the fourth quarter of 2014 was 30 percent lower than from the previous year. The California-based oil major says that it will trim spending by 13 percent.

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

 

Oil Dinosaurs Face Extinction: State Oil Companies and the Meteor-Strike of Low Oil Prices

Oil Dinosaurs Face Extinction: State Oil Companies and the Meteor-Strike of Low Oil Prices

State-owned oil companies that don’t slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction.

Domestic and international energy companies are responding to the 50% decline in the price of oil by doing what’s necessary to remain in business: they’re slashing payroll, postponing capital investments, delaying new projects and soliciting price cuts from suppliers and subcontractors.

This is the discipline of profit-driven capitalism: if expenses exceed revenues, profits vanish, losses pile up, capital contracts and eventually the company runs out of cash (and access to credit) and closes down.

Unfortunately for state-owned oil companies, the feedback of expenses, losses and access to credit are superceded by the need to feed hordes of parasites: the state-owned company exists not to generate profits but to fund large payrolls and support state officials and cronies.

Stripped of the discipline of markets and profits, state-oil companies exist to serve the interests of the state’s Elites and their cronies and favored constituents. As a result, critical infrastructure has fallen into obsolescence, capital investments have been hollowed out and the expertise needed to maintain production has eroded.

 

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

Olduvai IV: Courage
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Olduvai II: Exodus
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