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And if you believe the debt does not matter, can be fixed by tax increases alone, fixed by spending cuts alone, fixed without any real pain and that national health care insuring everyone will actually result in lower yearly deficits- then you might be ready to join one of our great political parties!!!
A Day in the Life of the National Debt
By The Mogambo Guru
01/06/11 Tampa, Florida – As an example of the kind of sheer monetary insanity that is happening all around us and that is going to destroy the United States of America, and probably most of the world, too, the national debt of the United States of America hit a new, all-time record: An astonishing $14,025,215,218,708.52, which can be more conveniently referred to as $14.025 trillion, and which works out to a debt of $140,252.00 for every non-government worker in the Whole Freaking Country (WFC), the interest on which (at 5%) is $7,012.60 for each of those selfsame non-government workers. Per year!
And this $14,025,215,218,708.52, which is, again, a massive $14.025 trillion, was reached on the Very Last Day Of The Year (VLDOTY) of 2010, a foul feat of fiscal folly, a fact made all the worse by noting that this unholy indebtedness was reached on that Very Last Day Of The Year (VLDOTY) because the debt soared by a huge $154 billion on that Very Last Day Of The Year (VLDOTY)!
$154 billion in one day! In One Freaking Day (OFD)!!
Note the use of the double exclamation point to indicate emphasis, which is altogether appropriate because many other outrageous things happen in One Freaking Day (OFD), like how you got married One Freaking Day (OFD), and you took your stupid job One Freaking Day (OFD), and you agreed to attend the kid’s horrible music recital that seemed to last an eternity but was, instead, just One Freaking Day (OFD).
But it is seldom on One Freaking Day (OFD) that the despicable federal government issues a massive $154 billion in new debt, which is so much money that it is more than $1,540 of new money for every non-government worker in the Whole Freaking Country (WFC)!
In One Freaking Day (OFD)!
I can see by looking at your stunned expression that you are as freaked out about this as I am, because this is a lot of money for workers in the non-government, profit-seeking part of the economy to shoulder.
But the biggest killer of the economy is the massive deadweight loss of local, state and federal government, which now accounts for half of all spending, supports roughly half of the population. And employing, as it does, 1-out-of-6 workers.
And let’s not forget, as Martin Hutchinson, in his essay at PrudentBear.com, reminds us, “The nonprofit sector (including religious and cultural institutions) represents a sizeable portion of the US economy.”
And by “sizable portion of the US economy”, he means “According to the CRS study, nearly 10% of the US workforce works in the non-profit sector, with 7% employed by charities.”
A tenth of the population does not work to make a profit at all! What kind of economic idiocy is that? Is this part of the reason that we have a trade deficit of over $600 billion a year?
And not only did non-profit employment increase by 16% between 1998 and 2005, but “Employment in the charitable sector is highest in the District of Columbia, with 16.3% of its workforce employed in that sector, then Rhode Island with 13.6%, then New York with 13.3%.”
The interesting part is when he reports that this is actually, as we originally surmised, bad news, as it turns out that “charitable employment is strongly inversely correlated with economic growth,” as “the jurisdictions that have shown the most robust economic growth in the last 30 years are those where charities are least active.”
Why is this? He figures that the reason that a lot of charitable giving is correlated with low economic growth is that, “In the case of charities, resource allocation is made by people with a political agenda, seeking to maximize their resource collection from rich people with little knowledge of the problems the charity addresses, whose decision making is obfuscated by incessant misleading charity propaganda. Thus, charitable activity is even more economically inefficient than government, and excessive charitable activity holds back the local economy by diverting resources from the local private sector.”
On the other hand, I say, with all due respect, that the reason that economic growth is low in those areas where there are many charities is because of an increase in the population of those coming to seek charity, bringing with them all their higher crime rate, lower business activity, and requiring increases in taxes to provide for them.
Either way, everywhere you look, you see Bad, Bad News (BBN), even in the charity business, and with 43 million Americans receiving food stamps already, with more and more applicants every day, which will be provided by more government deficit-spending more excess money created by the Federal Reserve expressly for the purpose, it doesn’t take long before you realize the urgent need to frantically buy gold and silver, and keep on buying them for as long as the money holds out.
And the really nice thing about it is that it is so easy that people say, “Whee! This investing stuff is easy!”
The Mogambo Guru
for The Daily Reckoning
Read more: A Day in the Life of the National Debt http://dailyreckoning.com/a-day-in-the-life-of-the-national-debt/#ixzz1AJcQvKFY
Let me explain it for you Alex.
The democrats could have held out for a better deal so they either caved (no cojones) or they don't really care about the issue and are only trying to have it both ways.
global grain supplies are tight:
http://www.bloomberg.com/news/2010-12-29/bunge-chief-warns-grain-supplies-will-remain-tight-ft-reports.html
"Supplies of grain are likely to be tight until well into 2011, according to Alberto Weisser, the chief executive officer of Bunge Ltd., a U.S. company that trades in agricultural products, the Financial Times reported."
-- I just wanted to say Bunge --
The Future: Averting Disaster
By Richard Duncan
01/05/11 Singapore, Singapore – The future – the happiness and prosperity of mankind – will be determined by how global supply and global demand are brought back into balance. If the means are found to expand aggregate demand sufficiently and sustainably, then the global excess supply will be absorbed and the global economy will begin to grow again. If, on the other hand, equilibrium is restored by a collapse in supply – back to a point at which there is real demand, a point determined by the current income and purchasing power of the individuals who comprise the world’s population – then globalization will collapse and the world economy will plunge into depression. Should that occur, millions of people around the world could starve before the decade is out. The geopolitical repercussions of such a scenario would be beyond dire.
The outcome will be decided by government policy. The current government policy of supporting global aggregate demand by borrowing, printing and spending trillions of dollars without correcting the imbalances at the heart of the crisis are unsustainable and they will fail. Failure will mean disaster. If disaster is to be averted new policies must be crafted and implemented. Those policies must produce a steady and sustainable increase in global aggregate demand – in contrast to the recent unsustainable credit-driven approach – in order first to bring global supply and demand back into equilibrium and then to allow them to expand in tandem.
How will the future play out? Consider two scenarios: the Bad Future which will emerge out of current policies, and the Good Future and the policies necessary to achieve it.
The starting point for both scenarios is the present. At present the world is on the brink of disaster because global supply greatly exceeds global demand or, at least, the damand that people can afford to pay for out of their income. This imbalance between supply and demand has come about because governments abandoned gold-based sound money and began creating fiat money in vast amounts. Financiers became free to create credit without limit once all credit was denominated in currencies without a restraint of gold backing. A credit explosion produced an equally extraordinary expansion of industrial capacity (supply) around the world. Purchasing power (demand) only kept pace thanks to a surge in consumer debt. The rise in real income was insufficient because globalization pushed down wages in the developed economies and adverse demographic trends held them down in the developing economies.
When the consumer debt bubble popped in 2008, global demand crashed but global supply remained in place. Subsequently, governments have spent trillions of dollars attempting to absorb the excess supply so as to prevent a global depression. They continue to do so.
When the collapse in private sector demand occurred, government knew they must replace the shortfall with government spending to prevent a depression. In this they succeeded. Their policies are not sustainable, however. Moreover, there is no sign they possess any understanding — much less strategy – of how to permanently resolve the worldwide imbalance between supply and demand. Therefore, the bad future scenario is based on the probable assumption that governments will carry on with current policies as long as they can. Let’s consider how this is likely to unfold.
The US government is propping up the US economy with annual budget deficits in excess of $1 trillion, roughly equivalent to 10% of US GDP. Government spending puts money in the pockets of American consumers and US consumption pulls in imports, which will result in a trade deficit of approximately $500 billion in 2011. That deficit is a subsidy to the rest of the world. However, despite massive government spending, the US economy has begun to weaken again and US unemployment remains stuck at 10%. Jobs aren’t being created in the United States because, with wages in the manufacturing sector that are 40 times higher than the prevailing global wage rate of $5 per day, the US economy is simply no longer viable as it is currently structured.
With debt to GDP of less than 75%, the US government would have no problem continuing to prop up the economy with even larger deficits for many years to come. (Japan’s ratio of government debt to GDP is 225%.) However, a political backlash against government deficit spending has made additional government “stimulus” politically impossible for now. That leaves only monetary policy; and with interest rates very near zero, monetary policy means creating more money — much more money — an act the Fed refers to as Quantitative Easing. During the past two years, the Fed created $1.7 trillion, which expanded its balance sheet by 170%. At the time of writing, the second round of Quantitative Easing, QE II, is being launched. This will involve the creation of approximately $75 billion a month through mid-2011 and, perhaps, much longer.
QE II is the next step forward in the direction of the Bad Future. The Fed is printing money and using the money to buy US government bonds. This will allow the government to continue propping up the economy with trillion dollar budget deficits without pushing up interest rates and crowding out the private sector. That is because the government won’t have to borrow from the private sector. It will obtain its funding from the Fed. This arrangement will stave off a depression in the short run, but it does nothing to correct the underlying imbalances driving the crisis. Eventually, one of two things will happen. Either there will be a political backlash against free trade, as it becomes increasingly obvious that free trade is not working out very well for the average American, and trade tariffs are put up. Or, the Fed will create so much new money that inflation will accelerate causing a stock market, bond market and dollar crash; social unrest in the United States as the savings of the middle class are destroyed; and food riots or worse elsewhere around the world as commodity prices soar and food becomes unaffordable for the two billion people who earn less than $2 per day.
Either way, within five to ten years, the US economy will collapse in depression and drag the global economy down with it. Globalization will collapse. International tensions will rise. Hunger will spread. Tempers flare. And then BANG: the Bad Future ends very badly.
That future is not inevitable. All that is required to bring about a Good Future instead are policies that expand global aggregate demand so that demand is sufficient to meet and keep pace with the growth in global aggregate supply. That could be accomplished in a number of ways. A steadily rising global minimum wage that takes wage rates from $5 to $15 per day over the next 10 years would give a tremendous boost to global aggregate demand. A reorientation of the US government budget away from spending that supports consumption to spending that underwrites investment in high tech industries would restore American economic viability, boost US wages and bring international trade back into equilibrium. The creation and well thought out employment of more Special Drawing Rights (SDRs) would not only augment global aggregated demand, it would also greatly advance the global development agenda.
A Good Future, one in which we all live happily together in a world of steadily increasing prosperity, can only come about as the result of the formulation and implementation of far sighted policies by governments, at both the national and international level.
Without such government intervention, equilibrium in the global economy will be restored, but it will be restored in a Bad Future where global output collapses back to a level that can be supported by global income as it is currently distributed – a level of output perhaps 25% to 50% below the current level. That future is one that must not be allowed to happen.
Regards,
Richard Duncan
for The Daily Reckoning
Read more: The Future: Averting Disaster http://dailyreckoning.com/the-future-averting-disaster/#ixzz1ADYbR2Sk
U.S. Economy: The Parts Don't Add Up
by: Michael Panzner January 05, 2011
It's been said that the sum of the parts is greater than the whole. But when it comes to the health of the overall U.S. economy, perhaps the opposite holds true? If one takes account of state-level data that suggests many parts of the country are still struggling to regain their pre-recession footing, as well as a steady flow of reports like those that follow (not to mention the fiscal stresses that various municipalities are having to contend with), talk of a "recovery" seems somewhat fallacious.
California
"Recession Recovery? Not Around Here" (Central Valley Business Times)
FRESNO
The recession is getting worse, not better, in the heart of the Central Valley, according to a new study released Monday by the Craig School of Business at Fresno State.
For the first time since initiating the survey in September 2010, the San Joaquin Valley “Business Conditions Index” has sunk below growth neutral, says th survey’s author, Ernie Goss of the Goss Institute for Economic Research in Denver.
The survey of individuals making company purchasing decisions in firms in Fresno, Madera, Kings and Tulare counties indicates that growth for the first half of 2011 will be weak. The index, a leading economic indicator for the area, is produced using the same methodology as that of the national Institute for Supply Management.
Pennsylvania
"Impact of Recession Lingers Through 2010" (The [Scranton] Times-Tribune)
The hangover from the Great Recession dominated regional business and economic developments in 2010.
Unemployment in the Scranton/Wilkes-Barre/Hazleton metro area topped 10 percent for six of the first 10 months of the year and was at 10.1 percent in October, dipping to 9.7 percent in November. The region had the state's highest unemployment rate from May through November.
Layoffs and plant closings, rising foreclosures and bankruptcies created a feeling that the June 2009 conclusion of a devastating recession starting in December 2007 was only a statistical technicality. The region's unemployment rate has hovered above 9 percent since August 2009.
"This is a very, very slow and extremely painful recovery," said Anthony Liuzzo, Ph.D., a Wilkes University professor of business and economics "We still have to climb out of the hole we are in."
Utah
"Hunger Up Across Utah as Recession Lingers and Food Pantries Feel the Pinch" (Deseret News)
The Utah Food Bank has seen a 40 percent increase in the number of hungry people asking for help, compared to last year. And while a national study says that actual hunger and what it calls "food insecurity" may be declining since a mid-recession high in late 2009, the needs remain fairly astounding. An estimated 16.67 percent of households struggled to feed their families during the first half of 2010.
"We are continuing to see an increase in requests for food assistance," said Jessica Pugh, spokeswoman for the food bank, which supplies 150 food pantries and agencies across the Beehive state. "More families than ever are requesting food assistance. People have had hours cut back in terms of regularly paying jobs. Or they have had seasonal jobs that ended. It is a tough time for so many families throughout Utah."
Mississippi
"Hard Road for Mississippi to Recover Jobs" (Associated Press)
Struggling back from the Great Recession has been a hard road for Mississippi. And although there are bright spots in the works for 2011 and beyond, economic forecasts say the state's recovery will be a yearslong process — provided another national slowdown is not in the works.
From February 2008 to October 2010, Mississippi lost about 71,000 jobs, or 5.8 percent of its work force, according to state economist Darrin Webb.
At the same time, though, the Mississippi Development Authority, armed with government expansion and relocation incentives, said in a recent report that it attracted commitments for $1.53 billion in new business investment to the state in 2010 with the promise of just over 6,400 new jobs.
And 2011 is the year Mississippi's second major auto manufacturing plant is scheduled to open. Toyota's (TM) plant near Blue Springs is expected to have an initial payroll of 1,000, eventually growing to 2,000. Along with that, auto suppliers are expected to add another 1,500 to 2,000 jobs.
But the difference between the list of new jobs and the number that have disappeared illustrates how deep the downturn has been for the state. According to a recent forecast by the state Institutions for Higher Learning, Mississippi likely won't reach its record employment — set in 2000 — until at least 2015.
"This economy has just taken a terrible hit from this recession," Webb said.
Oklahoma
"Where the Jobs Aren’t" (The Oklahoman)
Manufacturing, construction labor forces faltering
Oklahomans looking for jobs in the manufacturing and construction industries will continue to have a tough time this year.
Those sectors are still struggling to recover from the recession and are expected to continue shedding jobs in 2011, according to local experts.
The Oklahoma Employment Security Commission predicts a two-year loss of 12,650 manufacturing jobs and 5,100 construction jobs for the period ending in mid 2011.
Many of those jobs will never be replaced, because manufacturers have automated and updated equipment, so they can operate with fewer workers, said Russell Evans, director of the Center for Economic Analysis and Policy at Oklahoma State University.
“It’s unlikely those jobs will come back,” Evans said. “It’s unlikely there will be the same labor needs.”
New Jersey
"Fewer Employers Expected at Rutgers Job Fair" (The Record)
Job seekers at Thursday's Rutgers University annual job fair, thought to be the biggest college-organized fair in the state, will find the pickings slimmer than last year.
Even as the economy shows signs of improving, about 15 percent fewer employers will be at the fair than a year ago, the organizers said Monday.
The college had hoped to see more than the low of 163 employers who attended a year ago, said Richard White, director of career services at Rutgers University New Brunswick. White expects about 135 to 140 employers this year.
"I think it suggests that the economy is still trying to grow, but really things are not booming," he said. "We thought we had turned the corner. … We were hoping to be above 163."
North Carolina
"State Economy Unchanged in November" (News & Observer)
The state's economic health stayed flat from October to November, signaling a continued anemic economic recovery in 2011.
That's the prognosis from N.C. State University economist Michael Walden, who compiles and parses leading economic indicators for the state each month.
The North Carolina economic index was 1.2 percent higher in November from a year ago, but it would have to be at 4 percent for the economy to merit a robust diagnosis. The Chinese economy, for example, has been growing at an annual rate of 8 percent to 10 percent for the past decade.
One of the significant drags on the state's economy is a 4.5 percent decline in building permits from October to November. The permits have declined 11.5 percent in the past year, according to data Walden culled from the N.C. Association of Realtors.
Hawaii
"Bankruptcy Filings Hit 5-Year High" (Honolulu Star-Advertiser)
Homeowners struggling with mortgages contribute to a spike in Chapter 13 cases and an overall increase of 27.5 percent
While tourists are spending more and home prices have begun to climb, Hawaii's economy still has a long way to go before erasing the negative effects of the recession.
The federal Bankruptcy Court reported yesterday that 3,954 Hawaii residents and businesses filed for bankruptcy last year, the highest level in five years and a 27.5 percent increase over 2009.
"We're still feeling the effects of the tough job market. A lot of people who are filing either lost their job or can't find a job that pays as well as their last job," said attorney Jean Christensen.
"At some point you would expect to see some saturation in bankruptcy filings in 2011 or 2012," Christensen said. "But there probably isn't enough certainty in the economy for the job market to improve dramatically in the near future."
Kansas
"'Need' is Not a Seasonal Condition" ((WDAF))
OVERLAND PARK
The Salvation army says 2010 was a banner year for the wrong reason. More of the needy "needing" help than ever.
"I've seen a lot of the economic trends of the country, seen some recessions over the last 30 years and this one certainly is deep and it's effected the service of the salvation army obviously having to do a lot more service then we've had to in the past," said Major Mark Martsolf with the Olathe Salvation Army. Major Martsolf said 'need' is not seasonal.
The Salvation Army says it saw a 40 percent increase in services in 2010 metro wide. Although the Salvation Army said it will remain optimistic in 2011, the organization is gearing up for another tough year.
New Mexico
"Unemployment Picture Said to Be Improving — But Not All That Fast" (The New Mexican)
Business news made headlines in 2010, mainly because of the weak economy and persistent unemployment, which was the biggest business story of them all, especially if you lost your job and tried looking for another.
In Santa Fe, the October Labor Market Review indicated that the local unemployment rate was 7 percent, compared with 6.9 percent a year ago. The highest unemployment rate in Santa Fe in 2010 was 7.4 percent in March.
Through October, there was a loss of 100 jobs in Santa Fe in 2010.
For that same time period, three industries gained jobs. They were education and health services, government, and miscellaneous other services.
Losses of 100 jobs each were reported by professional and business services, wholesale trade and construction.
"The Santa Fe job market has been weak for over two years but is improving," according to the state Labor Market Review.
But Larry Waldman, an economist formerly with The University of New Mexico's Bureau of Business and Economic Research, said recovery will take years.
Rhode Island
"Economic Hardship Takes Personal Toll" (The Providence Journal)
Three years after the recession officially began, more people are worrying about layoffs, underemployment and an uncertain future, experts say.
“People are just exhausted, and they have fears about the economic future,” says Elizabeth V. Earls, president and CEO of the Rhode Island Council of Community Mental Health Organizations in Cranston.
The demand for counseling jumped 10 percent from 2008 to 2009, a trend that has continued through 2010, says Earls.
Although it’s harder to document, the recession has also sparked more cases of drug and alcohol use and domestic violence, she adds.
“Frankly, it has impacted our system.”
Ohio
"Most Have Trouble Making Food Stamps Last" (Chillicothe Gazette)
LANCASTER -- A couple of kids were trying to entertain themselves in a dull food pantry waiting room, but the adults among them were quiet.
However, there was a sense of community as each person was called to walk through the four long walls of wire shelves chock full of cereal, canned goods and personal care items. A refrigerator full of milk and cheese and three freezers full of meat were waiting for them.
It was the end of the month. Christy Dilley, 26, and Natasha Blankenship, 27, both young mothers in Lancaster, were there for the same reason: their government food assistance didn't stretch far enough. This was common for many in the room.
In November, more than 1.7 million Ohioans spent $241.1 million in Supplemental Nutritional Assistance Program funds, commonly known as food stamps, which are funded by the federal government. Almost three-fourths of that amount was spent in the first half of the month, and 30 percent was spent in the first five days.
The number on food assistance has increased 55 percent since 2007, and 118 percent since 2002, based on September numbers from the Ohio Department of Job and Family Services.
Washington
"For Homeless Students, School Problems Compound" (Tri-City Herald)
The growing problem of homelessness is affecting education nationally, statewide and here in Benton and Franklin counties.
Homelessness is not just the fellow on a downtown street asking for a handout.
It's also a family problem, a sometimes short-term experience with long-term repercussions.
The Office of the Superintendent of Public Instruction has released figures showing that homelessness among students in Washington state has been growing for the past five years, at least.
http://seekingalpha.com/article/244909-u-s-economy-the-parts-don-t-add-up?source=email_the_macro_view
Beware of the Wall Street Pump Job
by: The Housing Time Bomb January 04, 2011
"Sadly, our media outlets now have the attentian span of an 8 year old with ADD. If the news is a week old then it's history in their books." (fg: sounds like a couple of the little twerps on this board)
Trendspotting 2010 - A Review
Well, 2010 has wrapped up and the socionomic "gritty reboot" I expected in my "Socionomic Trendspotting 2010 - The Gritty Reboot" post did not pan out. Let's do an after-action report and see where I was plain wrong or maybe just early...
1. "The financial crisis will return as toxic assets that were papered over and wished away return to devastate financial firms. This time, the financial firms will have no more silver bullets to spend with Congress."
Way off base here. Mood held out much better than I anticipated. I figured the Elliott Wave pattern would play out rather rapidly and we could get on with the business of collapse and rebuilding. Either I am wrong and we are building a base for an enormous Bull Market or else this Grand Supercycle top is milking the U.S. population for every thin dime.
Plus, the financial firms have all the freaking bullets - silver or otherwise - that they would ever need for Congress. I guess I let my own personal mood sway me there. That said, why would they need bullets when they have truckloads of dollars, junkets and hookers to offer Congress? Which leads me to another singificant miss...
2. The Show Trials Begin. ...I think that the legalistic culture of the United States will find natural outlet in show trials of "them" as the financial and social system unravels. Financiers, banksters, lobbyists, politicos on the wrong side of the current mob opinion and worker-bees of the Big Government Machine will find themselves hauled before tribunals or special courts founded to investigate the devastating wave of bankruptcies and financial hooliganism that will be running rampant as 2010 unwinds...
Wrong. Again, maybe my own personal mood and outrage at the sky-high levels of fraud perpetrated upon the Old Republic by the banksters colored this outlook, but good Lord, does Wall Street rent the Justice Department by the hour or do they have some sort of monthly package deal. The silence from prosecutors has been deafening. These petty little "insider trading" scams they've brought charges on over in Hedge Fund Land are ludicrous and pathetic compared to the crimes they could have been pursuing with the big banks.
There were "special courts" set up - to screw homeowners, of course.
I can't imagine that 2011 will see any significant prosecutions of bankster types, except maybe for political type investigations opened up by the Republican Congress. The Repubs rolled over so easily in 2008 that I doubt they do more than try to score some face time on what I figure will be an increasingly anger-filled mediasphere.
3. The U.S. Nation-State Hollows Out. That the coming crash will challenge the federal government's finances and totally devastate most state, county and local balance sheets is pretty much baked in to the coming crisis. What happens when government employee checks start bouncing and when services are slashed or privatized will color the latter part of 2010...
I'll give myself a C- here. The realization of the coming problem started coming into focus towards the end of the year. The real hollowing out is coming. This will be a big one, folks.
4. Memes
We discussed a few memes I proposed might be flitting out and about in the social organsim, feasting on our anger and fear.
Cults: I have not seen significant cult activity making news this year. I still think this is coming, but with the elevated mood of 2010, it has not found deep purchase yet.
The 2012 (end of the world version) Mayan Calendar Rollover: This is rising. There are a lot of new-age books on this theme. It is ripe for a convergence with the cult meme. 2012 should be a hell of a year on a lot of fronts. This millenarian aspects of whatever December 21, 2012 brings will be fascinating to watch (preferably from behind bullet-proof glass).
Gang Wars: Again, nothing that seemed to be an uptick over existing trends. A big miss here.
Summary
In short, 2010 was a lot, lot better in terms of mood, personal safety and economics than I expected.
This is good thing.
2010 saw a lot of organizing going on amongst "prepper" groups who hope to have systems in place to build resilient communities, transition towns, lifeboats or whatever you want to call them. These systems will give a positive outlet to much of the fear that will swirl once we see mood truly roll over into negative territory (or they will wither up and blow away if we have a huge move into positive-bias mood). Giving people positive things to focus upon - growing a bit of your own food, interacting in a positive way with your neighbors and communities, thinking about ways to deal with shortages, etc. will mean a lot when TSHTF. You want as many positive/constructive memes out there for groups to latch onto to. There will be plenty of negative stuff floating around. Throwing a few ring buoys into the stormy seas is the least we can be doing.
A Socionomic Trendspotting 2011 blog post iwll be forthcoming. Hopefully (not?) this one will be more accurate. This coming year I hope to get a bit more technical and start incorporating chart action with my evaluations. No promises as my day job continues to be hectic, but I'll try.
Here's wishing you and yours a Happy, Safe and Prosperous New Year.
http://futurejacked.blogspot.com/
Still beats the shit out of any socialist...eom
How Hyperinflation Will Happen
Happy New Year, readers!
Those who have been following this blog for some time now know that I value the news and financial-related posts at JS MineSet, The Market Ticker, Urban Survival and Zero Hedge. You may have also noticed that I have recently added Gonzalo Lira to the lists of blogs I read. It seems that one good blog often links to another. This is how I found Gonzalo Lira, through Zero Hedge. (Don’t miss these posts: “Zero Hedge's Top 10 Most Popular Posts In 2010” and "Tickerguy With Max Keiser".)
It’s not surprising to me that the following post by Mr. Lira rose to the number two most-read post on ZH in 2010. He echoes my thoughts about the future of the dollar and what America might very well be like in 2011.
Though a somewhat lengthy article, I highly suggest you kick back with a hot cup and take the time to finish it. Like me, you might just discover a new daily read. You will certainly gain insight into how to survive the coming hyper-inflationary Great Depression.
Oh, and just to ease your fears about me being all doom and gloom in 2011, I promise to continue to post survival and how-to tips as well as music, movies and humorous fluff to keep you sufficiently distracted throughout the new year. ;) - c
~ ~ ~
How Hyperinflation Will Happen
By Gonzalo Lira
Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.
To counter this, the U.S. government has been running massive deficits, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, the same old prescription since donkey’s ears.
But the stimulus, apart from being slow and inefficient, has simply not been enough to offset the fall in consumer spending.
For its part, the Federal Reserve has been busy propping up all assets—including Treasuries—by way of “quantitative easing”.
The Fed is terrified of the U.S. economy falling into a deflationary death-spiral: Lack of liquidity, leading to lower prices, leading to unemployment, leading to lower consumption, leading to still lower prices, the entire economy grinding down to a halt. So the Fed has bought up assets of all kinds, in order to inject liquidity into the system, and bouy asset price levels so as to prevent this deflationary deep-freeze—and will continue to do so. After all, when your only tool is a hammer, every problem looks like a nail.
But this Fed policy—call it “money-printing”, call it “liquidity injections”, call it “asset price stabilization”—has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ’08, to about $2.3 trillion today—but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects of the deflation—it certainly has not turned the deflationary environment into anything resembling inflation.
Yields are low, unemployment up, CPI numbers are down (and under some metrics, negative)—in short, everything screams “deflation”.
Therefore, the notion of talking about hyperinflation now, in this current macro-economic environment, would seem . . . well . . . crazy. Right?
Wrong: I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation.
Most people dismiss the very notion of hyperinflation occurring in the United States as something only tin-foil hatters, gold-bugs, and Right-wing survivalists drool about. In fact, most sensible people don’t even bother arguing the issue at all—everyone knows that only fools bother arguing with a bigger fool.
A minority, though—and God bless ’em—actually do go ahead and go through the motions of talking to the crazies ranting about hyperinflation. These amiable souls diligently point out that in a deflationary environment—where commodity prices are more or less stable, there are downward pressures on wages, asset prices are falling, and credit markets are shrinking—inflation is impossible. Therefore, hyperinflation is even more impossible.
This outlook seems sensible—if we fall for the trap of thinking that hyperinflation is an extention of inflation. If we think that hyperinflation is simply inflation on steroids—inflation-plus—inflation with balls—then it would seem to be the case that, in our current deflationary economic environment, hyperinflation is not simply a long way off, but flat-out ridiculous.
But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.
Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.
Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.
Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion. The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy.
This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down.
But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.)
It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion—
—but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.
In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.
So this is how hyperinflation will happen:
One day—when nothing much is going on in the markets, but general nervousness is running like a low-grade fever (as has been the case for a while now)—there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil.
This will jiggle Treasury yields, as asset managers will reduce their Treasury allocations, and go into the pressured commodity, in order to catch a profit. (Actually it won’t even be the asset managers—it will be their programmed trades.) These asset managers will sell Treasuries because, effectively, it’s become the principal asset they have to sell.
It won’t be the volume of the sell-off that will pique Bernanke and the drones at the Fed—it will be the timing. It’ll happen right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields—they want to maintain low yields in order to discourage deflation. But they’ll also want to keep the Treasury cheaply funded. QE-lite has already set the stage for direct Fed buys of Treasuries. The world didn’t end. So the Fed will feel confident as it moves forward and nips this Treasury yield jiggle in the bud.
The Fed’s buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries into the Fed’s waiting arms. This dumping of Treasuries won’t be out of fear, at least not initially. Most likely, in the first 15 minutes or so of this event, the sell-off in Treasuries will be orderly, and carried out with the idea (at the time) of picking up those selfsame Treasuries a bit cheaper down the line.
However, the Fed will interpret this sell-off as a run on Treasuries. The Fed is already attuned to the bond markets’ fear that there’s a “Treasury bubble”. So the Fed will open its liquidity windows, and buy up every Treasury in sight, precisely so as to maintain “asset price stability” and “calm the markets”.
The Too Big To Fail banks will play a crucial part in this game. See, the problem with the American Zombies is, they weren’t nationalized. They got the best bits of nationalization—total liquidity, suspension of accounting and regulatory rules—but they still get to act under their own volition, and in their own best interest. Hence their obscene bonuses, paid out in the teeth of their practical bankruptcy. Hence their lack of lending into the weakened economy. Hence their hoarding of bailout monies, and predatory business practices. They’ve understood that, to get that sweet bail-out money (and those yummy bonuses), they have had to play the Fed’s game and buy up Treasuries, and thereby help disguise the monetization of the fiscal debt that has been going on since the Fed began purchasing the toxic assets from their balance sheets in 2008.
But they don’t have to do what the Fed tells them, much less what the Treasury tells them. Since they weren’t really nationalized, they’re not under anyone’s thumb. They can do as they please—and they have boatloads of Treasuries on their balance sheets.
So the TBTF banks, on seeing this run on Treasuries, will add to the panic by acting in their own best interests: They will be among the first to step off Treasuries. They will be the bleeding edge of the wave.
Here the panic phase of the event begins: Asset managers—on seeing this massive Fed buy of Treasuries, and the American Zombies selling Treasuries, all of this happening within days of a largish Treasury auction—will dump their own Treasuries en masse. They will be aware how precarious the U.S. economy is, how over-indebted the government is, how U.S. Treasuries look a lot like Greek debt. They’re not stupid: Everyone is aware of the idea of a “Treasury bubble” making the rounds. A lot of people—myself included—think that the Fed, the Treasury and the American Zombies are colluding in a triangular trade in Treasury bonds, carrying out a de facto Stealth Monetization: The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed.
Whether it’s true or not is actually beside the point—there is the widespread perception that that is what’s going on. In a panic, widespread perception is your trading strategy.
So when the Fed begins buying Treasuries full-blast to prop up their prices, these asset managers will all decide, “Time to get out of Dodge—now.”
Note how it will not be China or Japan who all of a sudden decide to get out of Treasuries—those two countries will actually be left holding the bag. Rather, it will be American and (depending on the time of day when the event happens) European asset managers who get out of Treasuries first. It will be a flash panic—much like the flash-crash of last May. The events I describe above will happen in a very short span of time—less than an hour, probably. But unlike the event in May, there will be no rebound.
Notice, too, that Treasuries will maintain their yields in the face of this sell-off, at least initially. Why? Because the Fed, so determined to maintain “price stability”, will at first prevent yields from widening—which is precisely why so many will decide to sell into the panic: The Bernanke Backstop won’t soothe the markets—rather, it will make it too tempting not to sell.
The first of the asset managers or TBTF banks who are out of Treasuries will look for a place to park their cash—obviously. Where will all this ready cash go?
Commodities.
By the end of that terrible day, commodites of all stripes—precious and industrial metals, oil, foodstuffs—will shoot the moon. But it will not be because ordinary citizens have lost faith in the dollar (that will happen in the days and weeks ahead)—it will happen because once Treasuries are not the sure store of value, where are all those money managers supposed to stick all these dollars? In a big old vault? Under the mattress? In euros?
Commodities: At the time of the panic, commodities will be perceived as the only sure store of value, if Treasuries are suddenly anathema to the market—just as Treasuries were perceived as the only sure store of value, once so many of the MBS’s and CMBS’s went sour in 2007 and 2008.
It won’t be commodity ETF’s, or derivatives—those will be dismissed (rightfully) as being even less safe than Treasuries. Unlike before the Fall of ’08, this go-around, people will pay attention to counterparty risk. So the run on commodities will be for actual, feel-it-’cause-it’s-there commodities. By the end of the day of this panic, commodities will have risen between 50% and 100%. By week’s end, we’re talking 150% to 250%. (My private guess is gold will be finessed, but silver will shoot up the most—to $100 an ounce within the week.)
Of course, once commodities start to balloon, that’s when ordinary citizens will get their first taste of hyperinflation. They’ll see it at the gas pumps.
If oil spikes from $74 to $150 in a day, and then to $300 in a matter of a week—perfectly possible, in the midst of a panic—the gallon of gasoline will go to, what: $10? $15? $20?
So what happens then? People—regular Main Street people—will be crazy to buy up commodities (heating oil, food, gasoline, whatever) and buy them now while they are still more-or-less affordable, rather than later, when that $15 gallon of gas shoots to $30 per gallon.
If everyone decides at roughly the same time to exchange one good—currency—for another good—commodities—what happens to the relative price of one and the relative value of the other? Easy: One soars, the other collapses.
When people freak out and begin panic-buying basic commodities, their ordinary financial assets—equities, bonds, etc.—will collapse: Everyone will be rushing to get cash, so as to turn around and buy commodities.
So immediately after the Treasury markets tank, equities will fall catastrophically, probably within the next few days following the Treasury panic. This collapse in equity prices will bring an equivalent burst in commodity prices—the second leg up, if you will.
This sell-off of assets in pursuit of commodities will be self-reinforcing: There won’t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets—durable goods, cars and trucks, houses—in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.
This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.
Right now, I’m guessing that sensible people who’ve read this far are dismissing me as being full of shit—or at least victim of my own imagination. These sensible people, if they deign to engage in the scenario I’ve outlined above, will argue that the government—be it the Fed or the Treasury or a combination thereof—will find a way to stem the panic in Treasuries (if there ever is one), and put a stop to hyperinflation (if such a foolish and outlandish notion ever came to pass in America).
Uh-huh: So the Government will save us, is that it? Okay, so then my question is, How?
Let’s take the Fed: How could they stop a run on Treasuries? Answer: They can’t. See, the Fed has already been shoring up Treasuries—that was their strategy in 2008—’09: Buy up toxic assets from the TBTF banks, and have them turn around and buy Treasuries instead, all the while carefully monitoring Treasuries for signs of weakness. If Treasuries now turn toxic, what’s the Fed supposed to do? Bernanke long ago ran out of ammo: He’s just waving an empty gun around. If there’s a run on Treasuries, and he starts buying them to prop them up, it’ll only give incentive to other Treasury holders to get out now while the getting’s still good. If everyone decides to get out of Treasuries, then Bernanke and the Fed can do absolutely nothing effective. They’re at the mercy of events—in fact, they have been for quite a while already. They just haven’t realized it.
Well if the Fed can’t stop this, how about the Federal government—surely they can stop this, right?
In a word, no. They certainly lack the means to prevent a run on Treasuries. And as to hyperinflation, what exactly would the Federal government do to stop it? Implement price controls? That will only give rise to a rampant black market. Put soldiers out on the street? America is too big. Squirt out more “stimulus”? Sure, pump even more currency into a rapidly hyperinflating everyday economy—right . . .
(BTW, I actually think that this last option is something the Federal government might be foolish enough to try. Some moron like Palin or Biden might well advocate this idea of helter-skelter money-printing so as to “help all hard-working Americans”. And if they carried it out, this would bring us American-made images of people using bundles of dollars to feed their chimneys. I actually don’t think that politicians are so stupid as to actually start printing money to “fight rising prices”—but hey, when it comes to stupidity, you never know how far they can go.)
In fact, the only way the Federal government might be able to ameliorate the situation is if it decided to seize control of major supermarkets and gas stations, and hand out cupon cards of some sort, for basic staples—in other words, food rationing. This might prevent riots and protect the poor, the infirm and the old—it certainly won’t change the underlying problem, which will be hyperinflation.
“This is all bloody ridiculous,” I can practically hear the hyperinflation skeptics fume. “We’re just going through what the Japanese experienced: Just like the U.S., they went into massive government stimulus—hell, they invented quantitative easing—and look what’s happened to them: Stagnation, yes—hyperinflation, no.”
That’s right: The parallels with Japan are remarkably similar—except for one key difference. Japanese sovereign debt is infinitely more stable than America’s, because in Japan, the people are savers—they own the Japanese debt. In America, the people are broke, and the Nervous Nelly banks own the debt. That’s why Japanese sovereign debt is solid, whereas American Treasuries are soap-bubble-fragile.
That’s why I think there’ll be hyperinflation in America—that bubble’s soon to pop. I’m guessing if it doesn’t happen this fall, it’ll happen next fall, without question before the end of 2011.
The question for us now—ad portas to this hyperinflationary event—is, what to do?
Neanderthal survivalists spend all their time thinking about post-Apocalypse America. The real trick, however, is to prepare for after the end of the Apocalypse.
The first thing to realize, of course, is that hyperinflation might well happen—but it will end. It won’t be a never-ending situation—America won’t end up like in some post-Apocalyptic, Mad Max: Beyond Thuderdome industrial wasteland/playground. Admittedly, that would be cool, but it’s not gonna happen—that’s just survivalist daydreams.
Instead, after a spell of hyperinflation, America will end up pretty much like it is today—only with a bad hangover. Actually, a hyperinflationist spell might be a good thing: It would finally clean out all the bad debts in the economy, the crap that the Fed and the Federal government refused to clean out when they had the chance in 2007–’09. It would break down and reset asset prices to more realistic levels—no more $12 million one-bedroom co-ops on the UES. And all in all, a hyperinflationist catastrophe might in the long run be better for the health of the U.S. economy and the morale of the American people, as opposed to a long drawn-out stagnation. Ask the Japanese if they would have preferred a couple-three really bad years, instead of Two Lost Decades, and the answer won’t be surprising. But I digress.
Like Rothschild said, “Buy when there’s blood on the streets.” The thing to do to prepare for hyperinflation would be to invest in a diversified hard-metal basket before the event—no equities, no ETF’s, no derivatives. If and when hyperinflation happens, and things get bad (and I mean really bad), take that hard-metal basket and—right in the teeth of the crisis—buy residential property, as well as equities in long-lasting industries; mining, pharma and chemicals especially, but no value-added companies, like tech, aerospace or industrials. The reason is, at the peak of hyperinflation, the most valuable assets will be dirt-cheap—especially equities—especially real estate.
I have no idea what will happen after we reach the point where $100 is no longer enough to buy a cup of coffee—but I do know that, after such a hyperinflationist period, there’ll be a “new dollar” or some such, with a few zeroes knocked off the old dollar, and things will slowly get back to a new normal. I have no idea the shape of that new normal. I wouldn’t be surprised if that new normal has a quasi or de facto dictatorship, and certainly some form of wage-and-price controls—I’d say it’s likely, but for now that’s not relevant.
What is relevant is, the current situation cannot long continue. The Global Depression we are in is being exacerbated by the very measures being used to fix it—stimulus is putting pressure on Treasuries, which are being shored up by the Fed. This obviously cannot have a happy ending. Therefore, the smart money prepares for what it believes is going to happen next.
I think we’re going to have hyperinflation. I hope I have managed to explain why.
~ ~ ~
Mad Max 3: Beyond Thunderdome Battle
Mad Max Beyond Thunderdome - Train Escape
http://covertress.blogspot.com/2011/01/how-hyperinflation-will-happen.html
Anyone else tired of hearing that when policies are obviously not working that we'd be even worse off without them?
Did Government Overspending Prevent Economic Armageddon?
by: Steven Hansen January 02, 2011
In Personal Transfer Payments and GDP, my colleague John Lounsbury points out that USA government's Great Recession spending caused an increase above trendline in the social safety net (such as unemployment compensation and food stamps).
John points out that the cost to taxpayers was nearly the same as the increase in GDP - and concludes:
........that the increase in personal transfer payments was effective in softening the impact of the recession and has, so far in the recovery, put the economy on a better footing, at least as measured by GDP, than would otherwise have occurred. However, this has come at a price. The national debt has been increased by essentially the same amount as the "extra" personal transfer payments, or $569 billion, over the three years 2008-2010.
When John overviewed his analysis, he pointed out that he had to assume that there were "no externalities that would have influenced GDP differently without the transfer payments". In short, John is saying there is no way to prove with certainty what are the economic effects of government spending.
John is correct - we will never know. Economics is a dark science because we are unable to experiment using two different solutions during same predicament. Truth in economics is illusive, "facts" are data points in search of opinion.
Would the real economy have been just the difference caused by the excess transfer of payments? Here are two opposing arguments:
1.If you did not have the excess transfer, would have some (most or a few?) of the beneficiaries of these payments scrambled harder to make some real money which would have caused real GDP growth; or
2.If you did not have the excess transfer, would it have triggered a deeper chain reaction in the economy causing an even larger economic contraction.
My imaginary nemesis Nobel Laureate Paul Krugman would argue case #2 - and I have sympathy for this argument. Once an economic trend sets in, it tends to overshoot destroying otherwise healthy enterprises. There is also a basis for Professor Krugman's statement that the stimulus was too small. The problem with this "too small" argument is that the original stimulus designed by Congress was not a real stimulus - aside from tax cuts and unemployment benefits, it was little more than pork barrel politics or dogmatic spending initiatives.
Could Professor Krugman be implying that the stimulus was too small based on its ingredients?
Would the "recovery" portion of the Great Recession been stronger without the excess transfer of payments? There are valid arguments that softening the decline would also soften the recovery as it particularly played around with money spending curves. Maybe the USA economy would be in the same place today without this excess above trendline spending - and have a stronger growth factor?
I am not arguing that payments under this Personal Transfer Payments safety net were wrong. The debate is the economic effect of a government providing money to individuals. Understanding this dynamic allows expansion of our control over the economy.
I wish all a great and prosperous New Year.
Economic News this Week:
Econintersect economic forecast for January 2010 was released this week pointing to a slightly improving economy. This week the Weekly Leading Index (WLI) from ECRI improved from 0.8% to 2.2% implying the business conditions six months from now will be roughly the same as today.
Initial unemployment claims in this week's release were down significantly. This was a significant one week drop likely an anomaly of reporting during the holiday season. This is why Econintersect follows the 4 week moving average to smooth out the weekly gyrations. Using unemployment claims data as a reference, the December 2010 employment growth would be in the range of 150,000.
No data released this week was inconsistent with Econintersect's November forecast of slow growth. The table below itemizes the major events and analysis this week (click here for interactive table).
Bankruptcy Filed this Week: None
Bank Failures this Week: None
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
http://seekingalpha.com/article/244334-did-government-overspending-prevent-economic-armageddon?source=email_the_macro_view
Dup...sorry..eom
Senior Safety Nets at Risk in 2011
by Philip Moeller
Friday, December 31, 2010 When Texas Governor Rick Perry recently threatened to pull his state out of Medicaid, he was hardly alone. Across the country, state budgets continue to be strapped. Federal stimulus dollars are running out. And the latest federal tax and stimulus package will not provide much relief at the state and local levels. Meanwhile, looming provisions of health reform will add a projected 16 million to the Medicaid rolls. Where are the facilities to take care of these folks? Where is the money?
...
"When you don't have the money, you can only do so much," Certner says. "That will invariably undermine safety nets."
Copyrighted, U.S.News & World Report, L.P. All rights reserved.
http://finance.yahoo.com/focus-retirement/article/111695/senior-safety-nets-at-risk-in-2011?mod=fidelity-livingretirement&cat=fidelity_2010_living_in_retirement
In 2011 The Baby Boomers Start To Turn 65: 16 Statistics About The Coming Retirement Crisis That Will Drop Your Jaw
Do you hear that rumble in the distance? That is the Baby Boomers - they are getting ready to retire. On January 1st, 2011 the very first Baby Boomers turn 65. Millions upon millions of them are rushing towards retirement age and they have been promised that the rest of us are going to take care of them. Only there is a huge problem. We don't have the money. It simply isn't there. But the millions of Baby Boomers getting ready to retire are counting on that money to be there. This all comes at a really bad time for a federal government that is already flat broke and for a national economy that is already teetering on the brink of disaster.
So just who are the Baby Boomers? Well, they are the most famous generation in American history. The U.S. Census Bureau defines the Baby Boomers as those born between January 1st, 1946 and December 31st, 1964. You see, after U.S. troops returned from World War II, they quickly settled down and everyone started having lots and lots of babies. This gigantic generations has transformed America as they have passed through every stage of life. Now they are getting ready to retire.
If you add 65 years to January 1st, 1946 you get January 1st, 2011.
The moment when the first Baby Boomers reach retirement age has arrived.
The day of reckoning that so many have talked about for so many years is here.
Today, America's elderly are living longer and the cost of health care is rising dramatically. Those two factors are going to make it incredibly expensive to take care of all of these retiring Baby Boomers.
Meanwhile, the sad truth is that the vast majority of Baby Boomers have not adequately saved for retirement. For many of them, their home equity was destroyed by the recent financial crisis. For others, their 401ks were devastated when the stock market tanked.
Meanwhile, company pension plans across America are woefully underfunded. Many state and local government pension programs are absolute disasters. The federal government has already begun to pay out more in Social Security benefits than they are taking in, and the years ahead look downright apocalyptic for the Social Security program.
If we are not careful all of these Baby Boomers are going to push us into national bankruptcy. We simply cannot afford all of the promises that we have made to them. The following are 16 statistics about the coming retirement crisis that will drop your jaw.....
#1 Beginning January 1st, 2011 every single day more than 10,000 Baby Boomers will reach the age of 65. That is going to keep happening every single day for the next 19 years.
#2 According to one recent survey, 36 percent of Americans say that they don't contribute anything at all to retirement savings.
#3 Most Baby Boomers do not have a traditional pension plan because they have been going out of style over the past 30 years. Just consider the following quote from Time Magazine: The traditional pension plan is disappearing. In 1980, some 39 percent of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15 percent, according to the Employee Benefit Research Institute in Washington, D.C.
#4 Over 30 percent of U.S. investors currently in their sixties have more than 80 percent of their 401k invested in equities. So what happens if the stock market crashes again?
#5 35% of Americans already over the age of 65 rely almost entirely on Social Security payments alone.
#6 According to another recent survey, 24% of U.S. workers admit that they have postponed their planned retirement age at least once during the past year.
#7 Approximately 3 out of 4 Americans start claiming Social Security benefits the moment they are eligible at age 62. Most are doing this out of necessity. However, by claiming Social Security early they get locked in at a much lower amount than if they would have waited.
#8 Pension consultant Girard Miller recently told California's Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities. When you break that down, it comes to $22,000 for every single working adult in California.
#9 According to a recent report from Stanford University, California's three biggest pension funds are as much as $500 billion short of meeting future retiree benefit obligations.
#10 It has been reported that the $33.7 billion Illinois Teachers Retirement System is 61% underfunded and is on the verge of complete collapse.
#11 Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars. So where in the world is all of that extra money going to come from? Most of the states are already completely broke and on the verge of bankruptcy.
#12 According to the Congressional Budget Office, the Social Security system will pay out more in benefits than it receives in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead these "Social Security deficits" are scheduled to become absolutely horrific as hordes of Baby Boomers start to retire.
#13 In 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers. In 2010, each retiree's Social Security benefit is paid for by approximately 3.3 U.S. workers. By 2025, it is projected that there will be approximately two U.S. workers for each retiree. How in the world can the system possibly continue to function properly with numbers like that?
#14 According to a recent U.S. government report, soaring interest costs on the U.S. national debt plus rapidly escalating spending on entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every single dollar of federal revenue by the year 2019. That is before a single dollar is spent on anything else.
#15 After analyzing Congressional Budget Office data, Boston University economics professor Laurence J. Kotlikoff concluded that the U.S. government is facing a "fiscal gap" of $202 trillion dollars. A big chunk of that is made up of future obligations to Social Security and Medicare recipients.
#16 According to a recent AARP survey of Baby Boomers, 40 percent of them plan to work "until they drop".
Companies all over America have been dropping their pension plans in anticipation of the time when the Baby Boomers would retire. 401k programs were supposed to be part of the answer, but if the stock market crashes again, it is absolutely going to devastate the Baby Boomers.
State and local governments are scrambling to find ways to pay out all the benefits that they have been promising. Many state and local governments will be forced into some very hard choices by the hordes of Baby Boomers that will now be retiring.
Of course whenever a big financial crisis comes along these days everyone looks to the federal government to fix the problem. But the truth is that after fixing crisis after crisis the federal government is flat broke.
At our current pace, the Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.
But our politicians just keep spending money. In order to pay the Baby Boomers what they are owed the federal government may indeed go into even more debt and have the Federal Reserve print up a bunch more money.
So in the end, Baby Boomers may get most of what they are owed. Of course it may be with radically devalued dollars. Already we are watching those on fixed incomes being devastated by the rising cost of food, gas, heat and health care.
What is going to happen one day when prices have risen so much that the checks that our seniors are getting are not enough to heat their homes?
What are we going to do when those on fixed incomes are buying dog food because it is all that they can afford?
We are rapidly reaching a tipping point. As the first Baby Boomers retire the system is going to do okay. But as millions start pouring into the system it is going to start breaking down.
No, there is not much that we can do about it now. We should have been planning for all of this all along. Americans should have been saving for retirement and governments should have been setting money aside.
But it didn't happen.
Now we pay the price.
http://endoftheamericandream.com/archives/in-2011-the-baby-boomers-start-to-turn-65-16-statistics-about-the-coming-retirement-crisis-that-will-drop-your-jaw
I agree that some areas have a long way to fall yet.
Some think 80 to 90% drop in home prices from the high.
http://theautomaticearth.blogspot.com/2010/12/december-23-2010-about-that-90-drop-in.html
If it gets that bad I think we'll be using something besides dollars as payment...
OPEC Tells the U.S. Consumer to Drop Dead…Care to Guess Why?
03:33 by John Galt. Filed under: Whatever
By John Galt
December 27, 2010
While we all enjoyed time with our families this holiday weekend, the nation of Qatar dropped a bombshell headline via Reuters (the link below is via 24/7 Emirates Business) which should be a hint as to how bad the situation in 2011 is going to get for the American consumer:
Opec will not hike output in 2011, says Qatar
The Kuwaiti and Qatari governments are not the primary representative for OPEC and their minions but when the Saudi government wishes to send a message, the lesser Gulf states are used to send it and in this case the message is loud and clear (from the article of December 25th):
The world economy can withstand an oil price at $100 per barrel, Kuwait's oil minister said on Saturday.
Asked in Cairo if the global economy can stand a $100 oil price, Minister Sheikh Ahmad Al-Abdullah Al-Sabah said: "Yes it can".
Asked if he foresaw a rise in oil production, Sheikh Ahmad replied: "No, more compliance, more compliance".
Meanwhile, Qatar's oil minister Abdullah Al-Attiyah said on Saturday he did not expect Opec to meet before its scheduled gathering in June 2011.
So why the shift in opinion of the OPEC nations that $80 oil was acceptable and that prices at $100 or higher might just be intolerable for the Western economies, thus hurting the cartel? It could be related to this:
The first question most people would ask, logically I might say, is what in the same heck does the balance sheet and reserve expansion of the Federal Reserve Bank of the United States have to do with a flea farting on a camel's butt in the middle of an OPEC desert sheikdom?
The answer is: EVERYTHING
The price of oil is unfortunately still denominated primarily in U.S. Dollars. Thus the more dollars the American banksters demand to be printed to bail their sorry butts out for bad decisions over the last three years, the greater the likelihood of hyperinflation and thus further dilution of the value of said dollar and destruction of the true value of the primary commodity that the OPEC cartel exports, aka, petroleum and its byproducts. This deterioration in purchasing power could be easily displayed in two graphs, the first one reflecting the price of oil since the approximate start of the financial crisis in the United States:
The unseasonable increase in prices might well seem to be just a "fluke" to the mainstream media and those who pontificate that this is all those "evil Arabs" exploiting our "recovery" but the reality is found in the first chart where the central bank has elected to dilute the value of our currency and thus attempt to export inflation to those nations which produce petroleum based products. The inevitable problem with an increase in gas and diesel prices however, is the slowing of the American economic engine and that has been foretold in the two circled regions on the chart below where goods purchased as a whole, including durable and non-durable (Source: BEA GDP and components via the Federal Reserve) which illustrates that with each successive run up in petroleum prices, a decline in goods purchased occurs:
This chart basically understates the obvious, the purchase of goods is not a leading but more accurately lagging indicator as to the future economic activity when you compare the price of gasoline and diesel. If you look at the circled areas, a spike in fuel prices lead up to an eventual decline in the purchase of all goods. This spike we are seeing now should and probably will result in a reduction of economic growth in the first quarter of next year and even more dramatic reductions in the second and third quarters. The Bubblemedia will proclaim the higher prices as a result of "demand" and the need for the American economy to keep expanding but the truth is that the monetary infusion is insufficient to do anything beyond inflating commodity prices and destroying what is left of the middle class. Thus I warn once again that the euphoria being expressed by "retailers" and Keynesian idiots will be short lived. The nations that do business with the U.S. are sick and tired of subsidizing our debt and consumerist mindset which means that the line in the sand, pardon the pun, has been drawn. These nations, along with numerous others, are no longer going to import inflation just to keep the American public as a happy customer.
The inflation we have been exporting since 2003 is about to come home to roost and sadly for the average American, especially those that are unemployed or underemployed, it will impact at a magnitude unseen since Weimar Germany.
more at (including multiple graphs):
http://johngaltfla.com/blog3/2010/12/27/opec-tells-the-u-s-consumer-to-drop-dead-care-to-guess-why/
nlightn,
Sometimes the conspiracy stuff goes too far. I'm as guilty as anyone.
However, at this moment in history the function or dysfunction of the economy is disproportionately dependent on our corrupt and inept government. This is undeniable and I don't see how one could engage in a realistic discussion of the economy without discussing the influence of the ever more intrusive and bungling hand of the government.
listen to Ike's speech from 1961 and then reflect on whether or not we have maintained the balanced he discussed? (ala government control and the mortgage of our future)
http://abcnews.go.com/US/video/jan-17-1961-eisenhowers-farewell-address-12367106
-- IMHO --
- fuge
And the sky is blue...eom
Bye Bye American Pie: 10 Reasons Why America’s Economic Pie Is Rapidly Shrinking
All over the mainstream media today, the wealthy are being pitted against the poor. Those advocating for the wealthy claim that if we could just cut the taxes for the rich and make things easier for them that they will create lots of jobs for the rest of us. Those advocating for the poor claim that the gap between the rich and the poor is now larger than ever and that if we could just get the workers to fight for their rights that we could get things back to how they used to be. It is a very interesting debate, but it totally ignores a reality that is even more important. America's economic pie is rapidly shrinking. As part of the new globalist economy, every single month massive amounts of U.S. wealth is being transferred out of the United States and into foreign hands in exchange for oil and cheap plastic trinkets. In addition, every single month our national government goes into more debt, our state governments go into more debt and our local governments go into more debt. The interest on all of this debt represents a tremendous transfer of wealth. What most Americans fail to grasp is that our collective wealth is getting smaller. There is now less of an "economic pie" for all of us to divide up.
When it comes to economics, most people have a presupposition that the United States will always be getting wealthier. But that is completely and totally wrong. The truth is that we have been steadily getting poorer over the last several decades, and now we are bleeding national wealth at such a pace that it is almost unimaginable.
All over the country tremendous economic pain is starting to set in, and tens of millions of people are getting very angry. Americans are lashing out at both political parties, at their employers and at each other, but the reality is that the vast majority of them simply do not understand why all of this is happening. They just want to be told that someone is working to "fix" the problem with the economy and that things will get back to "normal" soon.
But things are not going to be getting back to "normal". Please follow along as I explain many of the reasons why America's economic pie is rapidly shrinking....
#1 The Biggest Transfer Of Wealth In The History Of The World
Every single month tens of billions of dollars of our national wealth is transferred to the rest of the world. We buy far more from the rest of the globe than they buy from us, and this difference is called a trade deficit. Most Americans don't even think about the trade deficit, but the truth is that it represents a transfer of wealth that is almost unimaginable.
Every month when the oil-exporting nations of the Middle East send us oil, what do we send to them? Our dollars of course. So we burn up their oil in our vehicles and end up with nothing at the end of the month, and they end up with a big pile of our money. So what happens the next month? The exact same process repeats again.
But it is not just oil-exporting nations that we are transferring our national wealth to. Back in 1985, the U.S. trade deficit with China was 6 million dollars for the entire year. For this past August alone, the trade deficit with China was over 28 billion (that's billion with a "b") dollars.
In other words, the U.S. trade deficit with China in August was more than 4,600 times larger than the U.S. trade deficit with China was for the entire year of 1985.
That is why China has so much money to lend back to us - we have been transferring tens of billions of dollars of our national wealth to them month after month after month.
#2 That Great Sucking Sound You Hear Is Our Jobs Leaving The Country
The big global corporations that now dominate our economy have realized that they don't really need to hire "expensive" American workers after all. When all of these "free trade agreements" (which are neither "free" nor "fair") were being debated, the American people were not told that they were going to be merged into one huge global labor pool and that they would soon be directly competing for jobs with the cheapest workers in the world. Today there are hordes of laborers on the other side of the globe that will gladly work for less than 10 percent of what a typical blue collar American worker makes.
So can American workers compete with that? Well, just look at what is happening. The jobs are flying out of this country. In fact, the United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.
But it just isn't jobs at the low end of the scale that are being lost. Since the year 2000, we have lost 10% of our middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs.
The truth is that now there are not nearly enough jobs to go around. Just check out the average duration of unemployment in America - it is now way, way above historical norms....
#3 Unemployed Workers Do Not Create Wealth
When U.S. workers are forced to sit on the sidelines, they drain wealth instead of creating it. At a time when millions of American workers should be involved in creative economic activity, they are collecting food stamps and unemployment checks instead.
One out of every six Americans is now enrolled in a federal anti-poverty program. As 2007 began, 26 million Americans were on food stamps, but now 42 million Americans are on food stamps and that number keeps rising every single month.
The rest of the American people are going to support all of these unemployed and underemployed workers somehow. Either we are going to provide them with good jobs, or we are going to have to pay for their food stamps and welfare checks.
#4 The National Economic Infrastructure Is Being Destroyed
Proponents of the emerging one world economy talk about how great it is to have so many really inexpensive products, but they don't realize what the hidden costs are. The truth is that the United States is rapidly becoming deindustrialized.
Since 2001, over 42,000 U.S. factories have closed down for good. Meanwhile, hordes of shiny new factories are going up in places like China and India.
Sacrificing our economic infrastructure for cheap foreign imports is kind of like tearing off pieces of your house just so you can keep the fire going. Eventually, you simply are not going to have much of a house left.
#5 The Government Is Absolutely Exploding In Size, And Government Workers Produce Relatively Little Wealth
It seems like the federal government keeps exploding in size no matter who we elect. George W. Bush was supposed to be a "conservative", but the truth is that the U.S. government grew in size more under him than during any other presidency.
But there is a big economic problem when it comes to big government. It costs a ton to run, but it produces relatively little of economic value.
Just how much is this big federal government costing us? Well, the total compensation that the U.S. government workforce is going to take in this year is approximately 447 billion dollars.
Not only that, but according to a recent study conducted by the Heritage Foundation, federal workers earn 30 to 40 percent more money on average than their counterparts in the private sector.
The U.S. economy would be much better off if the federal government was dramatically reduced in size and large numbers of government workers started doing something that actually created substantial economic value instead.
#6 Military Spending - Trying To Police The World Is Draining Us Dry
Many people claim that military spending is good for the economy because it provides lots of jobs. However, the truth is that when you examine what those jobs are actually producing, you quickly realize that they are not creating real wealth. Instead, they are just feeding a war machine that is designed to kill people and blow things up.
Now, the truth is that we will always need a powerful military and a strong national defense. But trying to police the world is absolutely draining our national resources.
At this point, it is estimated that the U.S. government has spent over 373 billion dollars on the war in Afghanistan, and over 745 billion dollars on the war in Iraq.
Not only that, today the U.S. military has over 700 bases (some say it is actually over 1000 bases) in 130 different countries around the globe. It is estimated that it costs about $100 billion a year to maintain these bases.
All of this money may or may not be making us safer, but it is undeniable that it is not going to create wealth and economic activity here at home.
#7 America Is Getting Sicker And It Is Draining Our Wealth
The American people are not going to be creating wealth if they are constantly sick all the time. The truth is that the toxins in the food that we eat, in the stuff that we drink and in the air that we breathe are destroying our health.
According to one recent report, the United States has dropped to 49th place in the world in overall life expectancy.
49th place?
Diseases such as cancer, heart disease and diabetes are absolutely exploding. This may be good for the "medical industry", but how in the world are we supposed to work hard and create wealth if all of us are sick all the time?
#8 The U.S. National Debt Nightmare
Thirty years ago, the U.S. national debt was about 1 trillion dollars. Today, it is rapidly approaching 14 trillion dollars.
Every single year, hundreds of billions of dollars in interest on that debt gets transferred from U.S. taxpayers to the owners of that debt. We get absolutely nothing in return for these interest payments. They are a pure transfer of wealth.
Many of the owners of this debt are international bankers or foreign governments that never reinvest the dollars they are getting back into our system.
#9 The Municipal Debt Bubble
When you bring up the term "government debt", most Americans only think of the debt of the federal government. But the truth is that there are literally hundreds of state and local government debt implosions happening all across the United States.
As you read this, state and local government debt is now sitting at an all-time high of 22 percent of U.S. GDP. All of these state and local loans must be serviced, and the interest costs on them are substantial. Once again, all of these interest payments (mostly going to international bankers and foreign governments) represent pure transfers of wealth.
#10 America's Addiction To Debt
Debt is literally draining this country dry. Just as with federal debt and municipal debt, consumer debt is a tremendous drain on our wealth. For example, if you put a $500 television on your credit card but then you eventually pay back $2000 to the bank because of interest and fees, who is getting rich and who is being drained?
Posted below is a chart that shows the growth of total credit market debt over the last several decades. When you add up all forms of debt in the United States (government debt + business debt + consumer debt), it comes to over 50 trillion dollars. In fact, total credit market debt now sits at approximately 360 percent of GDP. It is the biggest debt bubble in the history of the world....
So who does all of this debt benefit? It benefits the international bankers and foreign governments that are becoming insanely wealthy from all of the interest that all of this debt is generating.
Could you imagine just getting a small slice of the interest that over 50 trillion dollars of debt is generating?
When you look at the chart above, it is easy to grasp why life has been so "good" over the last thirty years. We have been enjoying a debt-fueled binge of historic proportions and it has been a lot of fun.
But now a day of reckoning is at hand and our national wealth is being funneled out of our hands at a pace that is almost unimaginable.
When wealth gets transferred out of our hands, that means that the "economic pie" that we all get to divide up becomes smaller. As it continues to shrink, large numbers of Americans are going to become increasingly angry and increasingly desperate.
Unfortunately, the problems that we are facing took decades to develop and they simply cannot be turned around overnight. In fact, our problems continue to get even worse every single month.
It is time to wake up and realize that the "good times" are coming to an end. Please share this article with your family and friends. Most Americans have no idea that our nation is getting poorer and that our economy is literally falling apart.
When the system finally does collapse like a house of cards, the vast majority of Americans will never even see it coming. Very hard times are coming and now is the time to get prepared.
http://endoftheamericandream.com/archives/bye-bye-american-pie-10-reasons-why-americas-economic-pie-is-rapidly-shrinking
U.S. Federal Debt: Why These Unprecedented Levels Are Alarming
by: Trend Investing December 22, 2010
US federal debt is expected to be at 94% of GDP by the end of 2010. In absolute terms, the debt is at record levels. As a percentage, this is not a record. In 1946, after the Great Depression and World War II, US federal debt was 121% of GDP.
In 2008, we experienced the biggest financial crisis since the Great Depression. And the US is engaged in two very expensive wars in Iraq and Afghanistan. Can you say therefore that a federal debt of 94% of GDP is not that bad, after all?
When we take a historic perspective on the debt, the US Federal Debt seems to be at unprecedented levels that cannot be explained by the wars. Also the financial crisis cannot be seen as the main cause for the debt level.
In this article you will see how US federal debt has developed as a percentage of GDP for the last two centuries. We will point out why the current level is unprecedented even when the debt percentage has been higher in the past.
click to enlarge
US Federal Debt and Historic Wars: We Are Now at Unprecedented Levels
The chart above shows US federal debt as a percentage of GDP for the period 1792 to 2010. At first sight, you can conclude that current debt levels are not unusual since debt levels as percentage of GDP were even higher in the 1940s and 1950s.
In absolute terms, debts are of course much higher now. But since the economy has expanded that much, it is more relevant to look at the debt as a percentage of GDP.
So why do we say then that the debt as percentage of GDP is at unprecedented levels now? This is why. The last increase in debt levels started in 1980. The previous 4 periods during which debt levels increased substantially were in the 1860s, the 1910s, 1930s and the 1940s.
The increase during the 1930s was the attempt to spend the US out of the Great Depression. All the other periods were periods of dramatic war that required massive spending to survive and win: the Civil War, World War I and World War II.
You might say that the US is now at war as well, with the “war on terror” and the missions in Iraq and Afghanistan. With the following arguments we want to show that the current build up of debt is unprecedented since it has nothing to do with war or spending ourselves out of a great depression.
3 Reasons Why War Has Nothing to Do With It
The cost of the current wars is peanuts compared to the costs of the other wars when looking at them as a percentage of GDP. The current wars are costing about 1% of GDP. WWI cost 3% of GDP and WWII cost 16% of GDP. Thus, when comparing the two world wars with the debt in 1980 and in 1910 (periods without war and low debt), you would expect a debt below the 45%. However, the current US federal debt as percentage of GDP is around the 90% and growing.
During the 1950s and 1970s, the US was fighting wars in Korea and Vietnam that each cost about 2% of GDP. At the same time, the US was in the Cold War and a weapons race with the Soviet Union. But the debt decreased from about 120% in 1945 to below 40% of GDP in 1980.
The financial crisis happened in 2008. Between 1980 and 2008, debt already increased from around 35% to above the 60%.
Thus, since 1980, US federal debt as percentage of GDP has increased to levels that are very, very high and unprecedented in history since they are not caused by war.
We do not judge here if it is good or not to have these debt levels at this moment. But note that the US managed to decrease its debt percentage between 1945 and 1980 mainly by growing its economy. The growth predictions for the coming decade may not be that high. As a long term investor, I do not like the risk that comes with these unprecedented levels of federal debt. Do you?
Disclosure: I am long SPY.
http://seekingalpha.com/article/243167-u-s-federal-debt-why-these-unprecedented-levels-are-alarming?source=email_the_macro_view
We do agree on the value of many in our society.
I think that once upon a time a person’s income was at least somewhat indicative of the value of their production to society.
It still is for some and to a point; however, it seems many at the high end are paid based on their corruption and willingness to be completely immoral. Probably has always been so but the level and degree has increased and it is so open and in your face it just seems way worse?
Maybe we can figure out a way to keep the lights on while we are using the lampposts for other things?
Either way the best we can hope for is to turn on the lights and make the rats scurry for cover for awhile.
Take care.
-- Merry Christmas --
Of course that excludes anything acutally rising.
Ex. food, healthcare, energy, etc..
Plus throw in a few hedonic measures to round things off and tada...war is peace...
Printing Money Not Actually in Bernanke’s Bag of Tricks
By Bill Bonner
12/21/10 Liberia, Costa Rica – Mr. Ben Bernanke. Mythbuster!
“One myth that’s out there,” he told 60 Minutes, “is that what we’re doing is printing money.”
Ha. Ha. Ha. Can you imagine anything so laughable? So ridiculous? So absurd?
And to think that even we, at The Daily Reckoning, believed it. How could we be so credulous?
Of course, the Fed is not printing up money. How could we have been so naïve? The days of printing up money are long gone. Now, the Fed doesn’t do anything of the sort. Instead, it merely buys US government debt from banks. That’s not printing money. Nope. Not at all. Not even close.
But wait. How does it pay for the bills, notes and bonds it buys?
Oh, well, it certainly doesn’t print up money. Instead, it merely credits the banks with the money…electronically. No printing involved. The banks then have money that didn’t exist before.
The banks are supposed to lend it out. For every dollar they get from the Fed they can lend out 10. That’s how it works. So, IF anyone wanted to borrow the money, and IF the Fed had bought, say, $1 trillion worth of US government debt, the banks COULD lend ten times that amount…thus increasing the supply of money in circulation by $10 trillion.
Does that sound like printing money to you?
Nah… Of course not. Does it sound like it might cause inflation? Well, yes… It would be rather surprising if it didn’t. Consumer price inflation is now running at about 1% per year. Why so low? Because, so far, the banks aren’t lending. The Fed adds money to the system. But it doesn’t get passed along.
Why not? Because we’re in a Great Correction. The economy is saturated with debt. People are trying to dry out. And no matter how many times the Fed offers them a drink; they’re still on the wagon.
Of course, if the economy were to go on a binge again, the banks would lend, people would borrow, and all that money the Fed didn’t print would suddenly come out of hiding. Consumer prices would go up. Hyperinflation could come quickly.
Then what would Mr. Bernanke do? He says he would raise interest rates immediately, should the CPI hit 2%.
Well, dear reader, do you believe him? We do. At least as much as we believe he’s not printing money.
Regards,
Bill Bonner
for The Daily Reckoning
Read more: Printing Money Not Actually in Bernanke's Bag of Tricks http://dailyreckoning.com/printing-money-not-actually-in-bernankes-bag-of-tricks/#ixzz18tl4pDNA
The Scariest Thing About Bernanke
by: Wealth Daily December 21, 2010
by Adam Sharp
"The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt."
— Bertrand Russell
"One hundred percent."
— Ben Bernanke, on his confidence that the Fed will control inflation
Lately, I can't help but reflect on Ron Paul's End The Fed (ETF).
It's been over a year since I finished the book, yet I keep pulling it off the shelf. Throughout, Dr. Paul makes important observations about the political and economic landscape.
Like this one about the Bernank:
Some people have been surprised by Bernanke's irresponsible conduct of monetary policy. There was no reason to be surprised. He was on record promising unlimited amounts of inflation should the need arise.
If Greenspan was cocky about the genius of central bankers, Bernanke is even more so.
Congressman Paul — unlike some — is careful with his words. You don't get many sexy sound bites out of the Rep. from Texas.
So when he says Bernanke is worse than Greenspan (my interpretation, based on this and other passages in ETF), it's noteworthy.
To be sure, moral hazard flourished under his predecessor. The notorious "Greenspan put" offered an implicit backstop to banks and kept monetary conditions plenty loose.
Bernanke and the current monetary regime, though, are taking things further. They are determined to keep rates lower than any time in history, indefinitely.
This will lead to pervasive malinvestment, bank bonuses, and price inflation. Meanwhile, retirees will continue to collect pitifully low income on their CDs.
But don't worry; Wall Street bonuses are safe. Any bank that can't make money in this environment should have their damn head examined. Borrow money at 0%, buy higher-yielding assets. Dip into various gov't giveaways, let the bonuses flow, change accounting rules to conceal losses. Rinse, repeat.
Financial sector profits are back up to 42% of all corporate profits in the United States — an absurdly high level. None of this should come as a surprise with BB, William Dudley, and a few others at the helm of the Fed.
Clearly, "the Bernank" has even less of an issue with moral hazard than Greenspan did, and under his leadership the Fed is even more determined to "ease" monetary conditions.
Robbing the middle class and savers blind and enriching the banks are just unfortunate consequences — or so they'd have us believe. Personally, I see it more like a direct transfer of wealth.
Why Bernanke is such an economic nightmare
One big reason the "bearded wonder" is so frightening is his arrogance. With a track record as miserable as Bernanke's, a cavalier attitude is a job requirement. Big Ben is not a humble man, despite pretenses. Watch his 60 Minutes interview if you haven't yet.
There's also the nagging fact that the core of the Fed's mission can be summed up thusly: "Shoveling money to the banks fixes anything." It's just absurd. If you must devalue the dollar and goose spending, just send everybody a check for $100k and get it over with.
During the Greenspan era, Ron Paul spent years sparring with the Fed over monetary policy. Yet in ETF, Paul expresses a sort of understanding with that Fed Chair:
He [Greenspan] was always aware of exactly where I was coming from... Although frequently annoyed, increasingly so as the years went on, he never seemed quite as annoyed or dismayed as Ben Bernanke is with my questions.
After all, Greenspan was once a proponent of the gold standard, as he famously outlined in Gold and Economic Freedom, an essay he wrote in 1966 for Ayn Rand's objectivist newsletter:
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value… Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Greenspan's philosophy clearly changed over time as he adopted a more pragmatic, bank-friendly approach. I'm sure he had plenty of guidance from the establishment, as well. But at least he held some insight into the other side's argument.
Bernanke is a different animal altogether. He's a purebred monetarist, weaned on liquefied greenbacks from birth — all the bad parts of Milton Friedman; little of the good.
If the Fed under Greenspan represented a shift towards moral hazard, under Bernanke it is taking crony-capitalism to new heights.
This economic vandalism is why some analysts are calling for $5,000 gold. I suspect the Fed's mad experiment will be halted before then, which would likely mark the end of gold's bull run this time around.
But is $5k gold really possible? Absolutely.
Remember, we're only on QE2. If they can get away with it, I am sure the Fed — under the leadership of Bernanke or otherwise — will eventually orchestrate QE3, 4, 5, 6, 7, 8...
At some point, I expect gold to go parabolic. We haven't seen that yet. The mania phase of this bubble has not even started yet.
When it does, smart money will begin selling metals into strength. I'd guess that's still a few years off, but things may change.
http://seekingalpha.com/article/243037-the-scariest-thing-about-bernanke?source=email_the_macro_view
Skono4,
That is the great lie- that we can't function without the corrupt politicans and the criminals in the banks and on wall street who own them...
... maybe the black smith and farmer would be better off without the king and his minions?
.. just a thought ...
- Fuge
OK, I'll be the prick to ask the question...
We keep spending money we don't have, taking on more debt and inventing new creative ways to print money and inject it into the economy. And all these financial gymnastics only result in more problems and the need for ever bigger more fantastic interventions.
How about we consider maybe just maybe letting the defunct businesses, well, go out of business, spend less and otherwise get our financial house in order (in order, in the historical sense not the Allen Greenspan/ Benny Hill B dysfunctional sense).
Is that just crazy? Or is it crazy to keep doing more and more of the same crap that caused the problem in the first place?
Not going to happen because the first order of business would be at least a 30% permanent decrease in Federal spending...
Will Surging Oil Prices Soon Spark Another Financial Crisis?
by: Michael T. Snyder December 19, 2010
Oil prices are starting to spin out of control once again. In London, Brent North Sea crude for delivery in February hit 91.89 dollars a barrel on Friday. New York crude moved above 88 dollars a barrel on Friday. Many analysts believe that 100 dollar oil is a virtual certainty now. In fact, many economists are convinced that oil is going to start moving well beyond the 100 dollar mark. So what happened the last time oil went well above 100 dollars a barrel? Oh, that's right, we had a major financial crisis. Not that subprime mortgages, rampant corruption on Wall Street and out of control debt didn't play major roles in precipitating the financial crisis as well, but the truth is that most economists have not given the price of oil the proper credit for the role that it played in almost crashing the world economy. In July 2008, the price of oil hit a record high of over $147 a barrel. A couple months later all hell broke loose on world financial markets. The truth is that having the price of oil that high created horrific imbalances in the global economy. Fortunately the price of oil took a huge nosedive after hitting that record high, and it can be argued that lower oil prices helped stabilize the world economy. So now that oil prices are on a relentless march upward again, what can we expect this time?
Well, what we can expect is more economic trouble. The truth is that oil is the "blood" of our economy. Without oil nothing moves and virtually no economic activity would take place. Our entire economic system is based on the ability to cheaply and efficiently move people and products. An increase in the price of oil puts inflationary pressure on virtually everything else in our society. Without cheap oil, the entire game changes.
The chart below shows what the price of oil has done since 1996 (although it doesn't include the most recent data). With the price of oil marching towards 100 dollars a barrel again, many people are wondering what this is going to mean for the U.S. economic "recovery"....
Just think about it. What is it going to do to U.S. households when they have to start spending four, five or even six dollars on a gallon of gas?
What is it going to do to our trucking and shipping costs?
What is it going to do to the price of food? According to the U.S. Bureau of Labor Statistics, food inflation in the United States was already 1 1/2 times higher than the overall rate of inflation during the past year. But that is nothing compared to what is coming.
During 2010, the price of just about every major agricultural commodity has shot up dramatically. These price increases are just starting to filter down to the consumer level. So what is going to happen if oil shoots up to 100, 120 or even 150 dollars a barrel?
Demand for oil is only going to continue to increase. Do you know who the number one consumer of energy on the globe is today? For about a hundred years it was the United States, but now it is China. Other emerging markets are starting to gobble up oil at a voracious pace as well.
Not that the price of oil isn't highly manipulated. Of course it is. The truth is that the price of oil should not be nearly as high as it currently is. Unfortunately, you and I have very little say on the matter.
If the price of oil keep going higher, it is really going to start having a dramatic impact on global economic activity at some point. Meanwhile, oil producers and the big global oil companies will pull in record profits, and radical "environmentalists" will love it because people will be forced to start using less oil.
When it comes to oil, there are a lot of "agendas" out there, and unfortunately it looks like the pendulum is swinging back towards those who have "agendas" that favor a very high price for oil.
So what does that mean for all of us?
It is going to mean higher prices at the pump, higher prices at the supermarket and higher prices for almost everything else that we buy.
If the price of oil causes a significant slowdown in economic activity, it could also mean that a whole bunch of us may lose our jobs.
In an article that I published yesterday entitled "Tipping Point: 25 Signs That The Coming Financial Collapse Is Now Closer Than Ever", I didn't even mention that price of oil. There are just so many danger signs in the world economy right now that it is easy to overlook some of them.
Yes, it is time to start ringing the alarms.
The ratio of corporate insider stock selling to corporate insider stock buying is at the highest it has been in nearly four years. This is so similar to what happened just prior to the last financial crisis. The corporate insiders are seeing the writing on the wall and they are flocking for the exits.
Many savvy investors are getting out of paper and are looking for hard assets to put their money in. For example, China is buying gold like there is no tomorrow. The Chinese seem to sense that something is coming. But of course they are not alone. All over the world top economists are warning that we are flirting with disaster.
On Friday, Moody's slashed Ireland's credit rating by five notches to Baa1, and is warning that even more downgrades may follow.
Just think about that for a moment.
Moody's didn't just downgrade Irish debt a little - what Moody's basically did was take out a big wooden mallet and pummel it into oblivion.
Irish debt is now considered little more than garbage in world financial markets now. Unfortunately, Greece, Spain, Portugal, Italy, Belgium and a bunch of other European nations are also headed down the same road.
The truth is that the euro is much closer to a major collapse than most Americans would ever dream.
The world financial system is teetering on the brink of another major financial crisis, and rising oil prices certainly are not going to help that.
If the price of oil breaks the 100 dollar mark, it will be time to become seriously alarmed.
If the price of oil breaks the 150 dollar mark in 2011 it will be time to push the panic button.
Let's hope that the price of oil stabilizes for a while, but unfortunately that is probably not going to happen.
The truth is that the economic outlook for 2011 is bleak at best, especially if the price of oil continues to skyrocket.
http://seekingalpha.com/article/242608-will-surging-oil-prices-soon-spark-another-financial-crisis?source=email_the_macro_view
Why Government Intervention Can't Fix the Economy
by: Ken Hasner December 19, 2010
Most people believe that massive government stimulus started with the advent of the financial meltdown, but in reality government stimulus started much earlier. Before we start discussing the proposed, actual and probable effects of this stimulus I think it would be constructive to discuss the conditions that led to the slipstreaming of stimulus into the US economy. Some history of past interventions is critical in our analysis of how effective this stimulus may ultimately be and what potential consequences may arise.
Let’s go all the way back to 1971 to see if we can make some sense of the utter mess we’re in. Leading into 1971 the US was just beginning to scale back its massive Vietnam war spending which in turn began to place a drag on the economy. As tax revenues fell, the government shifted spending on the war to spending on Lyndon Johnson’s ‘Great Society’ programs designed to ameliorate the effects of poverty in America. The value of the US dollar began to fall putting pressure on dollar holders around the world to do something to try and keep their holdings from losing too much value.
At the time the US had a policy of converting US dollars to gold for any dollar holder who demanded it. Countries around the globe had been converting larger and larger amounts of dollars to gold (which in turn caused further dollar declines) and finally in 1971, US President Nixon met with his economic advisors and decided to put and end to the conversion on demand policy. By the time Nixon had made his policy change, the combination of increased government spending without a corresponding increase in output and a declining dollar had stoked the fires of inflation.
In an effort to control this burgeoning inflation problem, Nixon imposed wage and price controls which (in theory) would limit the amount of increase and hopefully ripple through the economy and bring down the general price level. For nearly three years, the wage and price controls were used in a failed effort at controlling inflation.
To make matters worse the 1973 oil embargo skyrocketed the cost of energy, further fueling the inflation demon. The ultimate solution to taming inflation was monetary policy and Federal Reserve chairman Paul Volcker eventually raised rates to a peak of 20% by mid 1981.
This all might sound like a story with a happy ending but it’s not. During the period we lost much of our large manufacturing base, many people were displaced and lost their jobs, homes and their futures. Starting to sound familiar ? While government intervention was certainly well intentioned it failed for 2 primary reasons: (1) the government was unwilling to undertake significant reforms in conjunction with remedial fixes for the problem, and (2) the government failed to recognize that market forces are always bigger and in the end no matter what you do you cannot and should not attempt to change the course of a market correction. That’s not to say you can’t soften the damaging effects of said correction or meter its progress so it does not hit all at once, but in the end whatever the market was trying to do when the correction started will eventually come to pass. So the correct strategy is to recognize the market forces and creatively engineer policies to move people out of its path, not to try and keep people in its path (e.g. polices to keep people in their homes at wildly inflated price points just so the banks won’t lose money on the loans).
Which brings us to our current unfortunate situation which has some amazing parallels to the 1970’s economic crisis. As in the ‘70's, we got here from a combination of poor economic policies and a belief that we could re-instate the status quo. Similar to the ‘70's we have initiated massive fiscal and monetary intervention in an effort to bring back the status quo.
Why do I believe it will ultimately fail? Because just as in the ‘70's we have failed in 2 critical areas: (1) lack of fundamental economic reform and (2) we have failed to recognize that the market forces that we deem so damaging are in reality trying to correct the imbalances of 25 years of bad economic policy. Whether we like it or not asset price declines and associated deflation are market mechanisms for bringing price levels into line with current and future economic potential.
The massive stimulus we all read about every day in the news media was only the latest round of efforts to ‘keep the status quo’. Since the late 1980’s we have used monetary stimulus and financial engineering to subvert market forces. A combination of low market interest rates (driven by global demand for US Treasury debt) and lax regulatory regimes have been a ‘one-two’ punch combination in stoking the economic fires in America.
These low rates however, did nothing to enforce any sort of budgetary discipline and as a result we have a massive national debt and a growing annual deficit. The financial industry’s lobbying efforts have insured that no matter what happens to the rest of America, they will be able to ‘engineer’ a steady stream of paper profits which they then convert to hard assets by either investing in emerging market economies or directly in the commodity markets themselves. A ‘legal’ money laundering operation that makes the average working American poorer and the biggest financial institutions and their benefactors in government richer. Who needs to pay employees to generate profit when instead you can have the FED take it directly from their pockets and deliver it straight to you?
Remember that low interest rates do not directly benefit the majority of Americans. The idea is to keep capital costs low for the banking system which in turn will generate profitable loans which in turn will generate economic activity which ‘theoretically’ will benefit all citizens. The problem is far more complicated than that because we have (1) not reformed the banking system and (2) low rates are actually hurting the segments of society that can least afford to take risks. The fact that banks can be involved in just about any sort of financial engineering to generate profits means they do not have to use the low cost capital to make loans. They can even borrow from the government at 0 - .25% and immediately re-invest the proceeds in US Treasury debt for an instant ‘100% guaranteed’ profit.
The other issue is that maintaining the low rates has an economic and human cost for those risk averse investors. They lose what the banks gain. Less income on savings means less consumption and more struggles for survival. The longer you keep rates low the longer you delay the inevitable market forces and contrary to popular opinion, you suppress economic activity by lowering the bar for the banks. Why should they take risks when they don’t need to? I hope we soon see the day when these regressive polices are rolled back and all Americans can benefit from the system and not just a privileged few.
Disclosure: I am long SPY, TLT, GLD.
http://seekingalpha.com/article/242572-why-government-intervention-can-t-fix-the-economy?source=email_the_macro_view
I thought the insurance portion was 26 weeks and maybe one or two 13 week extensions.
Certainly, everything after 1 year is coming out of the treasury and adding to the deficit. Admittedly by a small amount compared to everything else but 30 or 40 billion here, 10 or 15 billion there and sooner or later it adds up to real money.
Given the choice between bailing out the banks and extending unemployment I'd vote to extend but there still has to be some time limit?
Isn't 99 weeks enough? eom
Two lessons in practical ecology
by John Michael Greer
Published Dec 15 2010 by The Archdruid Report
http://thearchdruid report.blogspot. com/2010/ 12/two-lessons- in-practical- ecology.html
These days, the news coming out of America’s political and financial centers evokes the same sort of horrified fascination that draws onlookers to the scene of any other catastrophe. Investors spooked by the Fed’s willingness to pay for deficit spending by printing money are backing away from US debt, and the interest the US government has to pay on its bonds has accordingly gone up, gaining a full percentage point in the last month and putting pressure on other interest rates across the board.
In the teeth of this stinging vote of no confidence from the bond market, the Obama administration and its Republican allies in Congress – chew on that concept for a moment – are pushing through another round of spending increases and tax cuts that the government doesn’t have the money to pay for. The ratings agency Moody’s has warned that if the current spending bill is passed, it will have to consider downgrading the once-sacrosanct AAA rating on US government debt. Exactly how the endgame is going to be played is still anybody’s guess – runaway stagflation, a hyperinflationary currency collapse, and a flat-out default by the US government on its gargantuan public debt are all possible – but there’s no way that it’s going to end well.
All this makes the topic of this week’s post particularly timely. Across the industrial world, people have come to assume that they ought to be able to buy ripe strawberries in December and fresh oysters in May, and more generally food in vast quantity and variety on demand, irrespective of season. That assumption relies on using wildly extravagant amounts of energy to ship and process foodstuffs, and that by itself renders the eating habits of the recent past an arrangement without a future, but these same habits also depend on a baroque global financial system founded on the US dollar. As that comes unraveled, an old necessity most of our grandmothers grew up with – home processing and storage of seasonal foods – will become necessary once again, at least for those who don’t find scurvy and other dietary deficiency diseases to their taste.
Food storage is a subject that calls up strong and often contradictory emotions, and sometimes inspires actions that don’t necessarily make much sense. Rumors are flying just now in some corners of the peak oil community, for example, that the sales freeze-dried food has spiked so sharply in recent months that suppliers are unable to keep up with the demand. This may well be true, but if so, it shows a certain lack of common sense; unless you plan on living out of a backpack during a financial crash – and this is arguably not a good idea – there are many better and cheaper ways to make sure you have some food put by to cope with breaks in the supply chain.
Nor is food storage really about stashing food in a cellar in order to ride out a crisis. A century ago, nearly everybody in America processed food at home for storage if they could possibly do so, for reasons much more down to earth than expectations of catastrophe. They did it primarily because the foods available year round in a temperate climate typically don’t provide a balanced diet, much less an inviting one. Absent the energy and financial systems that make it look reasonable to fly fresh food from around the world to stock supermarkets in the United States throughout the year, good sources of vitamin C are mostly to be had in the summer and fall, meat tends to show up in a lump at slaughtering time in October and November, and so on; if you want these things the rest of the year, and you don’t have a functioning industrial economy to take care of that matter for you, you learn how to prepare foods for storage in season, and keep them safely stored until wanted later on.
The ways that this can be done, interestingly enough, make a very good lesson in practical ecology. To keep food in edible condition, you have to engage in what ecologists call competitive exclusion – that is, you have to prevent other living things from eating it before you do. Your main competitors are bacteria and other microorganisms, and you exclude them by changing the habitat provided by the food until it no longer provides the competition with the resources it needs to survive.
You can do that by changing just about every ecological variable you can think of. You can make food too cold for bacteria to survive; that’s freezing. You can make food too hot, and keep it enclosed in a container that won’t let the bacteria back in when the food cools down; that’s canning. You can make food too dry; that’s drying. You can change the chemical balance of food to make it indigestible to bacteria, but not to you; that’s salting, brining, smoking, corning, and pickling, among other things. You can get sneaky and keep food alive, so that its own immune system will prevent bacteria from getting a foothold; that’s root cellaring, and a variety of other tricks commonly used with cold-hardy vegetables. Alternatively, you can get even sneakier and beat the bacteria to the punch by deliberately infecting food with a microorganism of your choice, which will crowd out other microbes and change the food in ways that will leave it in edible condition for you; that’s fermentation.
Which of these is the best option? Wrong question. Depending on where you are, what foodstuffs and other resources you have to hand, and how long you expect it to take for various parts of the current order of things to come unraveled, almost any mix of options might be a good choice. It will almost certainly have to be a mix, since no one preservation method works best for everything, and in many cases there’s one or another method that’s the best or only option.
It’s also wise to have a mix, because methods of preserving food differ among themselves in another way: some are much more functional in a time of energy shortages than others. If your food storage plans revolve around having a working freezer, you had better hope that the electricity remains on in the area where you live, or you need to make sure you have a backup that will function over the long term – and no, a diesel generator in the basement and a tank of fuel doesn’t count, not after the first few weeks of fuel shortage. That doesn’t mean that blanching and freezing some of your homegrown garden produce is a bad idea; it means you need to have something in place to power the freezer well before the brownouts start to happen, or you need to be prepared to shift to another preservation method in a hurry, or both.
This points to a second good lesson in practical ecology that can be learned from food storage, though this one’s a lesson in practical human ecology. Technologies – all technologies, everywhere – vary in their dependence on larger systems. When comparing two technologies that do the same thing, the impact of their relative dependence on different systems needs to be included in the comparison; if technology A and B both provide a given service, and technology A is cheaper, easier, and more effective than technology B under ordinary conditions, technology B can still be the wiser choice if technology A is wholly dependent on an unstable system while technology B lacks that vulnerability.
This much should be obvious, though all too often it isn’t. It’s embarrassing, in point of fact, to see how often a brittle, complex and vulnerable technology dependent on highly questionable systems is touted as “more efficient” than some simpler, more reliable and more independent equivalent, simply because the former works somewhat better on those occasions when it can be made to work at all. Just as you don’t actually know how to use a tool until you can instantly name three ways to misuse it and three things it can’t do at all, it’s a waste of time and resources to buy into any technology unless you have a pretty good idea in advance of its vulnerabilities and the ways it tends to fail.
This sort of thinking can and should be applied throughout the green wizardry we’ve been discussing in the last five months or so of posts, but food storage is a very good place to start. Let’s say you’ve decided to blanch and freeze some of the vegetables from your backyard garden. That can be a good choice, at least if you can expect your electricity supply to remain stable for the next year or two; still, you owe it to yourself and your freezer bags of Romano beans to take a moment to work out the downside. What are the main sources of electricity in your service area, and how will they be affected by likely changes in fossil fuel prices over the next couple of years? How does electricity get to you from the grid, and is that connection vulnerable? When does your service area tend to suffer blackouts, and how long do they tend to last? Are there ways you can keep a freezer powered for the duration of a longer than average blackout? Does one of those ways seem like a sensible investment, or would it be smarter to shift to a less vulnerable method of storage?
More complexities slip in when you remember that there’s often more than one way to power the same process. You can dry food, for example, in an electric dehydrator, but in any climate that isn’t too humid, you can also dry food in a solar dehydrator. This is basically a black box with small holes in the top and bottom, covered with fine mesh to keep out insects, and trays of screen-door screening stretched on wooden frames inside, with the food spaced on the trays to allow air circulation. The sun heats the box, air flows in through the bottom and carries moisture away through the top, and the food dries with no other source of power. When you’ve got adequate and reliable electricity, an electric dehydrator is more convenient and reliable; when you have reason to think that electricity will be expensive, intermittent, or not available at all, the solar dehydrator is usually the better plan.
In many cases like this last, though, the best option of all is to have and use both – the more convenient and reliable technology while you’re still on the learning curve and the larger system that supports it is still there; the more resilient and independent system in a small way all along, so that you learn its quirks and can shift over to it full time once the more complex technology becomes nonfunctional. In the same way, it can make a good deal of sense to blanch and freeze garden produce while you’re still learning your way around using home-dried foods, or to can your pickles in a hot water bath while you’re still getting the knack of older pickling methods that don’t require airtight containers.
In a time of faltering energy supplies – not to mention the spectacular self-destruction of national finances – this sort of thinking can be applied very broadly indeed. The strategy of a staged disconnection from failing technologies, made on the basis of local conditions and personal, family, and community needs, offers a pragmatic alternative to the forced choice between total dependence on a crumbling industrial system, on the one hand, or the usually unreachable ideal of complete personal or community independence on the other. The backyard-garden methods discussed in earlier posts are founded on that strategy, and most of the energy conservation and homescale renewable energy production methods that will be central to the first few months’ worth of posts next year rely on it as well.
There’s a reason for this ubiquity: the strategy of staged disconnection is the constructive alternative to catabolic collapse. A society in catabolic collapse, running short of necessary resources, cannibalizes its own productive assets to replace resource flows, and ends up consuming itself. The strategy of staged disconnection is not catabolic but metabolic; it taps into existing resource flows before shortages become severe, and uses them to bridge the gap between existing systems that are likely to fail and enduring systems that have not yet been built. At the same time, if it’s done right, it doesn’t draw heavily enough on existing systems to cause them to fail before they have to.
That’s what could have happened if the industrial world had pursued the promising initiatives of the 1970s, instead of taking a thirty-year vacation from reality that cost us the chance of a smooth transition to a sustainable future. On the collective scale, that’s water under the bridge at this point, but it can still be done on the smaller scale of individuals, families, and communities.
Resources
Food preservation and storage are among the few subsets of green wizardry where old information can land you in a world of hurt. If you intend to take up canning, in particular, you need up-to-date information; for example, the relative proportions of sugar and acid in today’s tomato varieties, as compared to those fifty years ago, are so different that recipes that were safe then can land you with botulism poisoning, i.e., quite possibly dead, if you use them today. Your county extension service can point you toward accurate information on safe canning, and so can the current edition of the Ball Blue Book.
Not all methods of food preservation are as volatile as canning. Though it’s always wise to check for updated information, some of the classics are still well worth reading. My library includes Mike and Nancy Bubel’s Root Cellaring, Grace Firth’s Stillroom Cookery, Phyllis Hobson’s Making and Using Dried Foods, Carol Hupping’s Stocking Up III, and Stanley Schuler and Elizabeth Meriwether Schuler’s Preserving the Fruits of the Earth.
The U.S. Is Well On Its Way To Being In A Debt Trap
http://www.businessinsider.com/us-debt-trap-2010-12
Commentary of economists Rogoff and Reinhart is often used as a point of reference concerning thresholds of debt levels that trigger a debt trap. After the publication of their book on the topic, there were rebuttals from the debt-doesn’t-really-matter crowd.
I did a cursory reading of these counterpoints and can only say that their arguments were circular, anal, counter-intuitive, and not even worth discussion. I really try to keep an open mind, but sometimes in life you come across people you know are BS’ing you. You know it because their lips are moving.
For those who argue it does matter, one number being tossed around is the level at which debt service equals 30 percent of tax revenues. Once interest payments take 30% of tax revenues, a country has an out-of-control debt trap issue. When you think clearly about it, this just makes sense, as the ability to dodge, weave and defer is pretty much removed, as is the logic that it will be repaid in a low-risk manner. The world is going to be a different place when the US is perceived to be in a debt trap.
I suspect the problem will rear its ugly head well before this 30% number is hit, as markets start discounting the trajectory by hiking interest rates because of poor credit quality and/or inflation (or more accurately stranguflation). Naturally that question should be asked in terms of the recent and sudden uptick in Treasury note and bond rates that appeared strongly correlated to the latest round of tax “stimulus” and handouts, and the “unexpected” reaction to QE2. The latter is nothing more than a brazen, dangerous gamble to monetize the debt. Sure the BS crowd is claiming economic growth is the causa proxima, but that feels like utter nonsense. Could it be that the markets at long last are anticipating a very bad result from QE2 and even more Gumnut largess?
Image: The Wall Street Examiner
During calender year 2010, the Gumnut will collect $2.05 trillion in taxes. With the tax cuts and extensions likely coming, this variable may well track lower. Sometime shortly after the New Year, debt outstanding will hit $14 trillion (can track here) heading higher at a clip of about $100 billion per month. Interest paid on national debt for the FY 2010, which ended in September, was $414 billion or about 20% of tax revenues. That interest was against debt that was averaging about $13 trillion.
In addition, the interest cost to the Treasury as of November was 3%. $1.8 trillion in Treasuries matures in 2011. The big majority is in T-Bills, where the average interest cost is a mere 0.20%. That short-term debt maturing variable will move higher as more Treasury bills are sold at each successive auction. We can see from the chart above that those easy, ultra-low interest pickings have been reversed some. Both the interest cost and interest paid can be tracked at the Treasury site.
Taking those variables into account, it is apparent that a trajectory toward 30% looks very likely. Each step along the way will add to the stress on credit quality and interest rate cost. The latter is the key variable because a move of only one percent in interest rate cost takes the debt service percent up quickly. For example, against a debt of $15 trillion, 4% cost of money equals $600 billion in interest expense. If tax revenues are still running about $2 trillion, then you have your 30% debt trap thresholds in spades.
Read more: http://www.businessinsider.com/us-debt-trap-2010-12#ixzz18DHke2TB
Introduction to the Naked Truth About Drugs
Dec 15th, 2010 | By Whiskey Contributor | Category: Featured,
Politics
For nearly one hundred years our government has been wrong about drugs, about the people who use them and the risks they pose to society. Much of what they report is blatant misinformation, if not outright lies, despite a veneer of good intentions. It is also my contention millions of Americans agree with me. And it is not just the millions doing drugs responsibly, either. It is the millions more who’ve come to see society’s approach to the drug crisis generate more harm than good. They cut across all age, income and race demographics. Over the last thirty-plus years I’ve made it a point to talk with a number of them. And listen.
What I’ve gathered reflects not so much a change of mind as it does a change of heart. We still consider drugs to be harmful, but have come to view our drug laws as worse–and many of us no longer consider legalization a four-letter word. But when Richard Nixon first convened his drug war council, escalating the conflict, hardly anyone outside of what was derisively labeled the “lunatic fringe” favored legalization. How dare we, they scolded, when marijuana tuned innocents into murderers and LSD would sufficiently scramble our DNA to produce three-headed babies. None of that was true of course, but it is what our government wanted citizens to believe. And many did.
But that was then. This is now. We have come to see the responsible use theory, the one so close to the alcohol lobby heart, parallel itself in the illicit drug environment: as not every drinker is a drunkard, so too is not every drug user an abuser.
The Naked Truth About Drugs…
All drugs were legal and cheap and readily available in America prior to 1914, and we were even encouraged to use them. Heroin was available from the Sears mail order catalog, as was morphine, opium and cocaine. But if you couldn’t wait for the mailman, all those same drugs were sold at the corner grocery or drugstore. Our addiction rate then was very low, near identical to now. And we had no drug crime [emphasis mine].
What changed it all, what disrupted our peaceful co-existence, was the Harrison Narcotics Act of 1914, a confluence of religious arrogance and racial bigotry, spread by a surprisingly small number of men and all tinged with political opportunism. All of which metastasized over the years and morphed into Richard Nixon’s War on Drugs.
There are a variety of sound arguments for the repeal of drug prohibition. One is the Declaration of Independence, which guarantees our right to life, liberty and the pursuit of happiness, arguing the sovereignty of our bodies. Another is the Constitution, which defines treason against our United States as “levying war against them, or in adhering to their Enemies, giving them Aid and Comfort.” We are not fighting drugs per se; we are levying war against those who use them. Meanwhile drug prohibition has enriched our enemies with hundreds of billions of dollars and will guarantee hundreds of billions more, giving more than enough aid to any comfort.
The best argument, where I believe we share the greatest commonality and the least polarity, is the one for law and order. The hugely inflated prices addicts pay for illegal drugs force many into a life of crime, committing nearly all our larceny-thefts, crimes the FBI report as non-violent. And though some addicts would just as soon shoot you as look at you, most drug violence occurs at the higher echelons of the black market, stemming from territorial and distribution conflicts. Repealing drug prohibition will bankrupt the black market and reduce the overall Crime Index by at least 50%, an argument central to the debate and hard to counter.
History is replete with drug stories and tales both good and bad, but all provide empirical data, unequivocal in its conclusion, that drugs are here to stay. So we are going to live with them one way or another. We lived in peace for over a century and have been at war nearly as long, ninety years. And rumor has it drug warriors, no longer intent on maintaining the status quo, have plans on paper just itching to be implemented that will end the drug war once and for all. It will not be pretty, making today’s methods seem almost quaint.
We drink, we smoke, we ingest and inject. It is part of who we are that no policy can change, no law. So we change our law and policy. But the biggest canard of the drug debate portrays those favoring repeal as being “soft on drugs.” Not at all true. We’re just being hard on stupidity. Whish is why ending drug prohibition is society’s smartest step toward jackhammering all those good intentions paving the way to hell.
By Daniel E. Williams
Whiskey & Gunpowder
http://whiskeyandgunpowder.com/introduction-to-the-naked-truth-about-drugs/
I guess republicans have blocked 0's multiple and aggressive attempts at Wall Street reform?
YouTube - On the Edge with Max Kaiser-Latest on Global Financial Crisis
BINGO! eom
A Refiner’s Dream: More Oil, Less Gasoline
by: Hard Assets Investor December 08, 2010
By Brad Zigler
Crude oil's rally reversed yesterday despite an industry report forecasting a deeper-than-expected decline in U.S. oil inventories.
The American Petroleum Institute estimated that U.S. crude inventories fell by 7.3 million barrels last week, but definitive numbers released by the Energy Department this morning showed the drawdown was actually 3.8 million barrels. Analysts had expected a 1.3-million- to 1.4-million-barrel decline.
The API was closer to the mark with its gasoline estimate. The industry group saw motor fuel stocks rising by 4.8 million barrels, a more aggressive build than the 300,000- to 500,000-barrel increase expected by the Street. Inventories actually rose by 3.8 million barrels, according to the government.
Closer still was the API's reckoning of distillate fuels. Government data shows inventories were built up by 2.2 million barrels last week. The API had eyed a 1.7-million-barrel increase, in stark contrast to brokers' average forecast of a 500,000- to 900,000-barrel decline.
Refinery usage, which was expected to rise by 0.9 percentage points to 83.5 percent, instead rose to 87.5 percent. Gasoline production increased to a daily average of 9.4 million barrels, while distillate fuel output—including diesel and heating oil—increased to 4.5 million barrels.
Gasoline demand now averages 9.0 million barrels per day, down 0.7 percent from this time last year. Mean distillate fuel consumption is 3.7 million barrels daily, a 5.3 percent change from year-ago levels.
Trading Week
Refining margins were lifted this week as product price increases outpaced crude's upward trend. For the week ending Tuesday, nearby West Texas Intermediate crude gained 5.5 percent, while gasoline ran up 6.4 percent and heating oil was boosted 6.6 percent. Gasoline-rich refining runs earned a 12.6 percent margin, a 1 percentage point gain over last week. Distillate-heavy operations grossed 13.9 percent for a 1.1 percentage point increase.
Crude oil volatility, measured by the CBOE Oil Volatility Index (CBOE: OVX), ticked up 0.3 points to 32.2 percent as the cost of protective puts rose 45.7 percent.
Average daily volume for NYMEX WTI shot up 49.7 percent to 697,121 contracts. Open interest jumped by 31,734 contracts to 1.37 million.
Alongside a dramatic squeeze in WTI's contango, the U.S. benchmark's discount to Brent crude ballooned to $1.81 from last week's $1.22. A three-month roll in NYMEX WTI, which cost $1.40 a barrel last week, now runs 99 cents.
The heating oil/gasoline spread widened by 1.06 cents a gallon this week. Over the same period, the corn/ethanol crush lost 16.7 cents a bushel, the result of a 15.75 cent spike in corn prices. Ethanol's 21-day correlation to corn prices has now tightened to 95.3 percent. Gasoline's premium over ethanol shrank a bit to 25.9 cents a gallon for January delivery.
Technical Picture
Yesterday's spike, if sustained, would have marked a 50 percent retracement of crude's 2008 decline. With the reversal, nearby support will likely be found for the January contract at the area of the Nov. 30 high—$85.90—which also corresponds to the delivery's 10-day moving average.
Two areas of intermediate support—at $87.57 and at $86.44—could be waylay stations.
On the upside, the $90.54 level remains a hurdle for closing prices, while interim resistance at $90.29 ought to be anticipated.
Nearby NYMEX WTI Crude Oil
http://seekingalpha.com/article/240760-a-refiners-dream-more-oil-less-gasoline?source=email_the_macro_view
China's "Man-Made" GDP Figures Should Give Us All Pause
by: TraderMark December 07, 2010
No real surprise here for readers: I've always said we have to take everything from China with many grains of salt. In fact, the world's two largest economies seem intent on focusing on governmental propaganda rather than actual data. The U.S. does it through adjustments over the years: When the data no longer says what the government wants, we create changes that make things sunnier side up. Magic! As for China? Who knows? We are led to believe that a country consistently grows 10% (give or take 1-2%) non-stop for years upon years, with little to no inflation. Just like in a fairy tale.
Mmmm ... Kool-Aid.
Without going into the sinister part of it, just think how realistic it is for any government with an economic size of $4-$5T or $14T to accurately measure itself weeks after a quarter's end. Anyone who has worked in a large corporate finance or accounting department knows the headaches and horrors it entails to measure just one company in that time frame, not millions of disparate companies and consumers, while accounting for imports, exports, and inflation effects. It's a thumb-in-the-air guestimate at best for even those with good intentions and sophisticated time-measured statistical methods, in a relatively stable economy.
And you think China -- with an economy growing and evolving in a decade or two from mostly agrarian to a large industrial base -- is accurately measuring anything? How does India have such variance quarter to quarter and year to year, when China somehow rarely sees any major dips or surges, always finishing in that 8-12% range. I know, I know -- a miracle economy. (I am not saying India is measuring it any more accurately, but at least they seem to be trying -- there are huge swings year to year.)
Rather than anything out of government, it is far better to look at large-scale industrial inputs (natural gas usage in the U.S., electricity consumption in China, transportation figures, etc.) or what corporations themselves are saying. Which makes the whole knee-jerk stock market reaction by the Wall Street crowd to every datapoint out of (either) government -- which of course is gospel -- maddening. But that's the game we have; don't hate the playa, hate the game.
It is much easier to dispute inflation figures in China (and domestically) than GDP, because you can go walk around and talk to people and see what is happening. ("Wow, the package of ABC foodstuffs dropped in size by 22%, but the price is the same. No inflation here!" -- Bernanke.) Heck, even the Chinese admit they are fudging on this one.
Now let's be clear: I'm not saying that China is not growing; obviously it is. Massive secular global changes are happening. But have some quarters been 5% GDP growth? Others 8% ... 11% ... 3 percent? Unless the economic cycle does not work behind the Great Wall, I'd assume so. And considering the WikiLeaks document reporting that one of China's provinces has "man-made" provincial GDP figures, you can extrapolate from there on what is happening in other parts of the country.
It is not the first time we've highlighted the provinces; if you want to do well in politics, you have pressure to "make (up) the numbers" to please central command. And this sort of thing is just another reason to laugh as the S&P 500 surges X.X% pre-market on so-and-so day due to official Chinese data released overnight.
According to WikiLeaks, Liaoning Party Secretary Li Keqiang described the challenges he faces as a provincial leader to the Ambassador over dinner on March 12, calling GDP figures "man-made" and therefore unreliable. (Ironically, Keqiang used some of the same things mentioned above to create his "man-made" guesses -- electricity usage, rail cargo, and bank loans.)
Continuing with WikiLeaks, Keqiang said -- smiling -- that all other figures, especially GDP statistics, are "for reference only."
If you don't care about this gentlemen or what he pulls out of the air (smiling, of course), consider that he's viewed as a front-runner for elevation to the Politburo this fall and potential successor to President Hu Jintao in 2012.
http://seekingalpha.com/article/240547-china-s-man-made-gdp-figures-should-give-us-all-pause?source=email_the_macro_view
Bernanke: 60 Minutes, 2 Big Distortions
by: Michael Pento December 08, 2010
Michael Pento
This past Sunday on the CBS program "60 Minutes", Americans received a massive dose of mendacity from our Fed Chairman. Mr. Bernanke's shaky deliver, and even shakier logic, may cause faith in America's economic leadership to evaporate faster than the value of our dollar.
In particular, Bernanke delivered two massive distortions:
Lie #1 - The Fed isn't printing money.
Bernanke stated:
The amount of currency in circulation is not changing...the money supply is not changing in any significant way. What we're doing is lowering interest rates by buying Treasury securities.
Given that it is the Treasury Department's Bureau of Engraving and Printing, not the Fed, that actually prints paper money, his statement is technically correct while substantively false. However, Bernanke is buying bank assets with Fed credit. With such an arrangement, printing becomes unnecessary.
According to gentle Ben, credit created to buy something should not be considered money and has no affect on asset prices? But if that's true, why is he concentrating his buying in the middle of the Treasury yield curve. His stated purpose is to boost bond prices and lower yields in order to stimulate borrowing and aggregate demand. So pushing up bond prices is an act of inflation. Bernanke similarly contradicts himself by saying that he isn't creating inflation, while at the same time claiming that his easing campaign is designed to boost asset prices to combat the phantom of deflation.
And by the way, the Fed is causing money supply to increase significantly. The compounded annual growth rate of M2 is over 7% in the last quarter. Apparently in the eyes of the Chairman, a 7% annualized increase in the broad money supply isn't considered significant.
Lie #2- Bernanke is "100 % confident" that, when necessary, the Fed can control inflation and reverse its accommodative monetary policy.
He stated,
We've been very, very clear that we will not allow inflation to rise above 2 percent. We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.
He failed to mention that the Fed doesn't have the will to drain money from the system, without which all tools are useless. The Fed has consistently demonstrated its unwillingness to take the appropriate actions when necessary. In claiming he is 100% confident in his ability to control inflation, Mr. Bernanke ignores the record that during his tenure he has misdiagnosed the economy.
In June of 2006, Bernanke culminated his inflation fighting efforts by raising the Fed Funds target rate to 5.25%, after CPI inflation reached 4.2%. But that interest rate was enough to help burst the housing bubble and to spark an international credit crisis. Bernanke was completely unaware that the Fed actions had created an economy that had become completely addicted to artificially-produced low interest rates and inflation.
Shortly after the collapse of the real estate market and the ensuing truncated deflationary-depression, Bernanke took interest rates to near zero percent. But if the Fed was ever really serious about unwinding excessive leverage, the time had clearly arrived. Instead, the U.S. economy has become more addicted to free money than at any other time in our history.
Commodity prices are soaring once again and the real estate market, banking sector, and the overall economy cling precariously on the arm of government induced bailouts and low interest rates. Even worse, our government has massively increased its level of debt, which now stands at just below $14 trillion. Once the rate of inflation eclipses the Fed's 2% target rate, which appears likely, how then will the Fed raise rates to contain it? Could the economy then withstand an increase in the cost of home ownership? Most importantly, when will Mr. Bernanke find it politically tenable to dramatically increase debt service payments for the Federal government? In truth, there is never a convenient time to have a severe recession or a depression. Unfortunately, reality can be extremely inconvenient.
Bernanke was accurate in saying that the economy is not expanding at a sustainable pace. Of course, his prescription was the same as it always is; print more money in the misguided belief that inflation will lead to growth. As such, he indicated that it's possible that the Fed may actually expand bond purchases beyond the $600 billion announced last month. (Remember that the $600 billion comes after the $1.7 trillion that has already been printed, which failed to produce anything much beyond a weaker dollar). Therefore, the country can look forward to yet more inflation, continued anemic GDP growth, a poorer citizenry, and a vastly lower standard of living.
On the bright side, the next segment on 60 Minutes outlined some of the new social networking capabilities being created by Mark Zuckerberg and Facebook. In other words, although our economic misery will likely increase, it should become much easier to share the bad news with friends.
http://seekingalpha.com/article/240673-bernanke-60-minutes-2-big-distortions?source=email_the_macro_view
I'm Tired of American Economic Leaders Giving Advice to China
by: Howard Richman December 06, 2010
With China growing about 10% per year and the United States growing at about 2% per year, I'm really getting tired of U.S. economic policy makers telling the Chinese government how to run its economy. They think that if China's leaders would just hear their cogent arguments, China would change course.
Take, for example, Treasury Secretary Timothy Geithner. In his written testimony at his January 2009 Senate confirmation hearing, he wrote:
More generally, the best approach to ensure that countries do not engage in manipulating their currencies is to demonstrate that the disadvantages of doing so outweigh the benefits. If confirmed, I look forward to a constructive dialogue with our trading partners around the world in which Treasury makes the fact-based case that market exchange rates are a central ingredient to healthy and sustained growth.
Or take Federal Reserve Chairman Ben Bernanke’s advice to China in his November 17 2010 speech. He said:
Third, countries that maintain undervalued currencies may themselves face important costs at the national level, including a reduced ability to use independent monetary policies to stabilize their economies and the risks associated with excessive or volatile capital inflows.... Perhaps most important, the ultimate purpose of economic growth is to deliver higher living standards at home; thus, eventually, the benefits of shifting productive resources to satisfying domestic needs must outweigh the development benefits of continued reliance on export-led growth.
This statement is incorrect in two ways. First, China is not practicing "export-led" growth. It is practicing "mercantilism." If it were practicing export-led growth, its trade would be balanced, but currently it is running trade surpluses of about 5% of its GDP each year. Second, China is not hurting its long-term standard-of-living by practicing mercantilism, it is hurting ours.
Modern Mercantilism
At some point, Geithner and Bernanke and the rest of our arrogant policy makers are going to have to take the time to learn about mercantilism. And they have no excuse now that the key mathematical analysis of modern mercantilism is online, Heng-Fu Zou's 1997 Dynamic Analysis of the Viner Model of Mercantilism, originally published in the Journal of International Money and Finance. Zou is Senior Economist at The World Bank with appointments at both China’s Shenzhen and Wuhan Universities. China’s current policies may be based upon that paper.
Modern mercantilism is based upon the twin goals of mercantilism as explained by University of Chicago economist Jacob Viner: (1) maximizing a country's power through accumulation of foreign assets while (2) maximizing long-term consumption by delaying present consumption in favor of future consumption.
In order to accomplish these ends it places tariffs (and other barriers) upon foreign products while at the same time buying foreign assets (mainly interest-bearing bonds today; gold in the past). In other words, mercantilist governments maximize their power and their people's future consumption through the combination of import barriers and foreign loans.
Zou demonstrated mathematically that Viner’s goals are compatible. First, he found that the more that the mercantilist country was willing to sacrifice present consumption by accumulating foreign assets, the more power the mercantilist government would gain and the more consumption the mercantilist people would have in the long-run. This was the first of the propositions that he demonstrated:
Proposition 1: The stronger the mercantilist sentiment, the larger the long-run consumption and asset accumulation....
The reason for this proposition is quite clear. As a nation highly values its wealth and power in the world, it saves more and consumes less in the short run in order to run a current account surplus and accumulate more foreign assets. More foreign asset holdings means more interest income, which in turn leads to more consumption in the long run. Proposition 1 is a very strong argument for mercantilism if a nation intends to maximize its citizens’ long-run consumption.
Zou also found that the more successfully a mercantilist government applied tariff barriers to foreign consumer products, the more it would gain in wealth and power and its people would gain in long-run consumption. This was the second of the propositions that he demonstrated:
Proposition 2: A permanent increase in the tariff rate raises the total long-run consumption and asset accumulation....
Proposition 2 provides support for the mercantilist protection policy, namely the ‘fear of goods’ (Hecksher, 1955), if attainment of a higher long-run consumption is the national objective. Both proposition 1 and proposition 2 indicate the long-run harmony between wealth and power. Indeed from the mercantilist perspective, ‘there is a long-run harmony between these two ends, although in particular circumstances it may be necessary for a time to make economics sacrifices in the interest of … ‘long-run prosperity’ (Viner, 1991, p. 136). Following an increase in the tariff, short-run consumption will be cut because people invest more in foreign asset. But in the long-run, the increased foreign asset accumulation gives rise to more consumption and more power for the nation.
Zou did not address the effect of mercantilism upon its victims. In fact, he assumed for the purposes of mathematical tractability that the mercantilist country was a small economy with little effect upon its victims. But the effects upon its victims can be predicted as exactly in the opposite direction as the effects upon the mercantilist country. In the short-run the victim countries gain consumption, while in the long-run the victim countries lose both power and consumption.
These effects are quite apparent in the United States of the last 12 years. During the house price bubble from 1998-2006, the United States got more consumption than normal by accepting the mercantilist loans from mercantilist governments. (When a mercantilist government buys another country's financial assets, it is giving that country a loan.) These loans financed first and second mortgages on homes.
Now the United States is trying to maximize current consumption by using loans from China and the other mercantilist governments to finance huge budget deficits. We get more consumption in the present, but become debt ridden at the same time. Eventually the loans have to be paid back in some form or another and so we will get less future consumption. In the meantime the United States government continuously loses power on the world stage.
Back to Bernanke
Bernanke's November 19 speech contained a paragraph what can be either read as a warning to China or as more arrogant advice. If it it is a warning, he is telling China that the United States will not continue to permit mercantilist predations. If it is arrogant advice, Bernanke is telling China that if they prevent American economic growth, they will be hurting themselves. Bernanke said:
First, as I have described, currency undervaluation inhibits necessary macroeconomic adjustments and creates challenges for policymakers in both advanced and emerging market economies. Globally, both growth and trade are unbalanced, as reflected in the two-speed recovery and in persistent current account surpluses and deficits. Neither situation is sustainable. Because a strong expansion in the emerging market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short. Likewise, large and persistent imbalances in current accounts represent a growing financial and economic risk.
If the above paragraph is a warning, then Bernanke is telling China that he will advocate unilateral policies to balance trade if China does not move in that direction. The scaled tariff could be his best option. Its rate goes up when our trade deficit with a mercantilist goes up, down when our trade deficit goes down, and disappears when our trade deficit with that country disappears, it would force China and the other mercantilists to buy our products so that they could export to us.
If the above paragraph is economic advice, then Bernanke has failed to understand mercantilism. Power is one of the twin goals of mercantilism. The Chinese government would like nothing better than to bury us. The eventual result of continuing U.S. inaction in the face of mercantilism is predictable, China will eventually replace the United States as the dominant power on the world stage. Given the nature of the two governments, this means that totalitarianism will replace democracy as the world's dominant political philosophy, all because our economic leaders wouldn't take the time to learn about mercantilism.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I own Chinese yuan through CYB.
http://seekingalpha.com/article/240182-i-m-tired-of-american-economic-leaders-giving-advice-to-china?source=email_the_macro_view