- Russian Fighter Jet Flies Within 50 Feet Of US Spy Plane Over Russian Naval Base
Tensions continue to escalate between the US and Russia. As a reminder, Russia conducted several close encounter fly-bys when first a Russian Su-24 “buzzed” the US missile destroyer USS Donald Cook in the Baltic Sea, and just days later flew within 50 feet of a US recon plane also flying over the Baltic Sea. The U.S. quickly responded and complained vocally to Russia, followed quickly by the first deployment of US F-22 stealth fighter to Romania, in close proximity to both the Black Sea and 400 km from the Russian military stronghold of Sevastopol on the Crimean Peninsula.
It now appears there was a third incident involving an extremely close encounter. According to the Free Beacon, a Russian MiG-31 jet flew within 50 feet of a U.S. surveillance aircraft in Northeast Asia last week, in what was dubbed “Moscow’s latest aerial saber-rattling” against American ships and planes by US defense officials.
Russian Mig-31 planes
“On April 21, a U.S. Navy P-8 Maritime Patrol reconnaissance aircraft flying a routine mission in international airspace was intercepted by a MiG-31 Russian jet in the vicinity of the Kamchatka Peninsula,” Cmdr. Dave Benham, a spokesman for the Pacific Command, told the Washington Free Beacon. While Benham added that the intercept was “characterized as safe and professional” there was more to the story as another defense official familiar with the MiG-31 intercept said the jet flew within 50 feet of the P-8, a maritime patrol and anti-submarine warfare aircraft.
The WFB adds that the incident took place near the Russian city of Petropavlovsk-Kamchatsky, a port located on the southeastern end of the peninsula, which explains why Russia may not have been particularly enthused with a US spy plane flying virtually on top of its territory.
Kamchatka is Russia’s main military hub in the Pacific and the focus of a buildup of Russian military forces that Moscow has said is intended to match the U.S. military rebalance to Asia. Several military bases are located there, along with a major naval base. The peninsula is also the main impact range for Russian missile flight tests launched from the central part of the country.
Worse, the P-8 flight appears to have been part of an effort to spy on Russia’s deployment of a new missile submarine at Petropavlovsk, and since clearly the US was fully aware that Russia would respond unfavorably to this encroachment one wonders if the US wasn’t merely acting to provoke its Russian counterparts into something more than merely a “safe and professional” response.
The Russian navy’s Pacific Fleet conducted exercises in the Sea of Japan on April 22, a day after the P-8 was intercepted, according to a Twitter search. Russian naval forces from Kamchatka also carried out missile and artillery fire exercises in recent days. The WFB adds that the military activities may have also been a target of the P-8 surveillance operations.
In other words, the US was deploying spy planes in the immediate vicinity if not over Russian territory and was surprised when Russian engaged with an appropriate response. One wonders just how the US would react if Russian spyplanes were flying in the vicinity of Norfolk or San Diego.
Meanwhile the farce continued: on Capitol Hill, Defense Secretary Ash Carter told a Senate hearing on Wednesday that the recent incidents are an indicator of “tension that has built up in Europe especially over the last couple of years since events in Crimea and Ukraine.” Incident such as US spyplanes flying over critical Russian bases and being surprised by the reaction.
On the recent buzzing of the Cook, Carter said “it is unprofessional behavior, and whether it is encouraged from the top, whether it was encouraged from higher up or not I can’t say. But we do expect it to be discouraged from higher up from now on,” he added. “These pilots need to get the word, ‘Hey, knock it off. This is unprofessional. This is dangerous. This could lead somewhere.’”
Indeed: and the next time Carter wants it to certainly “lead somewhere”, he should send not one spy plane but several F-22 on a routine fly by in the same area only to be surprised by the Russian reaction.
Meanwhile, retired Navy Capt. Jim Fanell said the close-in MiG-31 intercept is significant. “The 50-foot closest point of approach by Russian Far East MiG-31 Foxhound interceptors to a U.S. Pacific Fleet P-8 reconnaissance flight is an indicator the Russian Navy has likely transferred their first Dolgorukiy-class SSBN to the Pacific Fleet,” Fanell said, using the acronym for ballistic missile submarine.
The need to monitor new Russian missile submarines adds to the already overloaded requirements for U.S. submarine forces. “This clearly represents another clear and present danger to U.S. national security,” Fanell said. The “nation needs more ballistic missile and fast attack nuclear submarines, and fast.”
Meanwhile, as the US builds up its ballistic missile arsenal and attack subs, it will just have to make do with more such incursions in close proximity to Russia and be amazed at the “provocative” response.
- This Is Where America's Runaway Inflation Is Hiding
The Census Bureau released its quarterly update on residential vacancies and homeownership for Q1 which is closely watched for its update of how many Americans own versus rent. It shows that following a modest pickup in the homeownership rate in the prior two quarters, US homeowners once again posted a substantial decline, sliding from 63.8% to 63.5%, and just 0.1% higher than the 50 year low reported in Q2 2015.
And perhaps logically, while homeownership continues to stagnate, the number of renters has continued to soar. In fact, in the first quarter, the number of renter occupied houses rose by precisely double the amount, or 360,000, as the number of owner occupied houses, which was a modest increase of 180,000. This brings the total number of renter houses to 42.85 million while the number of homeowners is virtually unchanged at 74.66 million.
A stark representation of the divergence between renters and owners can be seen in the chart below. It shows that over the past decade, virtually all the housing growth has come thanks to renters while the number of homeowners hasn’t budged even a fraction and has in fact declined in absolute numbers. What is obvious is that around the time the housing bubble burst, many Americans appear to have lost faith in homeownership and decided to become renters instead.
An immediate consequence of the above is that as demand for rental units has soared, so have median asking rents, and sure enough, according to Census, in Q1 the median asking rent at the national level soared to an all time high $870.
Which brings us to the one chart showing where the “missing” runaway inflation in the US is hiding: if one shows the annual increase in asking rents, what one gets is the following stunning chart which shows that while rent inflation had been roughly in the 1-2% corridor for two decades, starting in 2013 something snapped, and rent inflation for some 43 million Americans has exploded and is currently printing at a blended four quarter average rate of just over 8%, the highest on record, and 4 times higher than Yellen’s inflationary target.
So the next time Janet Yellen laments the collapse of inflation, feel free to show her this chart which even she can easily recreate using the government’s own data (the sad reality is that rents are rising even faster than what the governmet repoirts) at the following link.
- Why The US Output Gap Means The 10 Year Is Going Below 1%
Submitted by Kessler Companies
Output Gap Update – Q1 2016
Among our favorite indicators to write about is the GDP output gap. Today we update it with the latest Q1 2016 GDP data. We’ve written about it many times in the past (some recent examples: 09/30/2015, 12/27/2014, and 06/06/2014). It is the standard for representing economic slack in most other developed countries but is usually overlooked in the United States in favor of the gap between the unemployment rate and full employment (also called NAIRU (link is external)). This is partially because the US Federal Reserve’s FOMC has one half of its main goal to promote ‘full employment’ (along with price stability) but it is also partially because the unemployment rate makes the economy look better, which is always popular to promote. In past US business cycles, these two gaps had a close linear relationship (Okun’s law (link is external)) and so normally they were interchangeable, yet, in this recovery, the unemployment rate suggests much more progression than the GDP output gap.
The unemployment gap now, looked at on its face, would imply that the US is at full employment; i.e., the unemployment rate is 5% and full employment is considered to be 5%. Thus, this implies that the US economy is right on the verge of generating inflation pressure. Yet, the unemployment rate almost certainly overstates the health of the economy because of a sharp increase over the last many years of unemployed surveyee’s claiming they are not involved in the workforce (i.e. not looking for a job). From the beginning of the last recession, November 2007, the share of adults claiming to be in the workforce has fallen by 3.0% of the adult population, or 7.6 million people of today’s population! Those 7.6 million simply claiming to be looking for a job would send the unemployment rate up to 9.4%!. In other words, this metric’s strength is heavily reliant on whether people say they are looking for a job or not, and many could switch if the economy was better. Thinking about this in a very simplistic way; a diminishing share of the population working still has to support the entire population and without offsetting higher real wages, this pattern is regressive to the economy. The unemployment rate’s strength misses this.
Adding to the evidence that the unemployment rate is overstating the health of the economy is the mismatch between the Bureau of Labor Statistics’ (BLS) household survey (unemployment rate) and the establishment survey (non-farm payroll number). Analyzing the growth in non-farm payrolls over the period of recovery (and adjusting for aging demographics) suggests that the US economy still has a gap to full employment of about 1.5 million jobs; this is the Hamilton Project’s Jobs Gap (link is external).
But, the labor market is a subset of the economy, and while its indicators are much more accessible and frequent than measurements on the entire economy, the comprehensive GDP output gap merits being part of the discussion on the economy. Even with the Congressional Budget Office (CBO) revising potential GDP lower each year, the GDP output gap (chart) continues to suggest a disinflationary economy, let alone a far away date when the Federal Reserve needs to raise rates to restrict growth. This analysis suggests a completely different path for the Fed funds rate than the day-to-day hysterics over which and how many meetings the Fed will raise rates this year. This analysis is the one that has worked, not the “aspirational” economics that most practice.
In an asset management context, US Treasury interest rates tend to trend lower when there is an output gap and trend higher when there is an output surplus. This simple, yet overlooked rule has helped to guide us to stay correctly long US Treasuries over the last several years while the Wall Street community came up with any reason why they were a losing asset class. We continue to think that US Treasury interest rates have significant appreciation ahead of them. As we have stated before, we think the 10yr US Treasury yield will fall to 1.00% or below.
- Visualizing China's Rising Dominance In Trade (In 4 Shocking Maps)
We often use big, overarching ideas to help us understand the world and the opportunities contained within. These narratives, which can change over time, are used to create context. They give us a frame of reference for comprehending the news and events that affect our outlook on things.
As VisualCapitalist's Jeff Desjardins notes, China’s economic prowess is one of these new paradigms that has emerged, but many people still can’t really wrap their heads around the scale or scope of it.
It’s happened suddenly, and the ramifications are extremely relevant to our investments and understanding. Here’s four maps on China’s trade dominance that will help you think differently about the world:
China is the world’s #1 trade partner
Image courtesy of: Connectography
The United States is the number one trading partner for 56 countries, with important relationships throughout North America, South America, and Western Europe.
Meanwhile, China is the top partner for 124 countries, dominating trade in Asia, Eastern Europe, Africa, and Australia.
China’s Sphere of Influence
This map shows the portion of trade conducted by each country with China in Southeast Asia.
Image courtesy of: Stratfor
The influence that China has with nations in Southeast Asia is significant. Most trade is in double-digit percentages, and China views this as its immediate sphere of influence. Throughout history, territories in this region would even pay tribute to China to gain access to trade.
“In East Asia’s tribute system, China was the superior state, and many of its neighboring states were vassal states, and they maintained a relationship of tribute and rewards,” writes Liu Mingfu in The China Dream, a popular book about China’s plans to return to power.
Maintaining influence in Southeast Asia is part of the reason that Beijing is posturing in the South China Sea. In fact, China’s coastguard is growing so fast that in 10 years it will have more tonnage than all of the coastguards in Southeast Asia, the United States, and Japan combined.
Building a New Silk Road for Chinese Trade
Image courtesy of: Council of Foreign Relations
China seeks to increase trade ties with Asia and Europe even further by building a new Silk Road that puts even Marco Polo’s route to shame.
The Chinese transcontinental network, a massive infrastructure project pegged for completion by 2025, is expected to bring down overland travel time from Beijing to London to just two days. Currently, it takes 15 days for the journey.
The project’s aim is to shorten the time of bulk consumer-goods transport to Europe, while unlocking the economic potential behind Eurasian cities from Almaty to Tehran. The new Silk Road will include at least one high-speed line that goes 320 km/h, and the network will help to link up 70% of the world’s population in roughly 40 countries.
Infrastructure Override
You may have heard of the AIIB (Asian Infrastructure Investment Bank), which was officially launched at the end of last year. Initially proposed by China, the bank now has over a $100 billion of capitalization and 57 founding member states.
Image courtesy of: Reuters
While this shows China’s push for infrastructure especially to coincide with its new Silk Road, there is another very interesting detail: Beijing controls 26.06% of the votes, essentially giving it veto power as most bank decisions need 75% of the votes to pass.
In other words, only infrastructure projects that benefit Chinese trade will likely get the nod from Beijing.
- Why Is JPM's "Quant Guru" Suddenly Worried About The "Endgame"
When JPM quant Marko Kolanovic released his latest report today, we were expecting him to read his latest insight on the positioning of quant funds, on the relative imbalance of risk parity, or perhaps whether market gamma was suggesting that the market is poised for an inflection point, either lower or higher. Instead, we were surprised to read an extended analysis looking at how trapped the “out of options” central banks are, what the next steps are for the global economy, how the market is now as overvalued as it was before the 2000 crash, how rising rates “would make the current S&P 500 level look like a bubble”, and the exhaustion of all available policy options, which he dubbed the “endgame.” To wit:
If investors lose confidence that the debt can ever be repaid, they will reduce their holdings, increasing the cost to governments or inviting more central bank buying. This can eventually result in the devaluation of all currencies against real assets such as gold, high inflation or even outright defaults (as was the case in Greece). If such a trend develops in one of the large economies, it could have far-reaching consequences.
We were most surprised by Kolanovic’s strong case to buy gold, although considering it comes just one week after a Pimco economist dared to propose that central banks should monetize gold next in an attempt to massively boost inflation expectations (while send the price of gold to $5,000), perhaps we are not that surprised.
* * * .
We are confident readers will find it just as an engaging read.
From JPM’s Marko Kolanovic
Central banks, Inflation, and Debt Endgame
With the Fed and BoJ meetings behind us, markets are increasingly accepting that central banks are nearly out of options. Central banks can hardly raise interest rates, and there is a growing realization that negative interest rates simply make no sense (see analysis below). Unconventional approaches of buying corporate bonds (ECB) and stocks (Japan) so far have not produced significant results, and run the risk of tainting these assets for private investors. The next attempt to boost the economy or prevent a potential market crisis will likely need to be accomplished by fiscal measures. Fiscal measures may be employed even if there is no crisis (e.g., post US election), and over the next months investors will look closely at potential measures and their impact on equity markets, commodities (potential positive impact on certain sectors – e.g., from infrastructure spending), and the value of debt and currencies (likely negative impact).
Before we discuss the implications and risks that could result from such developments, we present an analysis that suggests that central banks face the risk of entrenched low inflation (rather than the risk of high inflation) and likely will not be able to raise rates meaningfully. Figure 1 shows the cumulative PCE (relative to the Fed’s 2% target) that shows significant and persistent undershooting over the past 8 years. Since 2000, the cumulative undershoot is 6% on the core PCE measure. Over the past 4 years, core PCE undershot by more than 1.5 % (and headline by 3.5%, the difference being largely due to the 2014 decline in energy). This undershooting is fairly significant: over the past 2 years headline PCE undershot by 3% (2 standard deviations) and Core by 1% (1 standard deviation). What should be more worrying is that PCE readings historically show strong persistence (serial correlations). This means that a low core PCE reading today implies that PCE is more likely to stay low in the future as well (e.g., core PCE reading today has 80% correlation with the reading of 12 months ago). Our quantitative model of core PCE indicates the most likely level is still below the Fed’s 2% target and continuing to undershoot over the next 3 years.
In that context, the Fed should welcome any overshooting of the target as that is the only way it can end up closer to the stated 2% target over any meaningful time period (e.g., 2, 5, or 10 years). For instance, overshooting the target over the next 2-3 years by ~0.5% each year (or over the next 1-2 years by ~1%) would put the inflation averages within the margin of the stated 2% target. The problem is that it simply may not happen, and inflation breakeven rates in the US, Europe and Japan point to the same direction.
Over the past 20 years, PCE overshoots (undershoots) tended to coincide with S&P 500 rallies (declines). However, over the past 8 years, PCE kept trending lower, while the market rallied strongly. While the Fed’s QE programs did not prevent inflation to persistently undershoot the 2% target, a potential byproduct was inflated S&P 500 valuations. Indeed, many clients ask us how much of the S&P 500 rally can be attributed to near zero rates and can be at risk should rates continue to rise? Assuming the S&P 500 returning to median P/E levels for comparable rate and inflation environments in the past, it would suggest a 5%-15% de-rating of the equity multiple should rates continue to rise at a moderate pace and assuming no increase of recession probability. If rates increase the probability of recession, it would likely result in a larger market pullback, as both earnings and multiples would suffer.
Should the problem of low inflation go away (e.g., if there is an oil price shock, or upside growth surprise) and there is need to raise rates more significantly, the Fed will face another problem. That is how to hike but not push the equity market significantly lower. The reason is that with current levels of leverage, rates behave like a ratchet (easy to turn lower, but hard to turn higher without breaking the gears). Over the years of ZIRP, asset prices and business models adjusted to low rates. For example, home buyers make decisions based on monthly mortgage payment levels, and S&P 500 companies (ex-financials) have the highest leverage since 2007 (when leverage was at record levels), with some of the debt used to buy back shares.
Indeed, the current S&P 500 P/EBITDA ratio is at the same level as shortly before the market crash of 2000. The distinction between current market valuations being reasonable vs. bubble-like is due to low interest rates (as well as lower effective tax rates). Significant increase of rates (e.g., to levels implied by 2018 Fed dots) would make the current S&P 500 level look like a bubble.
As we argued above, it is hard to see short-term rates moving meaningfully higher any time soon. We also think that rates cannot go much lower either as negative rates fundamentally don’t make sense (issues such as physical storage of cash can make negative yields viable only over short periods of time). So the attempt to boost growth or fight a potential crisis will likely need to be accomplished by fiscal measures.
However, fiscal measures also bring an increased level of government debt and increased market and credit risk of owning government bonds. These risks are in addition to current low yields and a less favorable correlation of bonds to risky assets. The unfavorable risk-reward of government bonds near the point of zero yields will likely prevent asset managers from increasing holdings of government bonds. If there are no private buyers, governments can still place their bonds with central banks. This trend is of course already in place – for instance, the Fed’s holdings of US Treasuries increased from ~18% in 2008 to ~34% today.
Increased government spending, financed by central banks could indeed create inflation, but will further elevate the problem of debt viability. If investors lose confidence that the debt can ever be repaid, they will reduce their holdings, increasing the cost to governments or inviting more central bank buying. This can eventually result in the devaluation of all currencies against real assets such as gold, high inflation or even outright defaults (as was the case in Greece). If such a trend develops in one of the large economies, it could have far-reaching consequences.
Once fiscal measures replace monetary measures, we think investors will increasingly focus on the dynamics of government debt and currency valuations, particularly in Japan and the US.
How can an investor hedge against the risk of these potential developments? One can reduce allocation to bonds and increase allocation to real assets and equity sectors related to real assets. Investors can also move away from bonds that are not backed by reserve assets such as currency reserves or gold. The ability of a government to pay back debt and at the same time as maintaining the value of the currency should be measured by hard assets for which transfer to bondholders is politically viable. For example, during the Greek crisis, the option of selling islands owned by the government was off limits. On the other hand, governments can easily part with assets with no national or cultural attachments such as FX reserves or gold, as was recently the case with Ukraine and Venezuela.
- Junk Economics: Michael Hudson Rages "Wall Street Has Taken Over The Economy.. & Is Draining It"
Submitted by Annie Zhou via FinancialRepressionAuthority.com,
FRA Co-founder Gordon T. Long is joined by Professor Michael Hudson in discussing his concept of the FIRE economy and its influence on the production and consumption economy, along with some of his writings.
Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Killing the Host (2015), The Bubble and Beyond (2012), Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971), amongst many others.
ISLET engages in research regarding domestic and international finance, national income and balance-sheet accounting with regard to real estate, and the economic history of the ancient Near East. Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law.
Full Interview:
Abstract:
FIRE ECONOMY
FIRE is an acronym to the Finance, Insurance, and Real Estate sector. Basically that sector is all about assets, not production and consumption. Most people think of the economy as being producers making goods and services and paying labor to produce them, and then labor is going to buy the goods and services. But this production and consumption is rife in the asset economy of who owns assets and who owns other things.
The Finance, Insurance, and Real Estate sector is dominated by finance. For instance, 70-80% of bank loans in North America and Europe are mortgage loans against real estate. The only way of buying a home or commercial real estate is on credit, so the loan to value ratio goes up steadily, banks lend more to the real estate sector, and real estate is worth whatever banks are willing to lend against it.
As banks loosen credit terms, lower interest rates, take lower down payments and basically lower amortization rates, interest only loans, they’re going to lend more hand more against property.
“Property’s bid up on price, but all of this rise in price is debt leverage.”
A financialized economy is a debt leveraged economy, whether it’s real estate or insurance or just living, and debt leveraging means a larger portion of assets are represented by debt, raising debt-equity ratios, but also that more and more of people’s incomes and tax revenue is paid to creditors. So there’s a flow of revenue from the production and consumption economy into the financial sector.
WE’RE STILL IN CAPITALISM, NOT CREDITISM
There’s a huge amount of gross savings, about 18-19% of the US economy, coded in part in debt. The savings that are lent out to borrowers are debt. So you have the 1% lending out their savings to the 99%, but the gross savings are higher.
“Every economy is a credit economy.”
“The IMF has this Austrian theory that pretends money began as barter and capitalism operates on barter, and this is a disinformation campaign. This is a very modern theory that is basically used to say “oh, debt is bad”, an what they really mean is that public debt is bad, the government shouldn’t create money or deficit, and you should leave it all to the banks who should somehow run off debt and in-debt the economy”.
“You can usually ignore just about everything the IMF says, and if you understand money you’re not going to be hired by the IMF.
They impose austerity programs that they call “stabilization programs” that are actually destabilization programs, almost wherever they’re imposed.
“When you have an error repeated year after year, decade after decade, it’s not really insanity doing the same thing thinking it’ll be different. It’s sanity. It’s doing the same thing thinking the result will be the same again and again.”
The result will be austerity programs making the budget deficit even worse. The successful era of monetarism is to force countries to have self-defeating policies that end up having to privatize their natural resources, public domain, public enterprise, their communications and transportation, and sell it off.
Everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that’s all rejected in favor of a rentier class evolving into an oligarchy. Financiers in the 1% are going to pry away the public domain from the government and privatize it so that they get all of the revenue for themselves. It’s all sucked up to the top of the pyramid, impoverishing the 99%.
“As long as you can avoid studying economics, you know what’s happened. Once you take an economics course you step into the brainwashing of an Orwellian world.”
KILLING THE HOST
Finance has taken over the industrial economy. Instead of banks evolving from usurious organizations that leant to governments, finance was going to be industrialized. They were going to mobilize savings and flow it back into financing the means of production, starting with heavy industry. In Germany in the late 19th century, banks worked with government and industry in a kind of triangular process. But that’s not what’s happening now. After WW1 and especially after WW2, finance reverted to its pre-industrial form and instead of allying themselves with industry, they allied with real estate and monopolies because they realized they can make more money off real estate.
You had David Ricardo arguing against the landed interest in 1817. Now the banks are all in favor of supporting land rent, knowing that today people can buy and sell property, renters are paying interests, and they’re going to get all of the rent.
“You have the banks merge with real estate against industry, against the economy as a whole, and the result is that they’re a part of the overhead process, not part of the production process.”
THE WALL STREET ECONOMY
“The Wall Street economy has taken over the economy and is draining it.”
Instead of the circular flow between producers and consumers, you have more and more of this flow being diverted to pay interest and insurance and rent. In other words, to pay the FIRE sector, most of which is owned by the 1%. The agency is active politicking by the financial interests and the lobbyists on Wall Street to obtain all of the growth of income and wealth for themselves, and that’s what happened in America and Canada since the late 1970s.
INVESTMENT STRATEGIES FOR TODAY
What all the billionaires and heavy investors do is they’re simply trying to preserve their wealth. They’re not trying to make money, they’re not trying to speculate, and if you’re an investor you’re not going to outsmart the billionaires because the markets are basically fixed. It’s the George Soros principle.
“If you have so much money, billions of dollars, you can break the Bank of England. You don’t follow the market, you don’t anticipate it, you actually make the market and push the market up.”
You have to be able to control the prices and you have the insiders making money but the investors are not going to make money.
The Canadians don’t buy stocks until they’re up at the very top and then they lose all the money, and finally when the market’s all the way at the bottom the Canadians begin selling because they can see a trend, and then they miss the upswing.
“J” IS FOR JUNK ECONOMICS
“It begins as a dictionary of terms just so I can provide people with a vocabulary. The vocabulary that is taught to students today, used by the mass media and government spokesmen, is basically a set of euphemisms. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that’s happening. For instance, “business cycles”. Nobody in the 19th century used “business cycle”. They spoke about “crashes”. They know that things go up slowly and then plunge very quickly. It was a crash, not the sine curve you have in Josef Schachter’s business cycle. A cycle is something that is automatic, and if it’s a cycle then you’d think “oh, okay, everything that goes up will come down and everything that goes down will come up, just wait your turn.” And that means you should be passive. That is the opposite of everything that’s said in classical economics in the progressive era, when they realized that economies don’t recover by themselves”.
“You need the government to step in, you need something exogenous, as the economists say. You need something from outside the system to revive it.”
This idea of the business cycle analysis is, somehow you leave out the whole role of government. If you look at neoliberal and Austrian theory, there’s no role of government spending or public investment. And the whole argument of privatization, for instance, is the opposite of what was taught in American business schools in the 19th century.
The first professor of economics at the Wharton School of Business, Simon Patten, said public infrastructure is a fourth factor of production but its role isn’t to make a profit. It’s to lower the cost of public services and basic inputs to lower the cost of living and cost of doing business to make the economy more competitive.
“The privatization of this adds in interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions, and obviously bills all of these financialized charges into the price system and raises the cost of living and doing business.”
MORE ON FIRE ECONOMICS
We’re going into a debt deflation and the key is to look at debt. If the economy has to spend more and more money, then the reason he economy isn’t recovering isn’t simply because this is a normal cycle.
“It’s not because labour is paid too much, it’s because people are diverting more and more of their income to paying their debts, so they can’t afford to buy goods.”
Markets are shrinking, so real estate rents are shrinking, and profits are shrinking. Instead of using earnings to reinvest, hire more labor to increase production, companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take their revenue in the form of bonuses and stocks and live in the short run.
“They’re all setting up to take the money and run, leaving the companies are bankrupt shells, which is pretty much what hedge funds do when they take over companies.”
The financialization of companies is the reverse of everything classical economists were saying. They can get wrap themselves in this cloak of classical economics by dropping history of economic thought from the curriculum. Following the banks and the Austrian school of the banks’ philosophy, that’s the road to serfdom. That’s the road to debt serfdom.
“It lets universities and its government be run by the neoliberals, and they’re a travesty of what real economics is all about.”
- China Bond-Sale Cancellations Soar As BofA Warns "Default Risk Is Mispriced"
While BofA’s base-case calls for “no crisis,” the soaring levels of bond-sale cancellations hitting the non-government credit markets is starting to make Asia strategist David Cui nervous…
Year-to-date, 241 non-government bond issuances had been cancelled or postponed; 120 so far in April alone, vs. 315 in total in 2015 (Chart 1). At this stage, the situation appears manageable – in April month-to-day, issuers successfully sold 709 bonds (worth Rmb1.04tr), so the success rate is still above 85%. That said, if, contrary to our expectation, the bond market indeed corrects sharply, finances of developers, banks, brokers, industrials and utilities may suffer disproportionally, by our assessment, because they are highly geared and they have heavily relied on bonds recently.
Bond default risk is mispriced: A perceived implicit government guarantee on bonds and other moral hazards in the shadow banking sector, including wealth management products, is largely behind the mispricing, in our view. There also appears to be noticeable bond-rating inflation, in our opinion.
And the wall of maturing debt that will need to be rolled/refinanced is about to peak…
Especially troubling for energy, industrials, and materials companies who are about to face a dramatic drop in their underlying commodity valuations…
BofAML’s base case is no crisis over the next few months, but risk exists: We expect the government to inject enough liquidity and to bail out enough bonds to prevent a credit crunch in the bond market this round. However, the risk exists that the government could mismanage. Also, restrictions on how much the government can loosen and stimulate are getting tighter, in our view, due to the high debt level, the pressure on RMB and, possibly, inflation/asset speculation risk.
- "Why Our Children Should Hate Us" – Read The Lance Simmens Article Banned By The Huffington Post
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Although Lance Simmens has been intimately involved in public life for several decades, you’ve probably never heard of him. As such, a little introduction is needed.
As mentioned, Lance Simmens’ career was spent in public policy. Specifically, he worked for two U.S. Presidents as well as a couple of senators and governors. Since retirement, he’s been a prolific writer, publishing 180 articles at the Huffington Post over the past 8 years. As such, it came as a great shock to him to discover that one of his recent articles was removed by the Huffington Post shortly after publication. It was the first article ever rejected by the online publication, and the unacceptable subject matter was nothing more than a positive review of the banned everywhere documentary VAXXED.
Here’s Lance Simmens describing the ordeal in a recent interview:
He mentions being locked out of his account, but it seems to have been reinstated since I came across a new piece published April 22 titled, Can Berners Become Trumpeters?
His VAXXED article; however, remains missing in action. As such, I bring you the banned Huffington Post article titled, Why Our Children Should Hate Us:
Vaxxed, the controversial documentary alleging a direct causal relationship between vaccines and exponential increases in autism amongst children is a deeply disturbing and hence critically important piece of work that will cause many sleepless nights for parents of infants everywhere.
I had the honor of both watching the film and participating in a discussion afterwards with its Producer, Del Bigtree and Director, Dr. Andrew Wakefield. It is a must see film and deserves to serve as a catalyst for a national discussion of the role of mandatory vaccines for children and the role of the pharmaceutical industry in government decision-making.
What is equally disturbing, however, is that the film represents another in a cascade of documented allegations calling to task not only the corruption of government regulatory agencies but the corruption of science and scientific method itself. And to the extent that the current Presidential election contest has sparked virulent dissatisfaction with our elected leadership and the institutions of government, we must take this opportunity to seriously question what many had taken for granted: namely, that government has as its most solemn mission the protection of public health, safety and welfare. The film carefully documents decisions by the Centers for Disease Control that lend credence to systemic corruption.
As a father of two millennials, I have been bombarded with what has turned out to be a warranted cynicism, criticism, and rejection of government. As one who devoted nearly 40 years to the promotion of public service and government, I have come to reassess my initial reluctance to such criticisms. The kids have every right to be cynical and critical and as hard as it is for parents to accept it, probably know more than we do.
The corruption of science and scientific method has manifested itself most prominently in recent years with a spate of attempts to deny the existence of global climate change and the role that continued fossil fuel usage plays in accelerating it. This, of course, finds refuge in the stalling tactical maneuvers perfected by the tobacco industry over a half century ago. These “Merchants of Doubt” cast an effective smoke screen that effectively blurs rational thought by an unsuspecting public that would much rather leave it to the experts. And the experts on protecting the public are those we elect to steer the ship of state.
But of late we have seen spineless political chicanery, which I must sadly admit is totally bipartisan, when it comes to issues like fracking and the substitution of natural gas as a purportedly transitional fuel to bridge the gap between coal and renewables. What, in essence, we are doing is substituting one form of greenhouse gas, carbon dioxide with its long-term atmospheric consequences, with a far more potent heat-trapping gas, methane, in the short- and intermediate-term. This is fossil foolishness that will sentence our kids and grandkids to a lifetime of gut-wrenching and maybe irretrievably lesser quality-of-life choices. But the effects will not show up until after those making the decisions have long left their lofty perches within the government.
Fracking is contaminating water supplies and the air we breathe, is causing public health problems and facilitating earthquakes in places that have never even had earthquakes in recorded history, yet the regulatory responses are negligible. While New York State maintains a moratorium on fracking its neighbor Pennsylvania continues to put communities at risk. California—with its tough-talking Governor Jerry Brown loudly decrying climate change and promising to be a world leader on mitigation strategies—is essentially missing in action when it comes to regulating fracking in the Central Valley and even within the city limits of Los Angeles. The inadequacy of California’s regulatory body to place the citizens’ health and safety above industry considerations borders on criminal.
We all witnessed the BP disaster in the Gulf of Mexico, and its dastardly cousin in Porter Ranch, California, that has been described as BP on land, the release of nearly 100,000 metric tons of methane from a leaking natural gas storage well. Yet we merrily proceed to push forward with government-subsidized fossil fuel production policies that benefit the richest corporations known to mankind.
We see government failure and most likely criminal negligence if not outright prosecutable actions on behalf of government officials with regard to the contaminated drinking water in cities like Flint, Michigan, and evidently in cities all across the U.S.
There are crimes against humanity being perpetrated by chemical companies like Monsanto as glyphosates and genetically engineered foods find their ways comfortably into our kitchens and stomachs. Steven Druker, in his seminal book Altered Genes, Twisted Truth has meticulously documented systemic corruption in the Food and Drug Administration.
In Malibu, there is a local effort to address the existence of PCB’s in window caulking in schools yet the school board spends millions of dollars to fight its removal rather than simply remove it. Once again it seems to be far easier to spend money denying the evidence than in fixing the problem. This is obscene and unfortunately the problem extends to schools throughout the country. Why is it we have so little regard for the injuries we are inflicting upon our children?
Last but not least we are witnessing a monumental failure on the part of the Fourth Estate, the media. Bowing to the pressures of deep-pocketed advertisers, the media refuses to even make an attempt at investigative journalism. A glaring exception to this is the case of the Spotlight investigative team at the Boston Globe, which uncovered massive corruption within the Catholic Archdiocese in sheltering child molesters and pedophiles among the priesthood. We celebrate this as an act of great valor, when in essence it ought to be business as usual. This should not be the exception; it should be the norm and the media is abdicating its responsibility to expose the truth and instead prefers the safer course which is to be complicit in the cover-up. Richard Dreyfuss and I recently penned an article calling attention to this complicity here.
I have worked in numerous governmental agencies at senior levels where I attempted to defer to the scientific expertise when contemplating major policy decisions affecting millions of people. To see the systemic corruption that is occurring in government agencies like the Environmental Protection Agency, Department of Energy, Department of Health and Human Services including the Centers for Disease Control and the Food and Drug Administration not only makes me sad but it makes me mad.
There has always been an attempt in this nation to balance out the avarice of the private sector with a regulatory framework in the public sector that protects those most vulnerable in society. That balance has been totally upended and as the latest effort on behalf of those involved in Vaxxed shows, we as a society can no longer depend upon our government leaders and institutions to protect us.
We must begin by electing leaders who will restore the balance that is needed to protect at the very least our children. If we do not our legacy to our children will be one punctuated by scorn and anger. In this instance our kids actually know us better than we know ourselves. What a sad commentary on the state of affairs of the human race.
The first thing that strikes you upon reading the article above is that only a small portion of the piece even discusses VAXXED, and yet a mere endorsement of this documentary by a veteran writer who’s been publishing on the Huffington Post for nearly a decade is enough to elicit an article ban.
Which leads us to a couple of followup questions. Is this how the Huffington Post treats its longtime contributors? Are writers not allowed to share their personal opinions about a movie? Or is the issue this movie in particular? Why is this one documentary so threatening?
It seems like it’s this particular movie, which makes me even more curious to see it. As I wrote in a post published earlier this month, Video of the Day – Producer of Vaccine Documentary Banned From Tribeca Film Festival Speaks Out:
What I’m still having trouble getting my head around is why a documentary that is apparently so easily disproven and full of garbage poses such a threat to so many powerful people. Indeed, the film’s critics should be thrilled about an opportunity to discredit the film publicly, and the total panic generated by the simple screening of a movie is what I find so bizarre and noteworthy.
Perhaps it’s partly due to the following, which was noted in a recent article critical of the film published by the Hollywood Reporter:
It’s all effective, but also purely anecdotal. It’s more interesting to learn that drug manufacturers are protected by federal law from customer lawsuits claiming adverse effects from vaccines, and that injury claims are handled by a particular U.S. court that is commonly known as the “Vaccine Court,” a term that doesn’t exactly inspire confidence.
I haven’t seen this film, but one thing is clear. Some very, very powerful and influential people are terrified of it and are doing everything they can to make sure it never sees the light of day.
Which makes me infinitely more curious.
Here’s the trailer:
- Just Released: Listen To Boehner Calling Ted Cruz A "Luciferian Son Of A Bitch"
Just in case you were waiting for the “taken out of context” or “just kidding” excuse to come from the GOP establishment over John Boehner’s earlier comments with regard to the ‘luciferian, son of a bitch’ Ted Cruz… none will be coming. Here is the full 97 seconds of truthiness from the mouth of the cryingest speaker America has ever known…
“[Ted Cruz] is lucifer in the flesh…I have as many Democrat friends as I have Republican and I get along with almost everyone… but I have never worked with a more miserable son of a bitch than Ted Cruz… over my dead body would he represent [Republicans]”
Boehner then went on to discuss his “friend Donald Trump.”
One wonders how (or if) Cruz will talk his way out of this? Perhaps another pretend cabinet appointment?
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