Archive for May 30th, 2012
Oh darn, you mean there were people in the Government — at the CBO, in fact — that see things in a more-reasonable way on the economy, including the threats to it and the acts of certain “banksters” with regard to mortgage scams?
You know, the stuff I’ve been talking about related to MERS and similar things (like robosigning) for the last…. four years?
And which have been dismissed by the government as “not important” and “not material”?
And which a CBO employee tried to warn about, and allegedly was fired for doing so?
Hoh hoh hoh….. now this is a “Get” for Capital Account!
Just remember folks, nobody committed any crimes!
(The solution to people pointing out that in fact lots of people did commit crimes, incidentally, is to fire them!)
Discussion (registration required to post)
Our choice is simple: either continue on the State-cartel path of complexity and rising costs that leads to a death spiral, or re-energize the forces of the market and community.
We are constantly told all our problems are too complex to be addressed with simple “big idea” solutions. Complex problems require complex solutions, we are assured, and so the “solutions” conjured by the Central State/Cartel Status Quo are so convoluted and complex (for example, the 2,319-page Dodd-Frank Wall Street Reform and Consumer Protection Act or the 2,074-page Obamacare bill) that legislators say they must “pass the bill to see what’s in it.” (What If We’re Beyond Mere Policy Tweaks? February 6, 2012)
The real “solution” is to see that complexity itself is the roadblock to radical reformation of failed systems. Complexity is the subterfuge the Status Quo uses to erect simulacra “reforms” while further consolidating their power behind the artificial moat of complexity.
Over the next three days, I will present three “big idea” solutions that cut through the self-serving thicket of complexity. Nature is complex, but it operates according to a set of relatively simple rules. The interactions can be complex but the guiding principles can be, and indeed, must be, simple.
Big Idea One: Radically lower the cost basis of the entire U.S. economy. The cost basis of any activity is self-evident: what are the total costs of the production of a good or service? The surplus produced is the net profit which can be spent on consumption or invested in productive assets (or squandered in mal-investments).
We can understand surplus by way of simple examples. If it costs two barrels of oil to extract one barrel of oil from a well, there is no surplus at all to this activity; rather, it is a losing proposition. If it costs $100 to plow, plant, nurture and harvest $50 of crops, there is no surplus generated by this economic activity.
Anyone pursuing these kinds of zero-surplus activity will soon go broke and be eliminated from the financial “gene pool” of investors.
Central States and cartels by definition face no market forces on their cost basis. Central States (governments) have no competition and so there are no market pressures to contain costs. As a result, governments are intrinsically incapable of radically reducing the cost basis of their activity.
Cartels (the sickcare industry, the defense industry, etc.) by definition profit by fixing prices, not by adapting to competition, and so rising costs are simply shifted to consumers, with the aid of an over-regulating, moat-building “complex” Central State.
I cover this dynamic in depth in my books Survival+: Structuring Prosperity for Yourself and the Nation and Resistance, Revolution, Liberation: A Model for Positive Change.
Unproductive layers of activity are essentially friction within the economy ( How Much of Our Economy Is Essentially Friction? September 20, 2011), and as with a machine, when the friction consumes all the surplus, the machine freezes up. Greece is an excellent example of this dynamic.
As I explain in Resistance, Revolution, Liberation, there are three fundamental forces in society: the State, the market and community (i.e. the non-market social order).
As friction from the State and its crony-capitalist partners, the various cartels, inevitably rises, the surplus left to distribute via entitlements or invest shrinks.
The State has two mechanisms to counter this decline in surplus: it raises taxes on the productive enterprises and people, and redistributes that money to less productive dependents of the State via entitlements. Secondly, it prints money and redistributes the new cash.
Both are short-term expediencies that inevitably lead to collapse. Once taxes skim the economy’s surplus for consumption, there is not enough left over to invest in productive assets that increase productivity. This triggers a death-spiral (positive feedback loop): as productivity stagnates, so does the surplus generated by economic activity. This leads to lower tax revenues, so the State raises taxes on the remaining productive elements, further bleeding the economy of funds that could be invested in future productivity gains.
Printing money debases the purchasing power of the existing currency, and over time this destroys the value of the currency and the wealth of those holding the currency. As people retreat to gold and land, the liquid capital necessary to invest in new ventures dries up, adding to the death-spiral described above.
In essence, the State and its cartels raise the cost basis of getting by from $10,000 to $40,000 by letting unproductive friction absorb all the economy’s surplus. Layers of bureaucracy, paperwork and outright fraud consume roughly half of the funds spent on healthcare in the U.S.–not coincidentally, this aligns with the fact that the U.S. spends twice as much per person on sickcare compared to our developed-world competititors.(The “Impossible” Healthcare Solution: Go Back to Cash July 29, 2009)
The State overcomes this by raising taxes on the productive and printing money. The State’s “solution” isn’t to reduce its own fiefdoms’ spending or dismantle the high-friction cartels: it’s to tax or print $30,000 and send this money to those making $10,000, so they can consume as much as those earning $40,000.
As noted above, consuming the nation’s surplus in consumption and friction starves the nation of market-driven productive investment, which then leads to the death spirals of lower productivity and rising unproductive friction.
The only way to lower the actual cost basis of the economy is to reduce the role and power of the Central State, dismantle its favored cartels and re-empower community and the market forces of innovation and competition.The Central State and its cartels are incapable of innovation or reducing costs because they dominate the market and the community.
Community must play a central role in lowering the cost basis. The market cannot address all problems, though its ideological boosters wear blinders that demand allegiance to nothing but the market.
Community gardens are non-market social orders that enliven and empower communities and neighborhoods, yet their “market value” is negative: on a strictly cost basis, the food produced by agribusiness is cheaper on a kilocalorie/dollar basis than the food raised by community members in their garden. But this calculation is akin to reducing a human to a handful of ash and valuing that person at the market value of the calcium and other minerals in the ash.
Much of value in human life is beyond the market. Agribusiness would rather the State send money to people so they can sit at home “consuming” TV and media and then go out and buy highly profitable packaged food that sickens their bodies and spirits. That is the end result of an economy dominated by the State and cartels: a deeply and perniciously pathological society and economy.
Market forces in housing see the “solution” as wealthy Elites and corporations buying up all the housing and then renting it to recipients of State aid for high rents. Co-ops, co-housing and a host of other community housing solutions that radically lower the cost-basis of housing are rejected because they don’t generate large profits. Their purpose is to lower the cost of housing while greatly enhancing its liveability and non-market value–”assets” that the market simply doesn’t recognize unless they can be exploited for high profit margins.
This is why both the non-market forces of community and the market forces of efficiency and profit must share the economy if the cost basis is to be radically lowered. If people only make $10,000 in the market economy, the State’s solution is to redistribute or print $30,000 so their consumption can equal that of people earning $40,000.
The solution I suggest is to radically lower the cost basis of the economy so those earning $10,000 can live simply and well on what they earn.
This solution does not compute for the Central State and its protected cartels, as they would lose their dominance over the economy. They have chosen the death-spiral for our future, and that’s what we’ll get until we restore some equilibrium between the State, the market and the non-market commmunity.
Charles Hugh Smith – Of Two Minds
John Boehner, the leader of the House Republicans, has promised yet another fight with the White House over the debt ceiling — the limit Congress has placed on the amount the federal government can borrow.
If this sounds familiar, it’s because we suffered through an identical performance last summer. Our analysis of that episode leads to a troubling conclusion: It almost derailed the recovery, and this time could be a lot worse.
Recovery? What recovery?
The US Government has debased your purchasing power by 10% a year for four years running — that is, it has emitted new credit money into the system equal to approximately 10% of the economy for the last four years. If you have a job you’ve managed to gain 7% over the last three years in your wage.
If you don’t see something wrong with this picture you’re not very bright. You’ve lost 33% (compounded) in purchasing power due to monetary debasement by the government over three years’ time but you got 7% back. Unless you went to a different school than I did you’re down 26%, more or less, or one quarter of your purchasing power, over the last three years (and another 8% or so in the 4th!)
Now of course some people have done better, and some worse. But this is the what the average American has seen over the last three years.
Yet Bloomberg publishes OpEds from “Professors” such as Betsey Stevenson who argue that “Republicans are taking the government’s creditworthiness hostage when they threaten not to increase the debt ceiling.”
There is no such thing as the government’s creditworthiness. It’s your money that is being pledged, not theirs — there is no “theirs”!
But refusing to raise the limit wouldn’t free the government of its existing spending obligations. Rather, it would leave the government with no choice but to default on its debts.
The government has no spending “obligations.” Debts are obligations. Entitlements are not. Social, military and other spending is not an “obligation.” Those are political promises and a choice.
Only debt, contractually entered into, is an obligation.
Of course the convenient lie that we have “obligations” is trotted out on this point whenever the debate arises. What’s not talked about is how raising the ceiling is in fact naked shorting the currency and thereby destroying the purchasing power and wealth of every American. It is monetary inflation, and that inflation must show up somewhere.
If there are 10,000 units of production and 10,000 units of currency and credit in the system, and you emit another 1,000 units, every one of the existing 10,000 units is devalued by 10%!
That’s theft and it’s an outrageous fraud to state that this is somehow “good” for the American public or the economy. It most certainly is not.
This is nothing other than a massive tax increase in terms of its impact on the average America. It’s impact is huge — for the average American who pays somewhere around a 20-25% blended Federal Tax rate (including FICA, Medicare and income tax) their effective tax burden has literally doubled over the last three years as a result of deficit spending!
Tax cuts? There have been no tax cuts! There have in fact been massive tax increases imposed on everyone. You, I, everyone. We’ve all had our wealth and income stolen and given to the banksters who gambled in Europe and the United States on bets that soured, and rather than force them to take their losses and perform supervisory functions as required by law so that depositors are not at risk the government regulators refused to act as required by law and now they’re screwing you blind to the tune of more than a trillion dollars a year to prop up these assholes — over $3,000 per person, per year for the last three years has been siphoned off through these policies and given to the likes of Goldman Sachs, Bank of America, Citibank and JP Morgan never mind foreign institutions like Deutsche Bank and Credit Suisse!
There is no solution to this problem to be found down this path; dilution of the consumer’s purchasing power cannot work because the entire premise is that you can “restart” consumer borrowing growth to get leverage expanding again – the precise scam that was in the 1980-2007 timeframe.
How is the consumer going to increase borrowing when you’ve stolen 25% of his purchasing power and intend to steal another 7-10% a year going forward?
He won’t because he can’t. This is the flaw in the scheme and it is exactly the same scheme that was run in Europe and blew up in the face of Greece and now threatens to blow up Spain.
What’s worse is that we’re still playing this game here with pension funds — funds that assume and proclaim the ability to earn 8% in safe forward returns in a world where the ten year risk-free rate (so says the market) is 1.65%. That’s an outrageous and intentional scam; did you notice, incidentally, that the 25% you’ve lost in purchasing power is about the three-year run rate on the difference between the assumed pension return and the actual risk-free return? Guess what — if you have a pension you think you’re going to receive in 5, 10 or 20 years your fund is short the same 25% as you are or it’s exposed to the risk of even greater losses and in fact you’re rather likely to get zero!
The so-called “university professors” and “policy people” who argue a policy path of “more borrowing and continued deficit spending” are traitorous jackasses who deserve to be run out of town on a rail. The firms that employ these people may as well be Bernie Madoff prototypes as their alleged “paths” will end in exactly the same way his “securities deals” did. Universities who hire so-called “professors” that spew this garbage on OpEd pages and allow this sort of mendacious crap to be taught to kids are issuing “degrees” that have the precise value of used toilet paper.
If you bring these people and firms into your life or business you deserve what you get.
We have options in the US today but we won’t have them for long. Right now we are benefiting from people running away from Europe which is about to go prompt critical and into our Treasuries, which leads us to believe we can borrow unlimited amounts of money for 10 years at 1.65%.
That’s a nice thought — but how are you going to pay it back ten years hence? If you’re not, and intend to keep rolling it over, what happens if and when the rollover price is 5% instead of 1.65% — and you can’t make the interest payments at 5%?
This is how Greece went down the drain and it’s what’s facing Spain.
And it is what we will face here if we allow people like Betsey Stevenson to keep putting forward policy pronouncements that fail the fundamentals of 3rd grade arithmetic.
TrimTabs President & CEO Charles Biderman dissects Europe’s “Delay and Pray” and the issues facing state and local governments. He also mentions the ‘f-word’ more than once. (FRAUD!)
TrimTabs Money Blog http://trimtabs.com/blog/
Damnit, how long do we have put up with this crap? Will we have an honest conversation on the facts of the matter related to what’s going on in the banking system — and has been since 2007 and indeed for the last 30 years – before or after we are blown to bits?
A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said.
News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early.
Ok, so where are you going to get the capital, Spain?
You can’t just go out and sell bonds equal to 30% of your GDP and give it to Bankia!
Senior government officials in Madrid argue that bailouts in Portugal, Greece and Ireland have been catastrophic and Spain will not compromise on its refusal to accept a similar form of intervention.
That’s because there has been no recognition of the truth.
Not in Greece, not in Portugal, not in Ireland and not in the United States.
Here’s truth: Government cannot spend more than it taxes.
There is no “if”, there is no “and”, and there is no “but.” All the games played over the last 30 years, which were all frauds and which Bernanke, Paulson, Geithner, Obama, Merkel, Sarcozy and the rest have all been part of are in fact scams.
I will explain why.
Let’s stop, for a minute, using the term “Dollars” or ”Euros”, particularly as it relates to GDP — that is, output of goods and services. This is an arm-waving tactic intended to deceive you, the common man.
Instead we’re going to call them “units.”
Remember, GDP = C (consumption) + I (investment) + G (government spending) + (x – i) (exports less imports, or net exports)
Remember too that each unit of GDP must be bought with one unit of money or credit, and that each unit of money or credit “turns over” some number of times during a period. Since GDP is measured over a year (a convenient period) we’ll measure the “turnover” during that period too. In economics this is called “Velocity.”
What happens if there is more and more credit emitted into the system — faster than output goes up?
That’s simple: The value of each unit of money or credit must go down!
We’ll make it simple by making the numbers smaller but leaving the relationships alone, so you can understand this in a context that relates to your personal life.
In 2000 there were 10,130 units of output in the economy.
There were 27,138 units of money and credit in the economy.
Each unit of output was therefore able to be bought by about 2.68 units of money or credit.
As of the 4th quarter of 2010, there were 14,755 units of output in the economy.
But there were 53,353 units of money or credit. This means you needed 3.62 units of money or credit to buy one unit of output, a direct decrease in your purchasing power of about 35%!
But wait, you protest, wages went up during that time. That’s true. In fact it would appear that you pretty-much kept pace, if you look at FRED and view the hourly earnings numbers. But that’s misleading due to the labor participation rate — it has been falling, which means a lower percentage of working-age people are actually working, and this makes the number look reasonable.
Let’s look instead at median household income, since that reflects everyone.
Median household income in current units (dollars) went from 41,990 in 2000 to 49,445 in 2010, a 17.8% increase. Where did the other half, roughly, of the purchasing power loss that occurred go?
You lost it due to credit expansion. It was stolen from you and the banks are the ones who stole it, with the explicit support and permission of your government. In fact your government has and continues to explicitly hide the truth of what happened and how, even though their own statistics, if you know where to look, make clear exactly what happened!
Your purchasing power as a median household went down in real terms by about 17%, even though you had more “dollars.”
That’s not a small decrease; it’s darn close to a fifth of your purchasing power! It is in fact exactly identical to a rough doubling of the federal tax rate on most middle-income Americans — and you suffered it from 2000 – 2010.
Tax cuts under Bush and/or Obama?
Like hell – your effective tax rate doubled and the money didn’t even go to the government it was siphoned off by the banks!
This happened because your government allowed the private banks to create unbacked credit and debase the currency, skimming off the profits for themselves. Oh sure, some of the people got some of the money. That’s is without dispute (e.g. if you had stocks, for example, you got some of it.) But most people did not.
Now let’s talk about what government has done since and why this cannot work — not here and not in Europe.
Our Federal Government has added roughly $5 trillion in new credit into the system over the last three years and change. That’s approximately $1.5 trillion per year, or about 10% of the nation’s economic output. But FRED says that the total average weekly earnings of all private employers have only risen 7% for the entire three year period, not per year, and this is only if you have a job! If you don’t? Then it’s worse because when one factors in the decline in the labor participation rate the average household probably saw no increase at all!
But 10% credit inflation compounded over three years is a 33% increase. You saw — if you had a job the entire time – 7% of it. Where did the rest go? It too was legally stolen by the banks through the acts of government while claiming to be handing you “free cheese.”
Why are you struggling? Because you’re being lied to. You’ve been serially lied to for the last 30 years. These policies don’t work because it is mathematically impossible for them to do so. At best you can borrow and speculate with the borrowed money, and either have your speculation pay off (as it did for some property speculators who bailed out at the right time) or lose (and go bankrupt entirely.) But that’s not “saving” or “investment”, it’s gambling and if you refuse then your purchasing power gets relentlessly stolen by the banks and your government is the one making it possible.
It is not about left, right, Democrat, Republican or anything else.
It is about mathematical fact — the debasement of your purchasing power is intentional and that purchasing power is being stolen to satisfy a bunch of banksters who “need” your production to avoid having to immediately recognize that they made a bunch of bad loans.
Without those funds they would all be out of business!
Worse, every single politician who refuses to speak to this issue is stealing from you right now and every candidate who refuses or fails to speak to this issue is proposing to steal from you if you elect him or her.
All of them — Republican, Democrat, Left, Right, Libertarian, Socialist, whatever.
Is this just? Exactly how is it just? You didn’t force these banks to make a bunch of bad loans! You did nothing of the kind. If you participated and took a bad loan or your company did it went out of business or you went bankrupt — or you have bill collectors hounding you at every turn.
At the same time your government is robbing you so the people who made that decision to lend foolishly can remain in business and steal some more!
This same thing is going on in Spain, Portugal, Greece, Ireland and the United States.
Why do you think JP Morgan was selling off “good” assets to cover their “loss” on their trading desk from the “whale” that was “inconsequential” (or so we were told)? Don’t they have $2 billion in operating profits they could cover that loss with? Why do they need to sell prime assets? Is it because they have no actual money?
Wake up folks.
There is only one way to resolve this problem. Government cannot spend more than it takes in through taxation.
Unbacked credit cannot be allowed to expand without bound. Credit and money, on balance, cannot expand more than GDP does. That’s economic balance. When there’s a recession credit and money must contract to match the decline in GDP!
That’s exactly backward from what you’re told but it’s true and it’s been proved. In 1920/21 that’s exactly what The Fed and The Federal Government did. We had a nasty deflationary recession. The Fed removedliquidity, forcing interest rates up, and the Federal Government balanced the budget, ceasing deficit spending.
The economy cleared and recovered in 18 months!
Now? We’ve been at this for nearly four years and there has been no recovery. Europe is on the edge of detonation and so are we. We have not forced the bad loans into the open and defaulted them; instead we have people living in zombie homes with a zombie mortgage they haven’t paid on in three years and the bank won’t foreclose because it then must recognize the loss, and if it does it goes bankrupt. We’re told the economy and employment are “recovering” but the labor participation rate has not moved off the floor and the number of people on food stamps is at a record high.
It’s all a lie.
This game cannot continue. We are seeing wild gyrations in the world currency and asset markets as one day everything is “ok” as the Ponzi gets another day and the next literal Armageddon threatens.
Is this how you want to live? Juggling jars of nitroglycerin hoping you never drop one? All this so a bunch of fat-cat banksters don’t have to face the music for their acts, and our politicians can continue to lie to you and let them steal your wealth and earnings year by year, driving you into abject poverty?
ARE YOU NUTS?
Well, I hope not, but if you are, rest assured — arithmetic doesn’t care if you want to continue with this charade or not. For each day you refuse to rise from your chair, turn off American Idol and demand that the scams and schemes stop, that the budget be balanced now and that the banksters eat their own cooking the worse the contraction in the economy and the inevitable damage to your personal standard of livingwill be.
It is your choice Americans, Greeks, Spaniards, Portuguese, Italians, English and Irish.
There is no way to avoid what you’ve done. What we’ve all done.
And what we must stop doing!
We can only stop it from getting worse, accept that which we must face, and force those responsible to pay for their acts.