Economics

Economics
Max and Stacy give you all the financial news you need as the Global Insurrection Against Banker Occupation gathers pace. Occupy Wall Street, Crash JP Morgan, Buy Silver and DEFINITELY visit MaxKeiser.com!
Updated: 1 hour 4 min ago

Donald Trump Has an Enormous and Very Dangerous Wall Street Blind Spot

4-Jan-2017

The biggest disappointment regarding Donald Trump since being elected President has been his total embrace of dangerous Wall Street thieves. As it is currently structured and incentivized, the financial services industry represents one of the most destructive and least beneficial forces within the U.S. economy. It is essentially a parasitic industry.

Unfortunately, Trump didn’t merely pick one or two competent finance guys to be in charge of finance-related jobs. Rather, he decided to surround himself with some of the worst of the worst (see links at the end) within an industry that often operates like a criminal syndicate. Treasury Secretary pick Steven Mnuchin is one of these people, and I believe this choice represents the single biggest mistake Trump has made as President-elect.

Read the rest here.

Bitcoin to the Moon in 2017

4-Jan-2017

On Monday, January 2, 2017, Bitcoin built enough momentum to cross the $1000 milestone once again after it reached a 3-year high of $1,033. On Tuesday, January 3, 2017, Bitcoin showed that the gains in first trading day of the year were here to stay.

Read More

Why Profits Are Faltering

4-Jan-2017

The bedrock assumption of the Bull market is that corporate profits will keep rising indefinitely. Hiccups are allowed, but current stock market valuations are implicitly based on profits expanding.

The fly in the ointment here is corporate profits have been stagnating since 2014. Here is the St. Louis Federal Reserve (FRED) chart of pre-tax corporate profits:

Is it just coincidence that profits have stagnated since the U.S. dollar strengthened in early 2014? Actually, there is a causal connection between the USD and corporate profits.

The majority of America’s large corporations are global, and up to half of their sales and profits are earned overseas in other currencies.

Consider the impact of foreign exchange fluctuations on profits when converted to dollars. When the euro and the dollar were 1-to-1 back in the early 2000s, 100 euros of profit earned by U.S. corporations in Europe converted to $100 when stated in dollars.

When the euro strengthened to $1.40 (and the USD weakened accordingly), the same 100 euros of profit earned by the U.S. corporation in Europe converted to a $140 in profit when stated in dollars–a hefty 40% premium gained entirely as a result of the weak dollar.

So profits earned in euros soared 40%, not from rising sales or fatter margins, but as the direct result of a weak USD. Now the trend has reversed, and as I have been discussing for years, the USD is in a multi-year uptrend.

Which brings us to this FRED chart of the trade-weighted (broad) U.S. dollar index. Is it just coincidence that a strong dollar is correlated to recessions?

Given that profits earned in other currencies crumble when the dollar soars, it follows that there is a profits recession in strong-dollar eras, and that pressure on profits may contribute to an economy-wide slippage.

But profits are faltering for domestic reasons as well. The cost pressures crushing the restaurant sector (There’s A Massive Restaurant Bubble, And It’s About To Burst) are not limited to restaurants: rents are soaring for households, crimping disposable income, while small businesses across many sectors are facing rent increases.

Then there’s healthcare. I have noted many times over the years that healthcare can and will bankrupt the nation: for example, How Healthcare Is Dooming the U.S. Economy and Can Chronic Ill-Health Bring Down Great Nations? Yes It Can, Yes It Will.

The restaurant described in the above article saw its healthcare costs for employees skyrocket from $14,000 to $86,000 in a few years. While this may seem extreme to those of you who are not exposed to the real, unsubsidized cost of U.S. healthcare, those of us who pay real, unsubsidized costs are not surprised at all.

Every dollar diverted to healthcare and pharma cartels is a dollar that is unavailable to the enterprise or employee for other spending or investment. As I have noted, skyrocketing healthcare costs act as an economy-wide tax.

Then there’s rising wages. Most people view increases in minimum wages sympathetically, and there are solid arguments in favor of returning the minimum wage to its purchasing power in 1970.

But to enterprises staggering under higher rents, higher healthcare costs and higher junk fees/local taxes, increased wages may be the coup de grace.

In sum: profits are faltering for structural reasons that are not easily resolved.

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.

Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

2017 – The Year of Banana Skin

4-Jan-2017

2016 is behind us and we have started a new year with great gusto and no small measure of anxiety. The potential for unknown unknowns turning into banana skins is very high. Right now we are looking at:

  • The broad US stock markets & the UK FTSE are breaking new highs
  • Investment flows are rotating from Bonds to Equities on the back of a Trump driven reflation outlook
  • Donald Trump is President Elect
  • The Fed has initiated a long anticipated rise in interest rates
  • Global Debt levels as a percentage of GDP has never been higher
  • Britain is going through the painful process of divorcing itself from the EU,
  • France is facing elections where far right and and anti EU parties may take power
  • Italy’s banking system is in crisis with the weight of EUR 300 Billion in bad debts
  • Germany’s Merkel is losing core support and the Anti – EU forces are gathering power
  • China is being buffeted by global protectionist rhetoric and lacklustre domestic demand, can she manage the domestic discontented?
What could possible go wrong? Many of these changes have their genesis in misguided monetary policy, specifically those pursued by the US Fed in the 1990’s and since, with micro management of economies via stimulus, artificial interest rates and the Pandora’s box that is Quantitative Easing. The risk of the “2 a.m. tweet” where policy is poorly stated or misunderstood is very real. What is of real concern is that many of the themes we identify are based on developments that are very new and lack much historic context, especially when one considers the scale of the economies that may be effected. Read full story here…

Prosperity = Abundant Work + Low Cost of Living

4-Jan-2017

If we seek a coherent context for the new year, we would do well to start with the foundations of widespread prosperity. While the economy is a vast, complex machine, the sources of widespread prosperity are not that complicated: abundant work and a low cost of living.

When work is abundant, there are opportunities for many skill levels, and employers must bid for the most productive, reliable workers. This supports wages and widespread employment.

When the cost of living is low, even low-wage households can not only get by but put a little aside if they are prudent and thrifty.

This may seem obvious, but the conditions required for work to be abundant and the cost of living to be low are not so obvious. For work to be abundant, it must be easy to start a business, easy to operate the new business, easy to make a profit so the business can survive the first few years and easy to hire employees.

All these factors require an environment of low-cost compliance with regulations, low tax rates, low costs of transactions, reasonable transport costs, reasonable cost of money (but not near-zero), reasonable availability of capital for small enterprises, local and national governments that actively seek to smooth the path of new enterprises and existing enterprises seeking to expand, and a transparent marketplace that isn’t dominated by politically dominant cartels and subservient-to-cartels government agencies.

This matters because the number one cause of the high cost of living is artificial scarcity created and maintained by monopolies, cartels, and the government that serves their interests. Artificial scarcity imposed by cartels and a servile state is the primary cause of soaring costs in a variety of sectors.

There are many factors that generate artificial scarcity: regulatory capture/ regulatory moats designed to protect cartels and monopolies from competition, a lack of affordable capital available to small enterprises, thickets of regulations that don’t really serve the public interest, educational institutions that don’t teach the fundamentals of entrepreneurism and how to start and operate a small business, and so on.

Real-world limits also impose costs. Energy costs are rising for a variety of structural reasons; the easy-to-extract oil has been extracted, the full lifecycle costs of alternative energy sources remain substantial (maintenance is not free for the 20 year lifespan of the windmill/solar array, for example) and so on.

Land for new housing is scarce in many cities, and that imposes scarcity costs as various entities compete for the scarce resource (land).

If we look at eras of widespread prosperity, we find that work is abundant,private enterprises and trade are vibrant, the currency is stable, the cost of doing business is low, inflation and the cost of living are low, so even low-wage households can slowly improve their lot.

This doesn’t just describe America in the 1950s and 1960s–it also describes the Tang Dynasty in 700 A.D. China and the Byzantine Empire in its heyday. These are the core dynamics of economies throughout history that generate and distribute widespread prosperity and opportunity.

Prosperity is limited to the few at the top when the cost of living soars. When wages for the bottom 95% stagnate while the cost of living (housing, healthcare, college, taxes, etc.) soars, the bottom 95% become poorer–though borrowing money masks this reality for a time.

Economies stagnate when the few at the top limit competition, not just for customers but for capital and political power. Economies designed to maintain an exploitive elite and its servile class of technocrat factotums become sclerotic and unproductive, as the unearned privileges of the few act as a crippling tax on the entire economy. (See Inequality and the Collapse of Privilege and Why Our Status Quo Failed and Is Beyond Reform for more on this.)

No wonder inequality is rising: the only possible output of an economy devoted to artificial scarcity and maintaining the privileges of the few at the expense of the many is rising inequality and stagnation.

We can do better, but only if we discern the systemic reasons why wages are stagnating, small business is in decline and the rich get richer while everyone else gets poorer.

An economy that only serves the prosperity of the protected top 5% is an economy doomed to rising inequality, stagnation and widespread social discontent:

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.

Who Benefits from War with Russia?

2-Jan-2017

There is absolutely no upside to any conflict with Russia when it comes to 99.9% of us. The fact so many pundits, anonymous intelligence officials and Hillary Clinton cultists are encouraging such an outcome based on zero publicly available evidence that Russia hacked the DNC/John Podesta and provided it to Wikileaks for the purpose of electing Trump, should be seen as the gigantic red flag that it is. So what’s actually going on? As is so often the case, it is all about money and power.

Read the rest here.

Fragmentation and the De-Optimization of Centralization

2-Jan-2017

Many observers decry the loss of national coherence and purpose, and the increasing fragmentation of the populace into “tribes” with their own loyalties, value systems and priorities.

These observers look back on the national unity of World War II as the ideal social standard: everyone pitching in, with shared purpose and sacrifice. (Never mind the war killed tens of millions of people, including over 400,000 Americans.)

But few (if any) of these nostalgic observers note that history has no rewind button or reverse gear. It is impossible to recreate the national unity of World War II, as modern war is either specialized or nuclear. Neither enable mass mobilization.

Few observers note that World War II set the template for the next 60 years: the solution is always to further centralize power, control and money to serve the goals set by centralized authority.

The wartime economies of every combatant were optimized not just for production of war goods but for centralized command and control of that production.

We are now so habituated to centralized decision-making, control and power that we don’t even question the notion that a wildly diverse nation of 320 million people can be well-served by a single healthcare system that requires thousands of pages of regulations to function in a centrally managed fashion.

It seems blindingly obvious to me that we need 10,000 different solutions to healthcare, not one insanely complex centralized system that is a global outlier in its cost and ineffectiveness (see chart below).

Those who are nostalgic for a centralized command and control economy and society are like those who decried the breakdown of “the one faith” Catholicism in the emergence of Protestant Christians.

The Protestant Reformation occurred because the centralized authority of Rome no longer worked for many of the faithful. The proliferation of Protestant churches was the solution.

Simply put, the 4th Industrial Revolution has de-optimized centralization.Centralized control, power and money are now the problem, not the solution.


Source: U.S. Healthcare Is A Global Outlier

This reality has pitted the changes in the economy and technology against the political command and control system that is virtually unchanged since 1945. New layers of bureaucracy are added, but none are ever dissolved.

Those decrying the loss of centralized control and narratives are in essence decrying solutions to the new problems we face. Just as the Catholic Church could not turn back the clock to 500 A.D., so the central states and banks cannot turn back the clock to 1945.

Solutions abound, but they look forward, not backward, and they embrace experimentation, innovation, decentralization, community and new models that obsolete de-optimized centralization. These solutions are what Of Two Minds is all about.

New Year Note: I want to thank those financial contributors who have supported the site throughout 2016, and especially those who renew their financial support like clockwork in January of every year. It is you stalwart financial supporters that keep the site going. Thank you for contributing your hard-earned money to this often-Quixotic project.

This includes the subscribers and patrons who receive the weekly Musings Reports ($5 per month or $50/year) as a token of my appreciation.

In 2017, the site will continue to focus on new tools for alleviating inequality, privilege and poverty globally. Yes, it’s possible, and yes, it’s practical. I’ve written three books on these topics: Inequality and the Collapse of Privilege, Why Our Status Quo Failed and Is Beyond Reform and A Radically Beneficial World: Automation, Technology & Creating Jobs for All.

More to come on all fronts–thank you for sharing the journey.

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.

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