Category Archives: Economics and Economy

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Insane: Stocks Markets Rally On Economic Disasters

Eurozone’s economy is basically in recession.

Walmart lowered expectations. Again.

The world is teetering on the edge of World War.

The US is launching Iraq War 3.0: Mission Accomplished Accomplished.

Germany’s economy is flat, and Italy and France are getting worse.

Risk is high.

Corporate debt is staggering.

The Fed’s balance sheet is a sea of monetized debt.

The central banks have nothing left to fix another crash.

And the stock markets are rocketing to record highs because of all this news.

What the hell is wrong with people?

UPDATE

More good news for stocks and bad news for the rest of us since I printed this at 6:30 a.m.:

Jobless claims jumped by 21,000—the most in 3 months.

Import prices dropped 0.2 percent as European deflation comes to America.

And Putin calls for end of US Dollar as world’s reserve currency.

Perhaps the stock traders are sobering up, though, as US futures have gone from skyrocketing to flat.

 

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Are We Watching The Central Bank Era End?

Are they going to peg all the banks? Why, they could buy ground and build a new Mississippi cheaper. They are pegging Bulletin Tow-head now. It won’t do any good. If the river has got a mortgage on that island, it will foreclose, sure, pegs or no pegs.

— Mark Twain quoting Uncle Mumford, Life on the Mississippi

When I last checked the Internets last night, markets were booming in Asia, and US futures were soaring. All in response Turkey’s central bank, which raised its interest rate benchmark to north of 12 percent. Unheard of territory.

From ZeroHedge,  on 01/28/2014 18:09 -0500

Judging by the reaction from SocGen and JPY crosses (and thus global equity markets), the Turkish Central Bank’s decision – to tighten aka ubertaper - has solved all the tapering, tantruming, turmoiling problems in markets. JPY crosses instantly exploded higher, automatically lifting US (Dow +60) and Japanese (NKY +110) stock futures markets before they closed.

The rate hike was meant to attract capital to into Turkey. With interest rates on “safe” investments–government bonds–remaining at historic lows, an offer 12 percent would seem like a windfall for people sitting on globs of cash (borrowed from governments).

But today’s bull market didn’t last. Again, from ZeroHedge.com:


The Carnage Continues In Asia As China PMI Confirms Contraction Deepening

Submitted by Tyler Durden on 01/29/2014 – 20:50

Sharp change in just over 24 hours, wouldn’t you say?

No one seems to know why the markets so quickly reversed, but continued bad news (often spun as proof of recover) from earnings and government reports didn’t help. The “experts” have told us for months that there is no stock bubble. The Dow’s going to 20,000 and beyond. Get used to it!! Get your butts to Costco, and buy, baby, buy!

On November 24, one of the greatest minds alive–Ben Hunt–noted that two mega-bears threw in the towel and joined the “markets will rise forever” camp.

I started this note with quotes from two prominently bearish money managers – Jeremy Grantham and Hugh Hendry – both of whom are throwing in the towel on the upward trajectory of the market in the face of inexorable government bond-buying. Their change of heart reflects (finally and begrudgingly) the overwhelmingly dominant Narrative of Central Bank Omnipotence, that for better or worse it is central bank policy (particularly the Fed’s QE policy) that determines market outcomes.

Meanwhile, I’ve been warning: when the experts agree on the future, bet the other way.

Experts Tamed the Mississippi 130 Years Ago, Don’cha Know

In Life on the Mississippi, Mark Twain takes readers up and down the Mississippi. He takes us on this trip as a historian, then as a young man in love with the river, and, finally, as an old man on a nostalgia trip to New Orleans. 

We learn that between Twain’s last trip as a pilot on the Mississippi and the time of his later voyage, the Army Corps of Engineers has tried to tame the mighty river. But an old pilot, Uncle Mumford, offers Twain his opinion. The engineers are smart fellows, Mumford admits; smarter than he. And West Point taught them more about the river than Mumford could comprehend.

But the engineers didn’t live on the river the way Mumford had. They didn’t know the river. The learned about the river.

Mumford’s warning, “If the river has got a mortgage on that island, it will foreclose, sure,” foreshadowed the floods of 1993.  That’s what inspired me to read the book, and that quote was the main learning I took from it. Warning of foreclosure stuck with me.

Question Expert Consensus

When all the experts agree, expect the opposite.

From a rooftop smoking lounge at work, we could see the price at QuikTrip. Every day in 2008, the price went up. Every day, we expected to see it fall. Finally, we all gave up because, according to the USAToday headline of June 12, 2008: “Oil Experts Contend High Energy Prices Are Here To Stay.

But the experts were wrong. And shortly after those experts reached consensus, the market reversed. By the time trees were turning in the fall, that QuikTrip sign dropped under $1.50.

This chart shows gasoline prices in the US at key points during 2008. Remember, the experts reached consensus in June.

US Gasoline Prices 2008
US Gasoline Prices 2008

Here’s the chronology of US gasoline prices of 2008 from Treehugger.com:

July 7, 2008—Crude oil prices settled-in at a new record of $147 per barrel. The U.S. average price for regular gasoline climbs to an all-time high of $4.11 per gallon. Road trip style vacations are put on hold for many summer travelers.

Aug. 5, 2008—Oil prices fall below $120 a barrel. Treehuggers search for the good within the escalating gas prices.

Sept. 15, 2008—The barrel continues to drop below $100 a barrel for the first time in six months. The idea of a serious financial industry recession is discussed as the market literally begins to melt down!

Oct. 16, 2008—Oil prices fall below $70 a barrel, which is less than half of its July peak. Signs of $1.99 a gallon gas brings celebration to the masses. Some consumers begin to talk about dragging out their gas guzzling SUV’s and Winnebago’s for the first time in months.

Nov. 3, 2008—U.S. Gas prices drop to $1.72 a gallon. Some gas stations even roll out a $.99 cent promotional deal. Treehuggers question whether the sudden drop is as good as most consumers seem to think it is.

Dec. 17, 2008—OPEC removes 2.2 million barrels from its daily production. Crude oil collapses to $40 a barrel, becoming the lowest price in almost 4 years.

I Am NOT An Expert And This Isn’t Investment Advice

I own four stocks that I bought on my own through Sharebuilder. Three trade at less than a penny a share, and I paid at least $10 a share for each.

But I do pay attention to expert consensus. And I have looked into the phenomenon of experts being wrong. It’s not a difficult field to study, because it happens often.

In the present case, the experts are central bank planners. They want to control the world’s economy. They believe their expertness allows them manipulate the economy any way they want.

But they can’t. No more than the Army Corps of Engineers could keep the Mississippi from foreclosing on its mortgage. No more than oil experts could keep the price of gasoline rising. No more than the Soviets could command a robust and growing economy with toilet paper for all.

Yes, power allows central planners to control aspects of the economy for periods of time. But the forces underlying the economy don’t stop moving. Pressure doesn’t stop building. It’s simply contained, like the water of a giant river, or the cap on a super volcano.

When outside forces that the planners can’t control or didn’t know about strike the planned economy, the dam bursts, the cap ruptures, the economy crashes.

I’m not sure we’re witnessing the rupturing of the central banks’ plan. This could be just a temporary blip.

Even if this isn’t “the big one,” though, the big one’s coming.

The central bankers have run up a massive mortgage that all the people alive on earth cannot repay in a lifetime.  No central planner in history ever kept control forever, and no pegs ever kept a river in its banks for good.

3 Points on the Pope’s Economics **Update**

Last week, Pope Francis all but denounced free market capitalism as a sin. Luckily, he wasn’t speaking from the Seat of Peter, but from his own misguided view of the world.

Much of Francis’s statement gives important and honest direction to a world consumed with fame and money. The Pope is right in decrying systems in which money is the ruler instead of a means to an end. And he’s right in describing the inhumanity of a system that protects the wealthy against loss.

Human beings are themselves considered consumer goods to be used and then discarded. We have created a “throw away” culture which is now spreading.

I joined the Conscious Capitalism movement precisely to fight against the evil of crony capitalism. Crony capitalism–which was called “fascism” in the last century–dehumanizes, exploits, and extracts the life of individuals for some common “good” defined and defended by the elite. The Conscious Capitalism Credo says:

We believe that business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence and it is heroic because it lifts people out of poverty and creates prosperity. Free enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived. It is one of the most compelling ideas we humans have ever had. But we can aspire to even more.

I believe that credo. Every word of it. Apparently, the Pope believes something else.

His targeted assault on the world’s only means of producing wealth goes too far and too wrong.

Not that free markets don’t have their problems. The naked pursuit of profits is killing liberty and feeding the beast of government. But Pope Francis doesn’t look at pictures that large, apparently. He looks at results and assumes causes.

Here are three specific errors in Pope Francis’s attack on capitalism.

1. Francis Errs in Understanding Free Markets 

Francis assumes that “trickle down” economics and free market capitalism are the same thing. They’re not. The divergence in wealth between the top 0.1% and the rest are not the result of unfettered capitalism but of unfettered government. Free markets do reward some merchants above others, but they also exact dire consequences for merchants and bankers who screw up. Only governments can save failed businesses. And governments have.

Since the global financial crisis (and long before), governments have mortgaged the young to feed the old and rich. Governments–the entities Francis would trust with everything–redistribute wealth from future generations to dying ones. And, apparently, the Pope likes that.  Or maybe he just doesn’t understand what free market capitalism is.

2. Francis Errs in Asserting that Free Markets Have Never Lifted People Out of Poverty

Even Bono admits that capitalism is the only tool we have for generating excess wealth and value that can lift help people.

Aid is just a stop-gap. Commerce [and] entrepreneurial capitalism takes more people out of poverty than aid. In dealing with poverty here and around the world, welfare and foreign aid are a Band-Aid. Free enterprise is a cure. Entrepreneurship is the most sure way of development.

The United States generated more wealth than any nation in the world’s history. And we’re the most generous. Not just with our money, but with our time. Americans lead the world in per capita giving and in hours of volunteer work.

Without the excess wealth generated by ingenuity and industriousness, we would have nothing to give and no time to help. And free markets–the chance to bring great ideas to the world and earn a reward for doing so–drives that behavior.

3. Mostly, Francis Errs in Trusting Government

Francis says that “trickle down economics expresses a crude and naïve trust in the goodness of those wielding economic power.” By implication, he, instead, places crude and  naïve trust in the goodness of those wielding military, taxation, and police power. Has he heard of the IRS? The NSA? Has he read about Obama’s lies and the millions Obama has left without insurance?

Yes, capitalism is sick these days. It’s infected with the virus of government. The answer isn’t to outlaw free markets, as the Pope would, but to constrain and manage government.

**UPDATE**

Sheldon Richman makes an excellent point over on Reason.com:

When I say the pope gets some things right, just not in the way he intends, here’s what I mean: In an important sense, we do have “an economy of exclusion and inequality.” But it is not the free market; rather, it’s interventionism, corporatism, crony capitalism, or just plain capitalism — that is, the abrogation of the free market on behalf of special, mostly business, interests. The reigning system is riddled with exclusion and inequality, the victims of which are society’s most vulnerable people. It’s easy to overlook this because the system produces a great volume and variety of consumer goods that even low-income people can afford. (The system needs consumers, though without intervention we could expect prices to be lower.)

Be sure to read the whole thing here.

Here’s the Pope’s full paper.

 

Why Millennials Will Be Poor Their Whole Lives

Since the 1980s, the AARP has been lobbying Congress and the White House.

The AARP has just one objective: to transfer the future income of the young and the unborn to people over 50.

Yes, it’s completely immoral. The AARP is like the father who used his kid’s Social Security Number to run up a ton of debt, then defaults. The kid is left with a permanently damaged credit rating, which prevents him from getting a good job or an affordable house.

Thanks, Dad.

But you don’t have to take my word for it. Listen to Geoffrey Canada and Stanley Druckenmiller, partners in one of the most successful hedge funds in the world. And recipients of the money the government’s stealing from kids.

(Note: Skip ahead to about the 10 minute mark.)

Geoffrey Canada ’74 and Stanley Druckenmiller ’75: Generational Theft from Bowdoin College on Vimeo.

President Barry Mills moderated the discussion “Generational Theft: How Entitlement Spending is Stealing Opportunity from America’s Youth,” among educator Geoffrey Canada ’74, investor Stanley Druckenmiller ’75 and members of a packed Pickard Theater audience who posed questions to the duo.

Their visit to campus May 7 follows a Wall Street Journal op-ed piece in which they write of their shared concern that “government spending levels are unsustainable.” Canada and Druckenmiller, though from different backgrounds and with different political beliefs, have united to bring their message to the masses, appearing on CNBC’s Closing Bell and Squawk Box, and MSNBC’s Morning Joe. They warn that failing to reform an entitlement culture, reaffirm long-run objectives, and re-establish a common purpose will mean diminished opportunities for America’s youth.

 

 

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Bankers and Politicians Are Robbing People Everywhere

Before you shed tears for the plight of elite bankers, let this statement sink in:

Cyprus’ banking sector must shrink. As did Ireland’s, the hard way. What is essential, as every Irishman and woman will tell you, is that the politicians do not load up the weaker citizen’s/taxpayers’ shoulders with enormous debts on behalf of bankers that refuse to wither.
Read more at http://www.nakedcapitalism.com/2013/03/yanis-varoufakis-while-waiting-for-cyprus-godot.html#dCKwchxGzzT2ljPx.99

Wall Street on Little Guy

That’s from Yanis Varoufakis, professor of economics at Athens University. It explains what’s going on throughout Europe in the United States.

Top bankers and politicians created a phony wealth system that crashed. Or is crashing. Instead of letting it crash and rebuilding on sound economics, the big bankers and politicians are a) loading us up with debt, or b) confiscating our savings.

The elites refuse to accept the consequences of their own failed system. Tyler Durden makes the point here on ZeroHedge.com:

Throughout all of this, the global elites have displayed consistently worsening signs of decadence, psychopathic tendencies, and overall detachment from reality.

The core problem here is that Westerners have ceded almost all political and economic power to the elites. Representative democracy was designed to prevent elites from accumulating power, but it only works if people hold onto their power jealously. Here’s how William F. Buckley put it in Up From Liberalism:

I will not cede more power to the state. I will not willingly cede more power to anyone, not to the state, not to General Motors, not to the CIO. I will hoard my power like a miser, resisting every effort to drain it away from me. I will then use my power as I see fit.

Buckley is dead, and so is his ethos.

Debt hasn’t diminished since the crisis began. It’s grown like an infected boil on the face of democracy.

As massive debts accumulate to governments and ever larger banks, the temptation among the elites to rob the rest of us grows stronger. And the longer we wait to pop this zit, the deadlier the pus explosion when it ruptures.

Government Planning Is Killing the Economy

Friedrich Hayek warned more than half a century ago that central planning doesn’t work. Here’s why:

  • Central Planners (government) makes a plan
  • The plan includes specific expectations
  • The expectations are never, ever, realized
  • A “crisis” ensues
  • So the planners demand more control
  • And create more plans
  • Ad hoc
  • Willy nilly
  • Capriciously
  • So you must wait for things to settle down to make your decision

Today’s Wall Street Journal article about the fiscal cliff demonstrates the futility of central planning:

“We’re all sitting on the sidelines right now wondering what’s going to happen to us,” said John Odland, chief financial officer at MacMillan-Piper Inc., a freight-transport firm in Seattle. “A lot of my contemporaries are feeling the same way, saying, ‘Let’s just wait and see what these knuckleheads do.’ “

Why should private, free citizens have to wait on government for anything?

Here’s a better solution: get the damn government out of the economic planning business.

It’s true that individuals are no better at planning than government experts. But they’re no worse, either.  The difference, then, is the number of people affected by a plan that doesn’t work.

If Joe Shit the Ragman’s plan for his business or his family or his vacation fails, who’s affected?  Joe, maybe his wife, maybe his employees. And it stops there.

If Barack Obama’s plan or Ben Bernanke’s plan or Tiny Tim Geithner’s plan for the economy fails, who’s affected?  All of us.

Moreover, if Joe’s plan fails, it’s up to him and him alone to sacrifice while a better plan takes shape for him and is family.

But if a government plan fails, the government invents new powers, which always come at the expense of your personal power, new taxes, and new plans. From the same WSJ article:

Each scenario involves prolonged uncertainty. Most consumers would start to pare their spending after receiving smaller paychecks due to higher payroll-tax withholding. Income-tax refunds for 2012 could be delayed while the Internal Revenue Service programs its computers to account for tax changes. Government agencies could start cutting back, hurting employees and suppliers. Many other employers likely would slow hiring or cut jobs. And investors could eventually look at those risks and send stocks lower, threatening a downward spiral in consumer and business spending.

We are throw more than good money after bad; we are throwing away good lives after bad.

The only solution to the fiscal cliff problem is to STOP CENTRAL PLANNING, restore power to individuals to make decisions, and reinvigorate a sense of community so people are more likely to help their neighbors.

Nobody Is Telling You About The Regulatory Armageddon About To Swamp The US Economy

If you think federal regulation is bad today, just wait. You ain’t seen nothin’ yet.

By the EPA’s own reckoning, the rule if implemented annually would cost American businesses $90 billion. But a related rule due to be taken up in December similarly would declare large swaths of the U.S. “closed for new business” until emissions are reduced to meet lower caps than exist today, says Anne Kolton, spokeswoman for the American Chemistry Council.

Those are just two of 600+ EPA regulations that the Obama Administration put on hold until after the election. (Source:  Barrons)

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From Enterprise Zones To Economic Dead Zones

Some of these regulations would put an outright ban on any new businesses across huge chunks of the United States.  Others would shut down the coal industry, once and for all, throwing tens of thousands of workers into long-term unemployment.

These regulations will begin rolling out this month. That’s another reason why smart businesses are stashing their cash. They have no idea what the regulations will mean to them.

Stocks Get Hammered

The DJIA fell more than 300 points today in the euphoria of Obama’s re-election. If these regulations hit the books, we might not see 13,000 Dow for a decade.

Elections have consequences. This one’s consequences could kill us.

Obama Shuts Down Another Small Business

200,000

That’s the number of small businesses lost during the Obama Administration.

If re-elected, Obama promises to accelerate the policies that destroyed American jobs, investments, and companies.

Voting isn’t enough. We need your help at 9966 Lin Ferry Drive, St. Louis, MO 63123.

Pick you day to work the phones and get out the vote:

  • Friday, November 2 Noon to 8 p.m.
  • Saturday, November 3 Noon to 5 p.m.
  • Monday, November 5 10 a.m. to 8 p.m.
  • Too late

 

 

 

You Have No Idea How Much Your Boss Pays in Payroll Taxes

America is suffocating under an amazing tax burden, but most Americans STILL underestimate how much their tax bill really is.  That’s because Washington has done a fantastic job of forcing employers to hide most of the taxes you pay.  If people had to see and deal with their total liability, the Democratic Party would be swept into the dust bin of history.

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Here are some frightening facts from Rasmussen:

  • Only 54% of Americans are aware that employers pay payroll taxes on their behalf
  • Of those who do understand this, on 18% grossly underestimate the dollar amount of the taxes their bosses pay on their behalf
  • Only 10% of Americans have a basic understanding of the tax burden placed on their employer on their behalf

I heard a caller to Rush Limbaugh a few weeks ago.  He was a painting contractor who’d been in business for 20 years.  He is shutting down his company. The combination of a horrible economy and the burdens of even more taxes on business, the added regulation under Obama’s administration, the burden of an onerous Obamacare tax avalanche, have combined to make it almost impossible to run a small business—unless that business services the government.

The Economy Is Getting Worse Thanks to Liberalism

 

The horror in Aurora, Colorado, gave President Obama a little cover last Friday.  That’s because the Labor Department announced that unemployment rose in 27 states.

President Obama promised to hold unemployment under eight percent if Congress passed the stimulus package in 2009. Congress did, but Obama failed.  Remember all those green jobs?  They’re gone.

The problem isn’t Barack Obama; the problem is liberalism.  

Liberals believe that only experts can make intelligent decisions. They point out that the Beta Max was a superior video cassette technology to VHS, but idiot consumers were too stupid to notice.

Yet, for all their wisdom, the experts seem unable to manage even their affairs.

Liberals often point to China as an example of how fabulous a controlled economy can be. But China’s growth was largely cosmetic. The benefit of central control of the economy and the media was that China could hide its problems; it couldn’t fix them. As a result, we know that Bejieng’s sewer system doesn’t work, state-controlled baby formula causes cancer, Chinese banks have been playing dangerous games with collateralized debt obligations-squared, and China’s totalitarian population controls have produced a demographic cliff that could plunge the planet into a Great Depression.

Liberalism is the original good intention that paves the road to Hell.  

We can’t blame all the problems with central planning on Obama.  But we can and should hold Obama to account for shoving a failed system of misery down America’s throat.  We can point out that the man who claims government, not people, build businesses and create jobs is incapable of keeping even his softest promises of eight percent unemployment and a slowly recovering economy.  We can and should remind everyone that the man who wants to control all of the US economy struggles to manage the economics of his campaign.

Barack Obama did not invent the failed ideology of central planning, but as its leading proponent he deserves to suffer the same fate his policies have given to the US economy.

 

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Business Insider Has No Idea Where Money Comes From

I love some things about Business Insider.  Mostly its great headlines.

Unfortunately, sometimes its writers show an ignorance of basic economics in their rush to catapult Obama to a second term.  Joe Weisenthal is just the latest example.

Joe tries to claim that economic recovery in the US is retarded by loss of public sector jobs.

jobs

What Joe doesn’t seem to get is this:  the private sector pays for those public sector jobs.

I’ll break it down for the journalism majors.

The only thing  that governments produce that the market values is security.  People will pay for military, intelligence, police, fire, and prisons.  That’s why the founders and the philosophers they quoted talked endlessly about government’s limited role of preserving liberty, peace, contracts, and safety.   So the market will pay for those things.

Everything else government does is overhead. 

In good times, the people who actually produce our GDP,  private sector workers plus government security workers, put up with massive, overbearing government overhead.  We shouldn’t but we do.

When times get bad, though, we stop paying for the luxury of government overhead.  The private sector can’t afford to pay for government services that the market refuses to buy from private providers.

The charts Weisenthal posted are meaningless.  They show only that a bloated public sector is shrinking as the market refuses to support wasteful government programs and bureaucracies.  Considering that  government employees earn double what private sector workers make, anyone can understand why this country’s producers have had it with big government.

Bottom line: government work does not grow the economy, except for security, so every job gained in the public sector is future opportunity denied in the overall economy.

Here’s the BI story.