Economics

Economics
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Updated: 6 hours 19 min ago

If The Saudi Arabia Situation Doesn’t Worry You, You’re Not Paying Attention

11-Nov-2017

Chris Martenson unpacks the implications of the rapidly-changing developments in Saudi Arabia.

There is growing threat to the petrodollar’s dominance, as well as developments underway that may well send oil spiking in price soon — both of which will have huge impact on the price of world assets ranging from stocks, to real estate, to gold.

Click here to read the full article

The Fetid Swamp of Tax Reform

10-Nov-2017

To understand the U.S. tax code and the endless charade of tax reform, we have to start with four distasteful realities:

1. Ours is not a representational democracy, it’s a political auction in which wealth casts the votes that count. Those seeking political influence over issues such as taxation place their bids in the political auction via campaign contributions and lobbying. The winner of the political auction gets favorable treatment, and everyone else ends up subsidizing the gains of the winner.

2. The wealthy pay the vast majority of federal income taxes (as opposed to payroll taxes, i.e. Social Security and Medicare), so tax cuts end up benefiting the wealthy.

High-income Americans pay most income taxes, but enough to be ‘fair’? (Pew Research Center)

In 2014, people with adjusted gross income, or AGI, above $250,000 paid just over half (51.6%) of all individual income taxes, though they accounted for only 2.7% of all returns filed.

By contrast, people with incomes of less than $50,000 accounted for 62.3% of all individual returns filed, but they paid just 5.7% of total taxes.

After all federal taxes are factored in, the U.S. tax system as a whole is progressive. The top 0.1% of families pay the equivalent of 39.2% and the bottom 20% have negative tax rates (that is, they get more money back from the government in the form of refundable tax credits than they pay in taxes).

3. The unseen burden of the tax code is the complexity tax levied on small business, the self-employed and domestic corporations with no access to global tax-avoidance schemes.

4. This complexity is necessary to hide all the special favors won in the political auction. The tax code could be a few pages long: all accounting of income and expenses must conform to accepted accounting rules, and here are the tax rates on net income/earnings.

Any special tax breaks or subsidies would stick out like sore thumbs in a simple tax code, so it’s necessary to generate thousands of pages of tax code to create a thicket in which auctioned-off favors can be hidden from public view.

The Tax Foundation explains the three layers of compliance complexity: Title 26 of the U.S. Code, the tax statutes enacted by Congress, run to 2,600 pages. The details are left to the IRS (Internal Revenue Service), which publishes roughly 9,000 pages of regulations.

But wait, there’s more—much more. If you end up in tax court, there’s around 70,000 pages of case law to pore over to make your case.

Playing around with tax brackets skirts the core problem with the U.S. tax system: the entire tax code is little more than a clearing house of political bribes paid for tax breaks and a complexity thicket that requires the services of legions of accountants, tax attorneys, software coders, and specialists in tax avoidance strategies.

This clearing house and complexity thicket are intrinsically unfair, as insiders and the super-wealthy can avoid taxes via political influence and offshore tax havens. This systemic unfairness erodes the social contract’s key compact: that the playing field will be kept more or less level for all participants.

But the U.S. tax system is anything but level. The Institute on Taxation and Economic Policy (ITEP) recently published an analysis of the corporate taxes paid by Fortune 500 companies over the past eight years. Consistently profitable companies paid a federal tax rate of around 21%, considerably lower than the nominal corporate tax rate of 35%. But 18 profitable companies paid no federal taxes over the eight years, and about 50 corporations paid rates of 10% or less.

Immensely profitable corporations such as Apple have mastered the offshore tax avoidance game. Others persuade members of Congress (impolite term: bribe) to include obscure tax breaks tailored to their company in legislation.

So the most successful at gaming the system pay near-zero (saving tens of billions of dollars) while the chumps pay the top rate.

There’s another systemic source of unfairness in the tax code: the gap between the high rates on earned income (wages and salaries) and the much lower rates on unearned income– what we might characterize as income generated by capital rather than labor: rents, capital gains, speculative gains and so on.

If you manage to earn $500,000 in wages, most of that income is taxed at 33%, and the income above $415,000 is taxed at 39.6%. Meanwhile, the top rate for long-term capital gains is 20%. Over time, that 15% adds up.

In effect, the rich get richer because most of the lower-tax-rate unearned income flows to them.

If we really want to reform federal taxation, we’d do three things:

1. Radically simplify the tax code from thousands of pages to dozens of pages

2. Lower the corporate tax but eliminate all the overseas schemes and scams

3. Increase the tax rate on unearned income above (say) $100,000 annually.

Needless to say, the number of taxpayers with more than $100,000 in unearned income annually is tiny, so the vast majority of taxpayers with capital gains earned from selling a second home, exercising stock options, speculative trading, etc. would still pay the existing low rate.

But those reporting substantial unearned income would pay the same tax rates imposed on labor: up to 39.6% above $415,000 annually.

These charts help us understand that despite its crushing flaws, federal taxation is highly progressive. The bottom 75% pay little to no federal income tax and receive more federal benefits, while the wealthy pay the vast majority of federal income taxes:

These two charts break out who pays most of the taxes:

The likelihood that either party will ever drain the fetid swamp of corruption that is our tax code is zero, because it’s far too profitable for politicos to operate their auction for tax favors. This reality unites the Democrats and Republicans in an unholy marriage of corrupting wealth and power. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Gold Coins and Bars Saw Demand Rise 17% to 222T in Q3

10-Nov-2017

– Gold coins and bars saw demand rise 17% to 222t in Q3, driven largely by China
– Chinese investors bought price dips, notching up fourth consecutive quarter of growth
– Jewellery, ETF demand fell while gold coins and bars saw increased demand 
– Central banks bought a robust 111t of gold bullion bars (+25% y-o-y)
– Russia, Turkey & Kazakhstan account for 90% of 111t of central bank demand
– Turkey increased gold purchases and saw broad based physical gold demand
– Gold demand in Q3 at eight-year low as ETF inflows slowed sharply 
– Gold demand saw 9% year-on-year (y-o-y) drop in to 915 tonnes (t)
– Total global gold supply fell 2% in Q3

Editor: Mark O’Byrne

By first impressions the latest World Gold Council report could make for pretty dismal reading if one were to consider the headlines that followed its release.

Much of the focus was on the fact that record and reported gold demand was at its lowest last quarter since Q3 2009 and down 9% year-on-year.

This was predominantly down to ETF demand which fell from the very high levels seen last year. ETF gold holdings climb by just 18.9t and jewellery demand which fell by 3%.

When one looks at the real gold investment demand which was strong in both areas – demand for gold coins and bars and central bank demand – then they might have cause to start feeling more positive again.

Chinese demand is firmly back with a bang. Chinese investors bought on price dips, bringing a fourth consecutive quarter of growth. This contributed to a 17% rise in Q3 in gold coins and bar demand.

Physical gold investors weren’t the only ones picking up the pace. 111t of central bank demand marked Q3 bringing total reserve demand to nearly 290t for the year to date. 90% of this demand was thanks to Russia, Turkey and Kazakhstan.

To continue reading on www.GoldCore.com click here.

Where are Europe’s Fault Lines?

9-Nov-2017

Correspondent Mark G. and I have long discussed the potential relevancy of old boundaries, alliances and structures in Europe’s future alignments.Examples include the Holy Roman Empire and the Hanseatic League, among others.

In the long view, Europe has cycled between periods of consolidation and fragmentation for two millennia, starting with the Roman Empire and its dissolution. Various mass movements of tribes/peoples led to new political structures and alliances, and a dizzying range of leaders rose to power and schemed their way through an equally dizzying array of wars, alliances and betrayals.

Regardless of the era or players, security is a permanent priority: this includes defensible borders, alliances to counter potential foes, treaties to end hostilities and whatever is necessary to secure access to resources and trade routes.

When consolidation served these priorities, then fragmented polities either consolidated by choice or by conquest. When smaller polities served these priorities, then imperial structures fragmented into naturally cohesive territories that were unified by language, culture and geography.

Security is also economic, as people support structures that keep their bellies filled and enable social stability and mobility.

For the sake of argument, let’s say that the European Union is the high water mark of consolidation, and the next phase is fragmentation. Where are Europe’s natural fault lines? Much has changed in the past 600 years, but geography hasn’t changed, and that defines some basic security threats.

German Army Prepares For “Break-Up Of European Union” Or Worse

The Germans are making contingency plans for the collapse of Europe

Nation-states may appear permanent, but history suggests nothing is as permanent as we might reckon. Polities that were brought into an Imperial orbit but retained their identity and geographic boundaries may be last one on, first one off.

In other cases, old fault lines were merely blurred rather than erased.

Brexit is a one-off in some regards, but if we add Catalonia, we discern the possibility of reversion to older borders and configurations. Could Italy fragment into three polities, North, Rome and the South? The idea seems absurd, but the history of modern states is based on much older structures–structures that made sense then and might once again make sense.

Insecurity feeds fragmentation. Once borders are no longer secure and social stability and mobility decay, people naturally start looking around for solutions, and configurations based on language, geography and culture start looking attractive if the current arrangement is seen as decreasing security rather than increasing it.

Empires tend to fail when the centers of power become self-absorbed in political struggles while the prosperity and security of the imperial lands decline. If we view the EU as a modern-day iteration of Empire, it’s not terribly surprising that the decay of social stability and mobility are fraying the forces holding the Empire of the willing together.

Here are two maps of the Holy Roman Empire, the first circa 962 AD, and the second circa 1555. It seems the bonds between Eastern and Western Europe aren’t as strong as the forces of geography, language and shared security interests binding the polities within the Western and Eastern blocs.

I’m not making any predictions here, just noting that not all boundaries are lines on a map. Beneath the surface of modern maps, numerous old fault lines still exist. A political earthquake or two might reveal the fractures for all to see. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

[KR1147] Keiser Report: If Only Arrested Saudi Prince Owned Bitcoin

9-Nov-2017

In this episode of the Keiser Report Max and Stacy ask whether or not Prince Alwaleed bin Talal, who is currently under Ritz arrest, would have been better off had he owned bitcoin instead of Twitter and Fox. In the second half Max continues his interview with Dr. Michael Hudson, author of Super Imperialism. They recount the history of labor, socialism, Minneapolis and more.

Prepare For Interest Rate Rises And Global Debt Bubble Collapse

9-Nov-2017

– Diversify, rebalance investments and prepare for interest rate rises
– UK launches inquiry into household finances as £200bn debt pile looms
– Centuries of data forewarn of rapid reversal from ultra low interest rates
– 700-year average real interest rate in last 700 years is 4.78% (must see chart)
– Massive global debt bubble – over $217 trillion (see table)
– Global debt levels are building up to a gigantic tidal wave
– Move to safe haven higher ground from coming tidal wave

Editor: Mark O’Byrne

Source: Bloomberg

Last week, the Bank of England opted to increase interest rates for the first time in a decade. Since then alerts have been coming thick and fast for Britons warning them to prepare for some tough financial times ahead.

The UK government has launched an inquiry into household debt levels amid concerns of the impact of the Bank of England’s decision to raise rates. The tiny 0.25% rise means households on variable interest rate mortgages are expected to face about £1.8bn in additional interest payments whilst £465m more will be owed on the likes of credit cards, car loans and overdrafts.

The 0.25% rise is arguably not much given it comes against backdrop of record low rates and will have virtually no impact on any other rate. However it comes at a time of high domestic debt levels, no real wage growth and a global debt level of over $217 trillion.

Combined with low productivity across the developed world, experts are beginning to wonder how the financial system (and the individuals within) will cope.

After a decade of seeing negative real rates of interest many investors will be quietly celebrating that they may be about to see a turnaround for their savings. Many hope they will start being rewarded for their financial prudence as opposed to the punishing saving conditions of the last decade.

Click here to read full story on GoldCore.com.

 

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

Gladius – The Rising Star of Blockchain Security

9-Nov-2017

The recent explosion of ICOs has been pretty magnificent to behold. In 2017 alone ICOs managed to raise over $1.3 billion in funds, significantly more than any previous year.

ICOs come in all shapes and sizes, and it can be tough to decide which ones are worthy of investment, and which are doomed to fail.

One promising ICO is Gladius, which aims to first change the way DDoS attacks are dealt with using blockchain technology and some ingenious ideas. And secondly, to improve the current content delivery industry (CDN) to make a more distributed, faster and cheaper alternative to modern CDNs.

To see why Gladius is so exciting, it’s important to take a quick look at just how damaging DDoS attacks are, and why it’s so vital to find new ways to challenge them.

The dangers of DDoS

DDoS stands for Distributed Denial of Service. It’s a type of cyber attack where hackers gain control of a number of devices with internet access, like Internet of Things gadgets. Once their network of ‘bots’ is large enough, it can be instructed to visit a certain website or server.

The massive influx of spam traffic often overwhelms the bandwidth of the victim server, causing the site to crash or experience service disruption.

The consequences of this can be devastating for businesses. The average cost of a DDoS attack was found to be $500,000, around $40,000 per hour. What’s more, these events can really damage customers’ trust in a website or company, as it makes them look unreliable and open to attack.

What’s more, DDoS attacks are on the rise, and in a big way. Q1 2017 saw a staggering 380% increase in these attacks from the same point in the previous year, suggesting that this risk will only become greater as time goes on.

It makes sense, then, that companies are spending a lot of time and money on preventing these attacks. According to some sources, companies need to be spending $2000-5000 at a minimum for effective prevention.

That’s a lot of money, considering that most current approaches to DDoS defense are far from perfect.

The current methods

What happens when the preventative measures fail, and companies fall victim to a flood of zombie traffic?

There are a few mainstream tactics for defeating DDoS attacks. One involves trying to separate the good traffic (customers and genuine site visitors) from the bad spam traffic under the hackers’ spell.

Unfortunately, this is rather flawed and often grants access to the bad traffic while blocking the good.

A more high-level approach is to decentralize the site’s delivery, so traffic is shared between a number of servers instead of overloading just one. The problem with this method is that it’s highly expensive, and more advanced attacks can get around it.

It all seems hopeless. Fortunately, Gladius believe they have the solution.

Gladius’ method

Gladius think the key to DDoS defense is in decentralization and collective protection. The plan is to build a system of connected users with the ability to share bandwidth and hard disk storage to protect and accelerate websites all over the world.

This way, when one member of the network is faced with a DDoS attack, their peers can ‘rent’ some of their spare bandwidth. This extra data can help absorb the attack, so the victim’s server isn’t overwhelmed by malicious traffic and brought down.

This data will also be used by Gladius to build better filtering systems, so bad traffic can be more accurately detected and blocked. Gladius tokens will be issued to members who donate their bandwidth, and these can be exchanged with websites.

Since most people have spare bandwidth anyway, it’ll cost nothing to loan out. Users will be able to generate some income from their spare bandwidth which would otherwise go unused.

Gladius will use blockchain technology to build this decentralized network of servers, with no vulnerable central point.

It’s an example of how decentralization can help create more efficient and attack-resistant systems, and will hopefully inspire similar projects in other areas of cyber security.

In an age where skyrocketing DDoS attacks are creating a pressing need for some kind of innovative response.

There’s a big gap in the market right now for a cost-effective and reliable way of responding to DDoS attacks. Companies are tired of paying extortionate fees for DDoS protection software that doesn’t even work all of the time, and worried about the consequences of increasing attacks.

Unfortunately, many security companies are just churning out the same old software with the same flaws and vulnerabilities. Gladius offers a new way of doing things avoids many of the pitfalls mentioned above, while potentially saving companies huge amounts of money. Gladius is currently holding their private presale and will be launching a public presale on November 24th.

The Front-Line Is About to Shift To End This Gold & Silver Price War Stalemate

8-Nov-2017

The fundamental news is nothing short of complete and total uncertainty. A month after the worst mass shooting in U.S. history, we had the worst mass shooting in a church in U.S. history. On top of the worsening domestic situation, Saudi Arabia is in utter chaos right now with dead princes, frozen bank accounts, war and war threats, and a petro-dollar that behind closed doors most certainly undergoing spats of violent convulsions.

So coming into Monday it seems there would be a lot of fear and uncertainty in the markets. And under normal circumstances it would, and it most likely does have a lot of fear and uncertainty in the markets right now.

Yet the “fear index”, the VIX, stayed under 10 all day long:

To anybody who does not understand how this is possible, let’s go over two things:

  1. Sell short “fear”
  2. Buy Index futures

Just like the cartel throws unlimited paper gold and paper silver a the markets, the cartel (as in the Fed representing the banking sector and the Exchange Stabilization Fund representing the government) can throw unlimited paper at the stock markets too. And they do. So it is not that there is no fear in the markets. Certainly there is more fear in the United States and globally right now than ever before.

But it’s nothing a little debt based fiat currency can’t solve when there is both a printing press and networked market control at the speed of light. Literally.

So not only is is no surprise that the VIX is so low, but, well, this:

Click here to read the rest on Silver Doctors

Our Culture of Rape

8-Nov-2017

Stripped of pretense, ours is a culture of rape. Apologists for the system that spawned this culture of rape claim that this violence is the work of a few scattered sociopaths. The apologists are wrong: The system generates a culture of rape.

The engine of our culture of rape is the elevation of the entitled-insider classto untouchability: they are above the law, and more equal than others in their freedom to impose every sick sociopathology known to humanity on the powerless peasants imprisoned in our noxious neofeudal system.

For the true sickness of our society and culture is measured not in the vile crimes of our entitled-insider class: it’s measured by the armies of enablers, protectors, enforcers and apologists who protect the entitled-insider classfrom exposure and justice. After 25 years of blatant abuse of power and crimes that have yet to enter the court docket, 25 years during which the cream of the American media purposefully ignored his blatant abuses of power, the moldering putrid remains of American journalism has finally emerged from its fetid nests, trembling in the unaccustomed brightness of day, to “report,” 25 years too late to save his innumerable victims, Harvey Weinstein’s Army of Spies (New Yorker).

You know how incestuous and cowardly our entitled-insider class is, and how they operate: for 25 long years, editors in the self-glorifying citadels of American journalism killed every story that would have exposed Mr. Weinstein’s actions to the world.

The same can be said of all the other predators hiding beneath the cloak of secrecy that protects the entitled-insider class from exposure.

Voracious predators like Bill Clinton mastered the fine art of forcing consensuality on their innumerable victims, considering the act of forced sex as little more than a standard perquisite of power, much like having the hotel door opened by servants.

The armies of spies, informers, PR flacks, security guards, attorneys, thugs, sycophants and handlers didn’t just enable predatory exploitation of the peasantry: they actively recruited victims and set them up, just as powerless maids were trapped in the chambers of lords in feudal times.

The truly sick reality of our culture of rape is that nobody involved reckoned they were doing anything wrong. The sociopathological predators reckoned they were simply exercising their droit du seigneur, their right to take any woman they desired as a privilege of belonging to the entitled-insider class.

Every single individual in the vast armies of spies, informers, PR flacks, security guards, attorneys, thugs, sycophants and handlers were simply doing their job, doing what they were told to avoid reprimand or being fired. In other words, every one of these individuals was a good German, pulling the trigger, defending predators from justice, protecting the most vile, sick abusers of power from exposure and attacking any victim who dared speak the truth, because, well, they were paid to do so.

Were there no other jobs in America other than protecting evil predators from exposure and justice? Or did these good Germans secretly revel in their proximity to power, much like the SS reveled in their proximity to Nazi power? All you good Germanswho served your overlords so well: please don’t deny the thrill of being close to sociopathological power. Or were you just too afraid of losing your own pretty perquisites?

These are the poisoned fruits of a neofeudal system in which power, wealth and political influence are concentrated in the apex of the wealth-power pyramid, a system so corrupted that predators don’t just get off scot-free, they are celebrated as wunnerful guys because their abuses of power are so well hidden, their victims so well marginalized and their PR flacks so relentless in painting over the rotting flesh of their corruption.

While tens of thousands of men and women rot away in America’s teeming Drug War gulag, the exploiters and predators of our entitled-insider class are free to ruin and rape. It’s time we stop making excuses for the predators of our entitled-insider class, stop accepting the cover provided by the worm-ridden decaying corpse of our corporate media, and stop the armies of Good German executioners who have bludgeoned every attempt to expose the truth of our pervasive culture of rape, exploitation and pillage.

Our abject servitude is now exposed. We are peasants and debt-serfs imprisoned in a deeply corrupt and oppressive neofeudal society. Will we ever tire of worshiping our predatory entitled-insider class exploiters? 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Platinum Bullion ‘May Be One Of The Only Cheap Assets Out There’

8-Nov-2017

Platinum Bullion ‘May Be One Of The Only Cheap Assets Out There’

Platinum “may be one of the cheap assets out there” and “is cheap when compared with stocks or bonds” according to Dominic Frisby writing in the UK’s best selling financial publication Money Week.

Platinum Bullion in USD (15 years)

Frisby writing in Money Week laments the total absence of value in today’s markets. He then identifies an asset that is both cheap (on a relative basis) and is valuable and the article is well worth a read:

The value investor’s lament – where have all the cheap assets gone?

Every week in MoneyWeek magazine there’s a small column devoted to great investors from the past. You read a bit about who they were, what their circumstances were and what their methodologies were.

Sometimes I’ve heard of them, sometimes I haven’t – but as often as not it seems that they were a value investor of some kind. Value investing is, I suppose, the most basic and instinctive of investing systems. You buy when you deem something to be cheap and you sell when it gets expensive. The principle has been applied for as long as humans have invested money.

And yet it no longer seems to work. In this modern age of suppressed rates, quantitative easing, and easy (if you mix in the right circles) money, nothing is cheap – except money itself.

Click here to read full story on GoldCore.com.

 

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

The Big Reversal: Inflation and Higher Interest Rates Are Coming Our Way

7-Nov-2017

According to the conventional economic forecast, interest rates will stay near-zero essentially forever due to slow growth. And since growth is slow, inflation will also remain neutral.

This forecast is little more than an extension of the trends of the past 30+ years: a secular decline in interest rates and official inflation, which remains around 2% or less. (As many of us have pointed out for years, the real rate of inflation is much higher–in the neighborhood of 7% annually for those exposed to real-world costs.)

The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016)

Inflation Isn’t Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs (May 25, 2017)

About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service (October 11, 2017)

Be Careful What You Wish For: Inflation Is Much Higher Than Advertised (October 5, 2017)

Apparently unbeknownst to conventional economists, trends eventually reverse or give way to new trends. As a general rule, whatever fundamentals are pushing the trend decay or slide into diminishing returns, and new dynamics arise that power a new trend.

I’ve often referred to the S-Curve as one model of how trends emerge, strengthen, top out, weaken and then fade. Trends often change suddenly, as in the phase-shift model, in which the status quo appears stable until hidden instabilities cause the entire “permanent and forever” status quo to collapse in a heap.

The Bank for International Settlements (BIS) recently issued a report claiming that Demographics will reverse three multi-decade global trends. Here’s a precis of the case for a globally aging populace and a shrinking workforce to reverse the downward trends in inflation and interest rates: New Study Says Aging Populations Will Drive Higher Interest Rates (Bloomberg)

Gordon Long and I discuss the demographic and financial forces that will reverse zero-bound interest rates and low inflation in our latest video program, The Big Reversal(The Results of Financialization Part III)

The demographic case is actually a study of labor, capital and savings. In essence, the authors of the paper are saying that the vast expansion of the global workforce (led by the emergence of China as the world’s workshop) is a one-off that is about to reverse as the global Baby Boom generation retires en masse.

They also argue that the equally vast expansion of credit/debt that’s powered the global expansion in the 21st century is also a one-off, as this monumental debt overhang has a characteristic peculiar to debt: it accrues interest, and as the debt balloons, even low rates of interest add up, weighing on weak growth and soaring entitlement spending.

Although it’s not popular in today’s debt-dependent zeitgeist to mention this, debt is not capital. Put another way: savings still matter, and as the older generation of workers retires, they will draw down their savings, a process that will make real capital (as opposed to lines of credit resting on fictitious/phantom collateral) more scarce and thus more costly for those wishing to borrow it.

Since it’s a given that human labor is being replaced by robots and automation, the authors’ call for higher wages strikes many as a false hope. If the human labor force is shrinking due to automation, why would wages for the remaining workers rise?

One little understood factor helps explain how labor can be scarce even as many jobs are automated: the easily automated work is commoditized, and low-touch, meaning that the human “touch” isn’t the value proposition in the service.

But the value of high-touch services is added by the human presence. Do you really want to go to a swank bistro and place your order/retrieve your food from an automated service kiosk serving automated-prepared meals? Isn’t the value proposition of the bistro that you will have a knowledgeable and experienced service and kitchen staff?

Granted, there may be people who will be delighted to be served in cubicles by robots, but since we’re social creatures, this will wear thin for those who can afford more than an automated fast-food meal.

Even the most modest discounting of the hype about AI provides a more granulated understanding that not all work can be commoditized and indeed, nontradable work that cannot be commoditized will increase in value precisely because its value isn’t created by the process of commoditization.

If the labor force shrinks at a rate that’s faster than the the expansion of automation, wages will rise even as automation replaces human labor.

I explain this further in my book on work in the emerging economyGet a Job, Build a Real Career and Defy a Bewildering Economy.

Gordon and I add the systemic fragility introduced by financialization to the demographic argument. The entire global asset market–stocks, bonds, real estate and commodities–is at heart a pyramid scheme in which the rapid expansion of credit drives asset prices higher, and since assets are collateral for additional debt, the higher asset valuations enable a new round of hyper-credit expansion.

This pushes asset valuations even higher, which sets the stage for an additional expansion of credit, based of course on the astounding rise in the value of the collateral supporting the new debt.

Central banks have powered this pyramid scheme by buying bonds and stocks with currency created out of thin air. This chart of the Bank of Japan’s astonishing balance sheet is a bit outdated; the BoJ has purchased so many bonds and ETFs (stock funds) that it is now a major owner of Japanese stocks and bonds.

Of course debt isn’t just a central bank phenomenon; corporate and household debt have soared as well. The global debt overhang is unprecedented:

My view is that once this tsunami of new debt-based currency hits the real-world economy, inflation will move a lot higher a lot faster than most pundits believe is possible. Trillions of yen, yuan, euros and dollars have flooded into the asset pyramid scheme. Once this tide washes into real-world goods and services, the inevitable result is inflation.

The tectonic forces of demographics meeting the increasingly fragile pyramid scheme of financialized debt-inflated asset bubbles will more than reverse the 30+-year trends of ever lower inflation and interest rates: this interaction will spark a runaway feedback loop that will smack asset valuations back to pre-bubble, pre-pyramid scheme levels.

Peak Gold – Another Sign As Chinese Gold Production Falls 10%

7-Nov-2017

– Gold mining production in China fell by 9.8% in H1 2017 
– Decreasing mine supply in world’s largest gold producer and across the globe
– GFMS World Gold Survey predicts mine production to contract year-on-year
– Peak gold production being seen in Australia, world’s no 2 producer
– Peak gold production globally while global gold demand remains robust

Editor Mark O’Byrne

Gold production in the world’s largest gold producer and buyer fell by nearly 10% in the first half of 2017 in what may be another indication of peak gold.

Chinese mine production registered the largest drop globally to total 207 tonnes in the first half of 2017, down 23 tonnes, or 9.8% year-on-year. In the same period last year the country produced 230 metric tons.China mined production of gold (Wikipedia)

The issue of declining gold supply in China is not expected to improve. The GFMS World Gold Survey expects Chinese gold supply to fall by 14% this year from the 2014 peak. Their latest update explains:

Based on limited updated quarterly production reports and annual production guidance, we expect mine production to contract year-on-year in Q3 2017. We expect losses in China to accelerate as capacity is curtailed further. Industry consensus points to a considerable drop in Chinese mine production for the year as a whole.

This fall in supply could have significant implications for global gold supply given the country’s leading role in the gold market. In 2016 the country produced 453t, 160t or 56% more than the second highest gold producing nation of Australia. It also leads global gold demand, beating India in the last five years.

Click here to read full story on GoldCore.com.

 

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

German Investors Now World’s Largest Gold Buyers

6-Nov-2017

– German gold demand surges from 17 ton-a-year to a 100 ton-plus per year
– €6.8 Bln spent on German gold investment products in 2016, more per person than India and China
– Germans turned to gold during financial crises and ongoing euro debasement

– Evidence of latent retail demand on increased economic concerns
– “Gold fulfils an important long-term, wealth preservation role in German investors’ portfolios”

Editor: Mark O’Byrne

India and China often grab the headlines as the world’s largest buyers of gold. In 2016 this was not the case.

When measured on a per capita basis it is Germany that takes the impressive crown of largest gold buyer in 2016, all thanks to their investment market. Last year the country set a new personal best, ploughing as much as £6.8bn ($8 bn) into gold coins, bars and exchange-traded commodities (ETCs).

This is impressive considering that back in 2008 the amount of gold purchased by Germans barely registered outside of the country. A new World Gold Council report records that ‘average demand between 1995 and 2007 was a modest 17 tonnes’. In some of those years they weren’t even net-buyers.

In 2008 this began to change as ‘the global financial crisis brought gold to the attention of German investors at large.’ By 2009, the German gold investment market became one of the world’s largest, with annual coin and bar demand growing four-fold from 36t in 2007 to 134t in 2009.

Since then it has continued to climb, as explained in the latest World Gold Council report:

Germany has established itself as a 100t-plus per year market for bars and coins, and a vibrant domestic ETC market has developed: during Q3 2017, German-listed ETC AUM hit an all-time high of 252.1t, equivalent to €9.8bn.

So what changed and can the country keep up this record-breaking?

What changed?

It is assumed that the Germans have an innate understanding of the value of gold thanks to their tumultuous economic history.

As the WGC summarises:

German investors have an acute awareness of the wealth- eroding effects of financial instability. Hyper-inflation in the 1920s lingers on in the collective memory but, perhaps more importantly, German investors have seen fiat currencies come and go: in the past 100 years, Germany has had eight different currencies.

The past seemed to be catching up with the future following the financial crisis when savers once again began to see their savings disappear. Following the ECB’s decision to slash interest rates German banks began charging customers to hold their cash, and yields on German bunds dropped into negative territory.

It isn’t surprising that that this triggered Germany’s gold shopping spree. This was supported by the country’s growing gold bullion network that has made it easier for customers to buy and store gold bullion and coins.

Their concerns about the banking system drove up demand for the physical, allocated gold products of the 100-150 non-bank bullion dealers across the country. Investor behaviour shows that gold buyers are clearly seeking out physical gold that they can take delivery of should they so wish.

Where does it go from here?

‘…it is clear why the market boomed. Financial and economic crises brought gold to the attention of investors, and the resulting interest triggered a wave of product innovation and market development.’ 

Given the upshot in German demand following the financial crisis of 2008, it is understandable to look out for further economic downturns as an indication of future gold demand in Germany.

Click here to read full story on GoldCore.com.

 

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

The Public Bank Option – Safer, Local and Half the Cost

5-Nov-2017

Phil Murphy, a former banker with a double-digit lead in New Jersey’s race for governor, has made a state-owned bank a centerpiece of his platform. If he wins on November 7, the nation’s second state-owned bank in a century could follow.

A UK study published on October 27, 2017 reported that the majority of politicians do not know where money comes from. According to City A.M. (London) :

More than three-quarters of the MPs surveyed incorrectly believed that only the government has the ability to create new money. . . .

The Bank of England has previously intervened to point out that most money in the UK begins as a bank loan. In a 2014 article the Bank pointed out that “whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

The Bank of England researchers said that 97% of the UK money supply is created in this way. In the US, the figure is about 95%. City A.M. quoted Fran Boait, executive director of the advocacy group Positive Money, who observed:

“Despite their confidence in telling the public that there is ‘no magic money tree’ to pay for vital services, politicians themselves are shockingly ignorant of where money actually comes from.

“There is in fact a ‘magic money tree’, but it’s in the hands of commercial banks, such as Barclays, HSBC and RBS, who create money whenever they make loans.”

For those few politicians who are aware of the banks’ magic money tree, the axiom that the people should own the banks – or at least some of them – is a no-brainer. One of these rare politicians is Phil Murphy, who has a double-digit lead in New Jersey’s race for governor. Formerly a Wall Street banker himself, Murphy knows how banking works. That helps explain why he has boldly made a state-owned bank a centerpiece of his platform. He maintains that New Jersey’s billions in tax dollars should be kept in the state’s own bank, where it can leverage its capital to fund local infrastructure, small businesses, affordable housing, student loans, and other state needs. New Jersey voters go to the polls on November 7.

That means New Jersey could soon have the second publicly-owned depository bank in the country, following the very successful century-old Bank of North Dakota (BND). Other likely contenders among about twenty public banking initiatives now underway include Washington State, which has approved a feasibility study for a state bank; and the cities of Santa Fe in New Mexico and Los Angeles and Oakland in California, which are exploring the feasibility of their own city-owned banks.

A Bank Is Not Simply an Intermediary

An article in City Watch LA critical of the idea of a city-owned bank observed that Los Angeles formerly had a bank that failed, closing its doors in 2003 due to insolvency. The argument illustrates the confusion over what a bank is and what it can do for the local government and local communities. The Los Angeles Community Development Bank was not a bank. It was a loan fund, and it was designed to fail. It was not chartered to take deposits or to create deposits as loans, and it was only allowed to lend to businesses that had been turned down by other banks; in other words, they were bad credit risks.

With a loan fund, a dollar invested is a dollar lent, which must return to the bank before it can be lent again. By contrast, as the Bank of England acknowledged in its 2014 paper, “banks do not act simply as intermediaries, lending out deposits that savers place with them.” A chartered depository bank can turn one dollar of capital into ten dollars in bank credit, something it does simply by creating a deposit in the account of the borrower. If the bank’s books don’t balance at the end of the day, it borrows very cheaply from other banks, the Federal Home Loan Banks, or the repo market. It borrows at bankers’ rates rather than retail rates, and that is one of the many perks that a publicly-owned bank can recapture for local governments. Borrowing from banks rather than the bond market actually expands the circulating money supply, stimulating the local economy.

Compelling Precedents

Public sector banks, while rare in the US, are common in other countries; and recent studies have shown that they are actually more profitable, safer, less corrupt, and more accountable overall than private banks.

This is particularly true of the Bank of North Dakota, currently the only publicly-owned depository bank in the US. According to the Wall Street Journal, it is more profitable than Goldman Sachs or JPMorgan Chase. The BND is risk-averse, lends conservatively, does not gamble in derivatives or put deposits at risk. It is able to lend at lower than market rates because its costs are very low.

The BND holds all of its home state’s revenues as deposits by law, acting as a sort of “mini-Fed” for North Dakota. It has seen record profits for almost 15 years. It continued to report record profits after two years of oil bust in the state, showing that it is highly profitable on its own merits because of its business model. It does not pay bonuses, fees, or commissions; has no high paid executives; does not have multiple branches; does not need to advertise; and does not have private shareholders seeking short-term profits. The profits return to the bank, which either distributes them as dividends to the state or uses them to build up its capital base in order to expand its loan portfolio.

The BND does not compete but partners with local banks, which act as the front office dealing with customers. It does make loans that community banks are unable to service, but this is not because the borrowers are bad credit risks. It is because either the loans are too big for the smaller banks to handle by themselves or the smaller banks cannot afford the regulatory burden of lending in rural communities where they get only a few loans a year.

Among other cost savings, the BND is able to make 2% loans to North Dakota communities for local infrastructure — half or less the rate paid by local governments in other states. The BND also lends to state agencies. For example, in 2016 it extended a $200,000 letter of credit to the State Water Commission at 1.75% and a $56,000 loan to the Water Commission to pay off its bond issues. Since 50% of the cost of infrastructure is financing, the state can cut infrastructure costs nearly in half by financing through its own bank, which can return the interest to the state.

If Phil Murphy wins the New Jersey governorship and succeeds in establishing a New Jersey state-owned bank, expect a wave of public banks to follow, as more and more elected officials come to understand how banking works and to see the obvious benefits of establishing their own.

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[KR1144] Keiser Report: Netflix and… Junk Rated Bonds

4-Nov-2017

Max and Stacy discuss the junk rated bonds being issued to great demand by Netflix. Max interviews Marshall Auerback, market practitioner and research associate at the Levy Institute. They discuss the alleged Trump market boom and the US economy.

[KR1146] Keiser Report: Cryptocurrency taking Russia by storm?

4-Nov-2017

In this episode of the Keiser Report Max and Stacy ask whether the cryptocurrency boom has arrived in Russia. And, if so, what this means. In the second half Max continues his interview with market practitioner and research associate at the Levy Institute, Marshall Auerback. They discuss the alleged Trump market boom and the US economy.

Let’s Clear Up One Confusion About Bitcoin

3-Nov-2017

One of the most common comments I hear from bitcoin skeptics goes something like this: Bitcoin isn’t real money until I can buy a cup of coffee with it.

In other words, bitcoin fails the first of the two core tests of “money”: that it is a means of exchange and a store of value. If we can’t buy a cup of coffee with bitcoin, it obviously doesn’t qualify as a means of exchange.

The confusion here is the same one that plagues the conventional understanding of the foreign exchange markets: people confuse exchange and convertibility, which are both flows, i.e. transactions.

Here’s an illustration of the difference.

Let’s say Hipster Coffee Bar accepts payment in bitcoin (BTC) for a cup of coffee. In the U.S., the coffee bar accepts the BTC as payment, which is then converted into the local currency, the U.S. dollar, to pay rent, employees’ wages and so on.

The Hipster Coffee Bar branch in Mexico converts the BTC into pesos, the branch in Thailand converts the BTC into baht, and so on around the world.

Another coffee shop, Most Excellent Coffee, doesn’t accept bitcoin in exchange for a cup of coffee. So when I enter Most Excellent Coffee, I convert a sum of BTC into U.S. dollars if I’m in the US, to pesos if I’m in Mexico or into baht if I’m in Thailand, and proceed to buy the cup of coffee.

You see the point: what matters isn’t whether the coffee shop accepts bitcoin directly; what matters is whether bitcoin is easily convertible to the local fiat currency. Put another way: convertibility rests on the recognition that the “money” is a reliable store of value that can be converted into a variety of other currencies.

As long as the cost of converting one form of “money” into another form of “money” is fast and low-cost (i.e. nearly frictionless), then it no longer matters whether the “money” in question can be used directly in an exchange or not.

Consider a credit card. Part of the service offered by the issuer isn’t just a line of credit to fund purchases; it’s convertibility from one’s domestic currency into whatever currency is used in the place where you’re making the purchase.

This convertibility is certainly fast in the credit card realm, but it’s not frictionless; rather, it’s costly, as a hefty fee is skimmed for every transaction paid in one currency and converted to the cardholder’s domestic currency.

If bitcoin can be converted into fiat currencies at a lower transaction cost than the fiat-to-fiat conversions made by banks and credit card companies, it’s a superior means of exchange.

In other words, it doesn’t matter what currency the coffee shop accepts; what matters is the friction involved in converting the currency you hold with the one the shop accepts.

If bitcoin can be converted into U.S. dollars at a lower transaction cost that the USD can be converted into (say) Swiss francs, it’s superior to fiat currencies as a means of exchange.

 

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[KR1143] Keiser Report: MSM Goes on Trump’s Voter ‘Safari’

3-Nov-2017

Max and Stacy discuss the political operatives going on safari to ‘study’ the voter in flyover America, only to draw conclusions confirming their own profitable positions. Max interviews author and banker, Chris Whalen, about the state of the US financial system and Trump’s (allegedly) booming stock markets.

IoT and Blockchain, a Paradigm Shift that Will Disrupt the World is Brewing

3-Nov-2017

The Internet of Things (IoT) is currently shaping up to be one of the biggest disruptions that will revolutionize the world. The idea of devices that can “communicate” among themselves by sharing information and making logical follow-up decisions in response to shared information is simply awesome. Interestingly, Blockchain technology is being touted as a potential growth driver that could propel IoT to the mainstream market. It is worthy of note that Blockchain technology is currently powering a paradigm shift in the global economic landscape with Bitcoin

One of the major factors that make Blockchain a great backbone for IoT is the public nature of Blockchain. Everybody taking part in a blockchain can see the data making up a block, even though the actual content of the data is protected by a private key. Hence, there’s practically no reason to have a third party verify data. The data encoded on a blockchain is immutable and already verified just because they exist.  In addition, the decentralized nature of the blockchain eliminates the need to have any central authority approve data exchange transactions.

Of course, critics will be quick to point out that the adoption of Blockchain to power the Internet of Things will be delayed because of the depth of trust needed to make a decentralized ecosystem work. However, the fact that a Blockchain database can only be extended and not altered; ensures that provenance of IoT data where stored or shared on a Blockchain network.

Streamr is pioneering collaborative consumption of IoT Data

Streamr, a blockchain startup has created a solution that makes it easy to integrate the decentralized nature of blockchain with the highly-fragmented IoT industry in order to create one giant smart ecosystem. Streamr believes that there’s gross inefficiency in the current model in which the data that IoT devices generate are owned by companies who make/sell such devices.

To begin with, much of the data generated by IoT devices are practically left unused because there are no data apps available to analyze and get value out of the huge volume of data. By 2025, experts predict that more tha 27 billion IoT devices will generate 2 zettabytes of data Secondly, many of the firms who current “own” data generated by IoT devices do not share the data with other firms or the public; hence, it is practically impossible to mine valuable information from such fragmented data held by different companies.

Streamr is trying to tokenize data in other to help you own the data that your devices generate, sell the data to whom you please, and keep the data on an immutable peer-to-peer network not owned by any single company. The tokenization of data allows you to automatically upload to a data stream that creates one massive “consciousness” for different data pool to paint a fuller picture. For instance, a data pool of electric cars or self-driving cars in a city can create a fuller understanding of traffic patterns, road conditions, perception of other road users, and quality of roadside assistance than the data point from a single car viewed in isolation.

Streamr also wants to incentivize the collaborative consumption of data with its DATAcoin digital token. DATAcoin, will be used to access (buy) data uploaded on the network to encourage the growth of data streams. DATAcoin will also be used to operate the data market, reimburse data producers, and to keep network participants interested in the operational efficiency of the blockchain network.

Three areas where Blockchain can directly influence the IoT industry

Increased security across IoT devices

One of the biggest challenges facing IoT or any ecosystem of networked devices for the matter is security. Irrespective of the kind of security measures in built into your devices – encryption, firewalls, biometrics authentication—a smart and determined hacker will eventually find a way to get past your defenses into your system.

Secondly, the human element of networked systems also adds another layer of vulnerability to networked systems. Not many people understand the importance of creating passwords that doesn’t include their birthdays – and most people simply can’t just be bothered to change their passwords regularly.

Blockchain however presents a layer of security that is practically unprecedented among current security offerings for networked systems. Blockchain eliminates the odds that the security of your devices will be compromised because of the sheer volume of the complexity that would be required to alter recorded data on a blockchain.

Co-owned self-driving cars

One of the biggest Blockchain applications for the Internet of Things would be found in the economics of self-driving cars. Tech firms such as Tesla Motors,  Alphabet’s Waymo, and traditional automakers such as Volvo and General Motors are working on building self-driving cars. Under a Blockchain ecosystem, a number of people could create a smart contract to pool money for the purchase of a self-driving car.  The contract could also contain, “If this, then that” rules for sharing the maintenance costs of the car where necessary. The co-owners could also store and share data about who has the car and at what time on a decentralized ledger to log riding miles among other things.

The rules of operation on the blockchain can also be designed in line with reputation standards on the requirements that each co-owner must meet. For instance, if a driver hasn’t done the required monthly maintenance checkup, the car can be programmed to deny access such that it won’t be unlock or drivable until the maintenance requirements are met.

Communal renewable energy projects

The world is making a concerted effort to adopt renewable sources of energy as part of efforts for a greener earth. Solar energy is greener than burning fossil fuels but its upfront investment is somewhat pricey. Communities such as Brooklyn Microgrid can pool resources to get off the grid and use blockchain to log individual energy consumptions of member of the community. Individuals can also invest in setting up their own solar energy system, and then use blockchain to log and sell off excess solar energy credits.

In addition, a blockchain can make it easier for smart cities to log the production of solar energy. Solar energy installations can have individual identities on the blockchain and home appliances and systems that feed off the generated energy can also have IP addresses; hence, it becomes easier to collate an immutable history of records that can be aggregated in prediction of energy use trends.

Gold Price Reacts as Central Banks Start Major Change

3-Nov-2017

 Bank of England raised interest rates for the first time in ten years
– President Trump announces Jerome Powell as his choice to lead the U.S. Federal Reserve
– Most investors outside the US Dollar and Euro see gold prices climb after busy week of central bank news
– Inflation now at five-year high of 3%
– Inflation, low-interest rate, debt crises and bail-ins still threaten savers and pensioners

This week has been a significant week for central banks. The Bank of England raised interest rates for the first time in ten years, the Federal Reserve indicated that a December rate hike may happen and President Trump named Powell as his choice for leader of the Federal Reserve.

Gold reacted positively to Trump’s announcement as markets see little change ahead with a Powell-led Federal Reserve.

The interest rate decision is arguably the most interesting at present. Announcements on both sides of the pond suggest that the age of easy money is coming to an end, albeit slowly.

Since the financial crisis central banks have flooded markets with easy money, kept interest rates near zero and bought trillions of dollars in government and corporate bonds. Now most central banks (excluding Japan) have indicated that the party must soon stop.

The problem is, no one is sure how economies will cope when the moreish juice of central bank assistance will be taken away. None of the financial centres have managed to meet inflation targets which they were all so vocal about. Instead, they are suddenly aware that the encouraged financial excesses of the last ten years may well lead to another crash and something must be done to curb their enthusiasm.

Click here to read full story on GoldCore.com.

 

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

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