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: 6 hours 38 min ago

The Consent of the Conned

9-Oct-2017

My theme this week is The Great Unraveling, by which I mean the unraveling of our social-political-economic system of hierarchical, centralized power. Let’s start by looking at how the basis of governance has transmogrified from consent of the governed to consent of the conned.

In effect, our leadership leads by lying. As we know, when it gets serious, you have to lie to preserve the perquisites and power of those atop the wealth-power pyramid, and well, it’s serious all the time now, so lies are the default setting of the entire status quo.

But all too many of us are willing to accept the lies because they’re what we want to hear.

As any competent con-man knows, you can only con those who want to be conned. You can only scam the marks who want to believe that what’s obviously too good to be true is in fact true.

The story of scams such as Bernie Madoff’s isn’t that canny Bernie victimized helpless wealthy people; the untold story is that all those “victims” wanted to believe that something that was obviously too good to be true–incredibly high returns, logged month after month and year after year like clockwork–was in fact true because their greed made them more than just vulnerable to being scammed–they wanted to be bamboozled by Bernie.

Victims of scams naturally deny their own culpability. It’s extremely uncomfortable to admit that greed didn’t just blind us to a patently impossible yield; we wanted to be conned because it felt so wonderful to believe we richly deserved unearned wealth.

All wealth is “earned” to those doing the skimming. The greatest con machine of all time, Wall Street, judiciously refers to every skim and scam as “earnings.”

And so the “victims” blame our lying leaders for telling them what they want to hear. You see how the webs of self-interest reinforce each other: those atop the wealth-power pyramid secure their position by lying persuasively enough to gain The Consent of the Conned–those who give their consent to a visibly corrupt and unsustainable status quo because that status quo is promising to provide too good to be true goodies.

In other words, the lies are constantly compounding: the leadership lies to themselves– we have to lie to keep everything glued together for the good of the people–when their real motivation is to keep the system glued together because the system gives them wealth and power.

If we can be honest for a moment, we might admit that representational democracy encourages leaders to issue too good to be true promises because those promises win votes.

Those on the bottom of the wealth-power pyramid accept the too good to be true assurances because that’s exactly want we want to hear: that we all deserve a piece of the unearned wealth that, like Bernie Madoff’s painfully impossible scam, flows in permanent abundance via some sort of financial magic.

The books are cooked, people; we embrace a gigantic too good to be trueBernie Madoff scam of a system because it’s what we want to believe and what we want to hear. Then, when the whole phantom-wealth con collapses in a heap, we quickly pull on the tattered cloak of victimhood: we were promised, we were lied to, we trusted our leaders to lead us wisely, and so on, as if the con wasn’t obvious to anyone who was skeptical of too good to be true claims.

Now that the whole Bernie Madoff scam of a system is unraveling, two self-reinforcing dynamics are in play: our leadership, elected and unelected alike, are doubling down on the lies because there is no alternative–TINA. What does a liar gain by confessing the whole prosperity thing is illusory, and darn it, we can only spend what we produce in real-world surplus? Short answer: nothing, because that’s not going to win elections or gain the consent of the governed.

So lies are piled on lies to the point of absurdity. But just as Bernie Madoff’s wealthy marks ignored the warnings of the skeptical and mounting evidence that they were being conned, the electorate wants to believe the magical thinking is real, and so they accept the latest statistical flim-flammery as “proof” that the con is not a con.

Once again, we worship the Goddess TINA–there is no alternative. Just as our leaders are now trapped in their web of lies and false assurances, the governed are also trapped in the con because it’s too painful and unnerving to admit we’ve willingly bought into a complete con: we’re too smart to be conned, we protest; look, it’s not a con, the GDP is growing and unemployment is low–and so on.

Bernie Madoff’s marks made the same defensive protests: it can’t be a con, look at my statement: the monthly “earnings” keep pouring in.

The books are cooked, folks, at every level of our Bernie Madoff scam of a system: the federal books are cooked; state, county and city books are cooked; corporate books are cooked; the statistical metrics are all cooked; the projections are cooked, and the estimates are cooked.

Every single line item in our entire Bernie Madoff scam of a system is cooked.Wanting to believe a con is true doesn’t make it true. The power of a con rests in our great desire to believe that what’s too good to be true is magically true. It isn’t, but it feel so reassuring and, well, deserved for it to be true.

It’s tempting to blame our leadership for perpetrating this systemic con, but every con requires marks who are willing to accept that what’s too good to be true is magically true.

 

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.

Cartel Nervous: Gold & Silver To Be The Slashers On Friday The 13th?

9-Oct-2017

The week is starting out a-typical and ending that way too. Today is Columbus Day, and the banks are closed, but the markets are open. On the fundamental front, we have a slew of Fed speakers starting tomorrow, and of course, by Friday the 13th, they are going to need all the jawboning they can get to keep their stock market propped, the dollar under hypnosis, and gold & silver out of the public conscious:

From Wednesday on there are market moving data releases for the HFTs to trade off of, including:

  • JOLTS
  • Treasury Budget
  • Business Inventories
  • Consumer Sentiment

This is why it matters: The data releases “hit the tape”. This means they are released, and everyone’s favorite tape is the market data feeding news platform Bloomberg Terminal, which no longer publishes yearly costs but, but it is safe to assume it costs around $25,000 for the program, which hedge funds and major trading firms (i.e. the revolving door between Washington and Wall Street) use in conjunction with their algorithms to trade positions back and forth all the while racking up the profits and creating nothing other than a bunch of synthetic paper currency and nothing of substance.

The Fed speeches are significant too. Computers calculate numbers, and the “black boxes” that are built to parse the data in the releases is not something a human mind can do in nano-seconds, let alone does a human have fiber-optic and laser connections to the major trading clearinghouses like BATS to front run, skim, spoof, snipe and pounce any other computer that is nano-seconds behind. So humans need fundamental news.

The fundamental news comes in the form of jawboning the markets. That is to say, all of those Fed Heads declaring that everything is awesome reassure any of the actual people left in the stock markets that the Fed has their backs. Said differently, this week is the typical data release feeding the computer algorithm trading, in conjuction with the various staggered Fed speeches re-assuring the humans that U.S. stocks are the place to be. At one point, however, it won’t be, and with the exception of a few people on the inside who stand to profit immensely from knowledge we are not privy too, the Fed will not longer support the system in order to allow the bubble to pop. Since they know when that point is, they will bank on the whole way down too as investors loose their hard earned money that they trusted in paper assets.

But they will most likely have trouble with gold and silver this week.

Click here to continue reading on Silver Doctors

 

Perth Mint Gold Coins Sales Double In September

9-Oct-2017

– Perth Mint gold coins see sales double on month in September
– Perth Mint silver bullion coin sales surge 78% in September
– Perth Mint sold 46,415 ounces of gold in September

– Nearly six times more gold coins sold at Perth Mint than U.S. Mint in September
– Sales surge at Perth Mint from low base; could indicate trend change and higher demand in coming months


Click image to enlarge

From Reuters:

The Perth Mint’s sales of gold products doubled in September from a month earlier, while silver sales surged 78 percent, the mint said in a blog post on its website on Tuesday.

Sales of gold coins and minted bars jumped to 46,415 ounces in September from 23,130 ounces a month ago, the mint said.

Silver sales during the month also rose to 697,849 ounces, compared with 392,091 ounces in August.

The Perth Mint refines more than 90 percent of newly-mined gold in Australia, the world’s No. 2 gold producer after China.

Spot gold prices recorded their biggest monthly drop for the year in September, pressured by the strength of the U.S. dollar amid increasing prospects of a December interest rate hike by the Federal Reserve.

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.

Betrayal! The defining crime of our times

8-Oct-2017

The recent acts of violence in the US, especially the horrific mass shooting in Las Vegas, are not arising out of a vacuum. Nor are the Brexit vote, the election of Trump, or the recent Catalonian vote for secession, random unconnected acts.

These — and future similarly disruptive events sure to come — are all arising out of the fact that we all have been betrayed by the leaders and institutions we depend on.

Click here to read the full article

A Golden Sunset & Silver Ripples Mean One Thing: SURFS UP

7-Oct-2017

Today started out like all BLS Jobs Report Fridays. As the Nonfarms Payrolls Report was released, gold had an exceptionally rough time:

$2,605,900,000 worth of paper gold traded within just four minutes (20,600 contracts).

That was not the first hit, however:

Gold got a second helping of smashed potatoes when the markets officially opened.

Silver had the same hit in the morning as the first negative jobs number in seven years was released:

The second helping was also served shortly after the markets opened:

 

However that all changed as the morning went on. By the time it was all over, and while it may be hard to believe, silver was actually up on the week:

How convenient that both the ADP and the BLS jobs numbers hit he tape a full hour before the markets open. This gives the cartel plenty of time to see test the waters. In silver, those waters were tested, but even though it has not been easy to watch all week long, silver has actually held up rather nicely, all things considered:

Sure, we dipped into the $16.50s a few times this week. No, I was not able to time the exact bottom. Timing exact bottoms and tops is not the best strategy, because it rarely works out to be so exact. Yet this week with silver, any day this week was a good day to buy. Silver has traded in the $16.50 to $17 range all week, mostly on the lower side of that range, and on the daily, that is one heck of a bullish engulfing candle which is signalling strength going into next week.

Why wouldn’t there be a massive surge in the silver price? Silver started the most recent downtrend on September 8th, and after three weeks of grueling losses, here is silver on the weekly looking perky:

We have been watching the GSR for over a week now, and sure enough, silver is starting to come back down as we expected it to:

All things considered, who would have thought we would hold up so nicely on the week? I sure didn’t. I was looking for a trip down to $16. For a brief period this morning we dipped into all the way down to $16.34, but the dip was very short lived. There is certainly an overwhelming amount of physical silver demand in the lower $16s, and the cartel knows it. Perhaps that is the reason why silver held on so, systematically, all week long. The dials and gauges may be working well now, but we shall see for how long.

Gold did not far as well as silver on the week:

This is no reason to get alarmed, however. It is actually very healthy. We have been looking for gold to catch down to silver, and we have been looking for silver to catch-up to gold, and this week, we got both. Gold was slightly down and silver was slightly up.

All of these factors show that while on the surface, the precious metals have been performing weak on the price action, they are, for all intents and purposes, setting up for a massive rally. It is almost too textbook to be true.

The dollar has continued to show signs of strength, however, but notice the subtle difference:

We speculated that the dollar would test the 94 resistance level, and sure enough it did. One way to look at the dollar is in relation to precious metals. It is rather interesting, that as the dollar has continued in the most recent rally, what we would consider a bear rally, gold has only traded slightly lower, and silver is actually up on the week.

The yield on the 10-year Treasury Note punched through 2.4% today for a couple of minutes. Notice the divergence the dollar and yields, however. On the chart above of DXY and TNX, yields even gaped up. We shall see if this is the start of something new, or the end of something long overdue. The overdue would refer to a massive surge in yield, as well as a serious drop in the value of the dollar, both working to offset each other. In other words, as the dollar weakens and continually loses value, interest rates will be forced up higher, much higher.

To say great shocks are coming in FX and the debt markets is putting it lightly.

But wouldn’t you know, for now, everything is awesome:

Now, take into consideration that we just has the worst mass shooting, ever, in the “modern era” as the MSM likes to put it, President Trump is ratcheting down and turning up the pressure on “Rocket Man”, Catalonia is saying they are going to declare independence from Spain on Monday, the U.S. economy just officially lost jobs for the first time in 7 years, Puerto Rico is wreaking havoc on the budget and Puerto Rico’s ability to pay it’s debt, let alone cover damages estimated at more than the entire GDP of the island, yet still, the Dow is up 440 points since last week.

Fear, however, looks to be waking up:

Just as the silver candle today is looking very, very bullish, that VIX candle is looking like it is signaling that the fear trade is on.

Here’s a question: How can the cartel manage to suppress gold and silver prices, at the same time they are able to maintain the illusion of a strong dollar, they can prop the stock markets, they can quell any “fear” in the markets, and they can arrive at employment nirvana?

That was rhetorical, but If I were answering it, I would say that they can’t. If they were able to keep gold and silver at bay all week because China was closed, then next week they just may have to direct fire elsewhere in the markets, and this could mean that they have to let gold and silver prices rise. We shall see.

If platinum is any indication, however, it does look like the precious metals have found their short term bottom here:

Platinum is up ever so slightly on the week, and that is a good thing. Recall that platinum has officially been in a correction, and we needed to stop the bleeding and stabilize the patient. It looks like the markets have done just that.

Even if copper and crude are sending mixed signals:

Copper has clawed it’s way back above $3.00, yet crude has fallen under $50 as we thought it would. From mid-June and on, however, it is hard to make the case that prices are not going higher. Prices for Dr Copper and Black Gold may have diverged this week, but, at least on the daily chart, the trend is clear. Once the dollar weakens even more, the trend will be absolutely clear. Higher prices for two of the most basic and essential of materials in all things.

Translation: Get ready to pay more for everything, from those Oreos in NY which must be trucked in from Mexico due to outsourcing, to the cost to wire a house during the construction phase. The next commodities bull market is getting it’s footing.

BOTTOM LINE:

With gold down slightly on the week and with silver up on the week, now come the waves that we have been waiting for.

But she’s not going to wait for you, so grab you’re board and get in already…

 

Migration of the Tax Donkeys

6-Oct-2017

A Great Migration of the Tax Donkeys is underway, still very much under the radar of the mainstream media and conventional economists. If you are confident no such migration of those who pay the bulk of the taxes could ever occur, please consider the long-term ramifications of these two articles:

Stanford Says Soaring Public Pension Costs Devastating Budgets For Education And Social Services

Which American Cities Will File Bankruptcy Next?

Allow me to summarize for those who aren’t too squeamish: a lot of cities and counties are going to go broke, slashing services and jacking up taxes, all to no avail. The promises made by corrupt politicos cannot possibly be kept, despite constant assurances to the contrary, and those expecting services and taxes to remain untouched will be shocked by the massive cuts in services and the equally massive tax increases that will be imposed in a misguided effort to “save” politically powerful constituencies and fiefdoms.

These dynamics will power a Great Migration of the Tax Donkeys from failing cities, counties and states to more frugal, well-managed and small business-friendly locales. I’ve sketched out the migration in this graphic: the move by those who can from incompetently managed and/or corrupt cities/counties/states to more innovative, open, frugal and better managed locales.

Unlike Communist regimes which strictly control who has permission to transfer residency, Americans are still free to move about the nation. This creates a very Darwinian competition between sclerotic, corrupt, overpriced one-party-dictatorships whose hubris-soaked political class is convinced the insane housing prices, tech unicorns, abundant services, and a high-brow culture ruled by an artsy elite are irresistible to everyone, and locales that are low-cost, responsive to their Tax Donkey class, welcoming to new small businesses, employers and talent, unbeholden to a politically-correct dictatorship and conservatively managed, i.e. not headed for insolvency.

Not everyone can move. Many people find it essentially impossible to move due to family roots and obligations, poverty, secure employment, kids in school, and numerous other compelling reasons.

However, some people are able to move–typically the self-employed independent types who can no longer afford (or tolerate) anti-small-business, high-tax municipalities and their smug elitist leadership that’s more into virtue-signaling than creating jobs and a small-biz conducive ecosystem. (Giving lip-service to small-biz doesn’t count.)

Memo to hubris-soaked politicos and elites: in case you haven’t noticed, an increasing number of the most talented and experienced workers can live anywhere they please and submit their output digitally. In other words, they don’t have to live in Brooklyn, Santa Monica or San Francisco.

This is the model for many half-farmer, half-X refugees I’ve described elsewhere: people who are moving to homesteads with the networks and skills needed to earn a part-time living in the digital economy. In a lower cost area, they only need to earn a third or even a fourth of their former income to live a much more fulfilling and rewarding life.

Not that hubris-soaked politicos and elites have noticed, but only the top few percent of households can afford to own a home in their bubble economies.Paying $4,000 a month in rent for a one-bedroom cubbyhole in San Francisco may strike the elites living in mansions as a splendid deal, but to the people who have surrendered all hope of ever owning anything of their own to call home–not so much.

Though this chart is based on national data, there are many regional variations. When it takes a year just to obtain a permit to open an ice cream shop (in San Francisco), how much will the insolvent “owner” have to charge per ice cream cone to make up a year in hyper-costly rent paid for nothing but the privilege of being a scorned peon in a city ruled by privilege and protected fiefdoms?

Dear Rest of the Country: you have a once-in-a-generation opportunity to eat the lunch of all the overpriced, corrupt, bubble-dependent locales that are convinced they are irresistible to the cultured, creative class. Many of those folks would actually like to own some land and a house without sacrificing everything, including their health and family.

Dear local leadership: here’s the formula for long-term success: welcome talent from everywhere in the U.S. and the world; make it cheap and quick to open a business, and cheap to operate that business; make public spaces free, safe and well-maintained; insist on a transparent, responsive government obsessed with serving the public as frugally as possible; support a political class drawn from people with real-world enterprise experience, not professional politicos, lobbyists, etc., and treat incoming capital well–not just financial capital but intellectual, social and human capital. Focus on building collaboration between education and enterprise–foster apprenticeships not just in the trades but in every field of endeavor.

Provide all these things and success will follow; ignore all these in favor entrenched elites and fiefdoms and go broke as those paying the taxes decide to save their sanity, health and future by getting out while the getting’s good. 

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 Investment In Germany Surges – Now World’s Largest Gold Buyers

6-Oct-2017

– Gold investment in Germany surged in past 10 years
– Germans are largest gold buyers in world: WGC research
– Gold investment in Germany surges to €6.8B in 2016
– Gold demand per person is highest in world – double Chinese, UK and U.S. demand
– Gold one of the most popular investment for retail investors especially those with high incomes
– 59% of respondents agreed with the statement that
gold will never lose its value in the long-term
– 48% agreed with the statement that owning gold
makes me feel secure for the long-term
– Prudent Germans more aware of financial and monetary risks

Click on chart to enlarge

Germany’s Golden Decade from the World Gold Council 

Germany’s gold investment market has boomed in the past 10 years.

In the face of successive financial crises and loose monetary policy, German investors turned to gold to protect their wealth. In response, new product providers entered the market making it easier for people to invest.

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.

Be Careful What You Wish For: Inflation Is Much Higher Than Advertised

5-Oct-2017

It’s not exactly a secret that real-world inflation is a lot higher than the official rates–the Consumer Price Index (CPI) and Personal Consumption Expenditures PCE). As many observers have pointed out, there are two primary flaws in the official measures of inflation:

1. Big-ticket expenses such as rent, healthcare and higher education–expenses that run into the thousands or tens of thousands of dollars annually–are severely underweighted or mis-reported. While rents are soaring, the CPI uses an arcane (and misleading) measure of housing costs: owners equivalent rent. Why not just measure actual rents paid and actual mortgages/property taxes/home insurance premiums paid?

Healthcare is 18% of GDP but only 8.5% of CPI. To those exposed to the actual costs of healthcare, 8.5% of the CPI is a joke.

The same can be said of higher education: households paying tuition and other college costs are exposed to horrendously high rates of inflation, as illustrated in this chart:

Revealing the Real Rate of Inflation Would Crash the System (August 3, 2016)

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)

Then there’s the hedonic adjustments that are made to reflect improvements in quality, features, safety, etc. So the price of computers is discounted to reflect the increase in memory, etc. compared to previous models. This is a can of worms, as anyone shopping for a new car or truck can attest: yes, the vehicles have more safety features, but the sticker price is much higher. Do we knock $10,000 off the “price” because of these additional features? Why should we, when consumers have to pony up $10,000 more than they did a decade ago?

More honest and accurate estimates of real-world inflation that include the big-ticket categories of housing, healthcare and higher education reckon annual inflation is around 7% or even as high as 10% in high-cost metro areas, not 2%. This sets up a very peculiar cognitive dissonance in the financial media.

On the one hand, government agencies are bending over backward to under-report inflation. On the other, the Federal Reserve is whining that inflation is too low and their efforts to push it higher have failed. Heck, folks, the solution is obvious: just report real-world inflation without the hedonic adjustments and other shuck and jive, and when the rate of inflation comes in at a hot 7% instead of the official 2%, the Federal Reserve can declare victory.

Why does the Fed want higher inflation? The general explanation is higher inflation benefits bankers, borrowers and the expansion of credit that underpins our consumerist economy.

The idea is that as wages rise with inflation (assuming wages are rising, which they’re not for the bottom 90%), households will have an easier time servicing existing debt and getting new loans.

The payments due on existing debt become easier to make as inflation expands everyone’s paychecks. (Note that this expansion doesn’t mean the purchasing power of the wage has increased; it’s an illusory expansion that serves the credit industry.)

Banks benefit because they earn fees on originating new loans and rolling over existing debts into new loans.

But the supposed benefits of high inflation are undercut if wages don’t rise as fast as prices. As many observers have noted, wages for the bottom 90% have not kept pace with higher costs. For the bottom 90%, rising rents, higher property taxes, higher health insurance premiums, higher healthcare co-pays and deductibles, soaring college tuition and so on, have squeezed household budgets while household income has stagnated.

No wonder the government wants to mask the real rate of inflation. If it was widely understood that inflation is reducing our purchasing power at an annual rate of 7% while wages are rising at 1% or 2% if at all, people might realize the Fed and other authorities have stripmined the many to enrich the few.

So what the Federal Reserve is actually whining about is not low inflation–it’s that high inflation isn’t pushing wages higher like it’s supposed to. In the simplistic models of conventional economics, inflation is supposed to be a monetary function, i.e. a generalized secular dynamic that pushes everything higher–not just prices, but wages, too.

Alas, the world isn’t as simple as the economists’ models. So what we have instead is stagnating wages and soaring wealth-income inequality.

No wonder so many people reckon this was the real plan all along: it’s worked brilliantly for the eight years of “recovery”, greatly enriching the few at the expense of the many. 

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.

Extortion & Ransom? Diving Into the IRS/Equifax Cyber-Rabbit Hole

5-Oct-2017

First, for those not familiar with the Equifax data breach, or what to do about it, here it is straight from Federal Trade Commission:

If you have a credit report, there’s a good chance that you’re one of the 143 million American consumers whose sensitive personal information was exposed in a data breach at Equifax, one of the nation’s three major credit reporting agencies.

Here are the facts, according to Equifax. The breach lasted from mid-May through July. The hackers accessed people’s names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. They also stole credit card numbers for about 209,000 people and dispute documents with personal identifying information for about 182,000 people. And they grabbed personal information of people in the UK and Canada too.

As for the IRS awarding a no-bid contract to equifax, here’s more about the case from Politico:

The IRS will pay Equifax $7.25 million to verify taxpayer identities and help prevent fraud under a no-bid contract issued last week, even as lawmakers lash the embattled company about a massive security breach that exposed personal information of as many as 145.5 million Americans.

contract award for Equifax’s data services was posted to the Federal Business Opportunities database Sept. 30 — the final day of the fiscal year. The credit agency will “verify taxpayer identity” and “assist in ongoing identity verification and validations” at the IRS, according to the award.

And this leads us to ask a deeper question that the MSM, Politico, and even Zero Hedge are failing to ask:

Is this contract a back-door payment for possible extortion or ransom?

Going back for the last couple of years, businesses, governments and organizations of all types have been hacked, and data has been breached, and the stolen data is held for ransom and the company is extorted for currency, usually of the cryptocurrency Bitcoin variety. Let’s look at a few examples of this.

Click here to read the rest on Silver Doctors

 

How to Fund a Universal Basic Income Without Increasing Taxes or Inflation

5-Oct-2017

The policy of guaranteeing every citizen a universal basic income is gaining support around the world, as automation increasingly makes jobs obsolete. But can it be funded without raising taxes or triggering hyperinflation? In a panel I was on at the NexusEarth cryptocurrency conference in Aspen September 21-23rd, most participants said no. This is my rebuttal.

In May 2017, a team of researchers at the University of Oxford published the results of a survey of the world’s best artificial intelligence experts, who predicted that there was a 50 percent chance of AI outperforming humans in all tasks within 45 years. All human jobs were expected to be automated in 120 years, with Asian respondents expecting these dates much sooner than North Americans. In theory, that means we could all retire and enjoy the promised age of universal leisure. But the immediate concern for most people is that they will be losing their jobs to machines.

That helps explain the recent interest in a universal basic income (UBI) – a sum of money distributed equally to everyone. A UBI has been proposed in Switzerland, trials are beginning in Finland, and there is a successful pilot ongoing in Brazil. The cities of Ontario in Canada, Oakland in California, and Utrecht in the Netherlands are planning trials; two local authorities in Scotland have announced such plans; and politicians across Europe, including UK Labour Party leader Jeremy Corbyn, have spoken in favor of the concept. Advocates in the US range from Robert Reich to Mark Zuckerberg, Martin Luther King, Thomas Paine, Charles Murray, Elon Musk, Dan Savage, Keith Ellison and Paul Samuelson. A new economic study found that a UBI of $1000/month to all adults would add $2.5 trillion to the US economy in eight years.

Welfare can encourage laziness, because benefits go down as earned income goes up. But studies have shown that a UBI distributed equally regardless of income does not have that result. In 1968, President Richard Nixon initiated a successful trial showing that the money had little impact on the recipients’ working hours. People who did reduce the time they worked engaged in other socially valuable pursuits, and young people who were not working spent more time getting an education. Analysis of a similar Canadian trial found that employment rates among young adults did not change, high-school completion rates increased, and hospitalization rates dropped by 8.5 percent. Larger experiments in India have reached similar results.

Studies have also shown that it would actually be cheaper to distribute funds to the entire population than to run the welfare services governments engage in now. It has been calculated that if the UK’s welfare budget were split among the country’s 50 million adults, each of them would get £5,160 a year.

But that is not enough to cover basic survival needs in a modern economy. Taxes would need to be raised, additional debt incurred, or other programs slashed; and these are solutions on which governments are generally unwilling to embark. The other option is “qualitative easing,” a form of central bank quantitative easing in which the money flows directly into the real economy rather than simply into banks. In Europe, politicians are taking another look at this once-derided “helicopter money.” A UBI is being proposed as monetary policy that would stimulate productivity without increasing taxes. As Nobel prize-winning economist Joseph Stiglitz, former senior vice president of the World Bank, explains:

. . . [W]hen the government spends more and invests in the economy, that money circulates, and recirculates again and again. So not only does it create jobs once: the investment creates jobs multiple times.

The result of that is that the economy grows by a multiple of the initial spending, and public finances turn out to be stronger: as the economy grows, fiscal revenues increase, and demands for the government to pay unemployment benefits, or fund social programmes to help the poor and needy, go down. As tax revenues go up as a result of growth, and as these expenditures decrease, the government’s fiscal position strengthens.

Why “QE for the People” Need Not Be Inflationary

The objection to any sort of quantitative easing in which new money gets into the real economy is that when the money supply grows too large and consumer prices shoot up, the process cannot be reversed. If the money is spent on a national dividend, infrastructure, or the government’s budget, it will be out circulating in the economy and will not be retrievable by the central bank.

But the government does not need to rely on the central bank to pull the money back when hyperinflation hits (assuming it ever does – it has not hit after nearly nine years and $3.7 trillion in quantitative easing). As Prof. Stiglitz observes, the money issued by the government will return to it simply through an increase in fiscal revenues generated by the UBI itself.

This is due to the “velocity of money” – the number of times a dollar is traded in a year, from farmer to grocer to landlord, etc. In a good economy, the velocity of the M1 money stock (coins, dollar bills, demand deposits and checkable deposits) is about seven; and each recipient will pay taxes on this same dollar as it changes hands. According to the Heritage Foundation, total tax revenue as a percentage of GDP is now 26 percent. Thus one dollar of new GDP results in about 26 cents of increased tax revenue. Assuming each of the seven trades is for taxable GDP, $1.00 changing hands seven times can increase tax revenue by $7.00 x 26 percent = $1.82. In theory, then, the government could get more back in taxes than it paid out.

In practice, there will be a fair amount of leakage in these returns due to loopholes and deductions for costs. But any shortfall can be made up in other ways, including closing tax loopholes, taxing the $21 trillion or more hidden in offshore tax havens, or setting up a system of public banks that would collect interest that came back to the government.

A working paper published by the San Francisco Federal Reserve in 2012 found that one dollar invested in infrastructure generates at least two dollars in “GSP” (GDP for states), and “roughly four times more than average” during economic downturns. Whether that means $4 or $8 is unclear, but assume it’s only $4. Multiplying $4 by $0.26 in taxes would return the entire dollar originally spent on infrastructure to the government, year after year. For precedent, consider the G.I. Bill, which is estimated to have cost $50 billion in today’s dollars and to have returned $350 billion to the economy, a nearly sevenfold return.

What of the inflation formula typically taught in economics class? In a May 2011 Forbes article titled “Money Growth Does Not Cause Inflation!”, Prof. John Harvey demonstrated that its assumptions are invalid. The formula is “MV = Py,” meaning that when the velocity of money (V) and the quantity of goods sold (y) are constant, adding money (M) must drive up prices (P). But as Harvey pointed out, V and y are not constant. As people have more money to spend (M), more money will change hands (V), and more goods and services will get sold (y). Demand and supply will rise together, keeping prices stable.

The reverse is also true. If demand (money) is not increased, supply or GDP will not go up. New demand needs to precede new supply. The money must be out there searching for goods and services before employers will add the workers needed to create more supply. Only when demand is saturated and productivity is at full capacity will consumer prices be driven up; and they are not near those limits yet, despite some misleading official figures that omit people who have quit looking for work or are working only part-time. As of January 2017, an estimated 9.4 percent of the US population remained unemployed or underemployed. Beyond that, there is the vast expanding potential of robots, computers and innovations such as 3D printers, which can work 24 hours a day without overtime pay or medical insurance.

The specter invariably raised to block legislators and voters from injecting new money into the system is the fear of repeating the notorious hyperinflations of history – those in Weimer Germany, Zimbabwe and elsewhere. But according to Professor Michael Hudson, who has studied the question extensively, those disasters were not due to government money-printing to stimulate the economy. He writes:

Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending. The dynamics of hyperinflation traced in such classics as Salomon Flink’s The Reichsbank and Economic Germany (1931) have been confirmed by studies of the Chilean and other Third World inflations. First the exchange rate plunges as economies pay for foreign military spending during the war, and then – in Germany’s case – reparations after the war ends. These payments led the exchange rate to fall, increasing the price in domestic currency of buying imports priced in hard currencies. This price rise for imported goods creates a price umbrella for domestic prices to follow suit. More domestic money is needed to finance economic activity at the higher price level. This German experience provides the classic example.

In a stagnant economy, a UBI can create the demand needed to clear the shelves of unsold products and drive new productivity. Robots do not buy food, clothing, or electronic gadgets. Demand must come from consumers, and for that they need money to spend. As robots increasingly take over human jobs, the choices will be a UBI or to let half the population starve. A UBI is not “welfare” but is simply a dividend paid for living in the 21st century, when automation has freed us to enjoy some leisure and engage in more meaningful pursuits.

____________________

 

Yahoo Hacking Of 3 Billion Accounts Underlines Cyber Risk

5-Oct-2017

– Yahoo admits every single one of 3 billion accounts hacked in 2013 data theft
– Equifax hacking and security breach exposes half of the U.S. population
– Some 143 million people vulnerable to identity theft
– Deloitte hack compromised sensitive emails and client data
– JP Morgan hacked and New York Fed hacked and robbed
– International hacking group steals $300 million
– Global digital banking  and financial system not secure

Editor Mark O’Byrne

Imagine there was a chemical disaster at a factory. The surrounding water and air supply are affected over hundreds of miles. Thousands of people, if not more, are affected.

There would be a national response. Governments would step in to ask why this had happened, how it was going to be dealt with and how it would be prevented.

More importantly, those affected would be notified with immediate effect. The responsible company would not set up a website inviting potential victims to log on with personal details in order to find out if and how badly they have been affected.

And if the company did do this then people and the government wouldn’t stand for it.

Imagine that another disaster happens a few months later, at another company. But it turns out the dangerous chemicals have been leaking into the environment for possibly the previous three months.

No-one knows the extent of the damage.

There would be uproar.

Yet there seems to be little reaction when the equivalent happens in the cyber world. Just this week, less than a month after the Equifax announcement, Yahoo have admitted all 3 billion accounts were compromised four years ago … four years ago …

This is just another example of repeated data breaches that have compromised the personal data and lives of billions of people.

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.

What Few Expect: Inflation Will Surge, Destabilizing the Status Quo

4-Oct-2017

If there is any economic truism that is accepted by virtually everyone, it’s that inflation is low and will stay low into the foreseeable future. The reasons are numerous: technology is deflationary, globalization is deflationary, central banks will keep interest rates near-zero essentially forever, and so on.

Just for laughs, let’s look at healthcare, almost 20% of America’s entire economy, as an example of low inflation forever. If being up over 200% in the 21st century is low inflation, I’d hate to see high inflation.

Here’s the official Consumer Price Index (CPI), which as many have noted, severely distorts real-world inflation by claiming big-ticket items such as college tuition and healthcare are mere slivers in household budgets.

Note the remarkably stable trend line in CPI over the past 40 years. This certainly doesn’t shout “inflation is near-zero and will stay low indefinitely.”

Here’s the PCE, Personal Consumption Expenditures, the Federal Reserve’s favored measure of core inflation. Let’s put it this way: either the PCE is real and the CPI is false, or vice versa; they can’t both be accurate measures of real-world inflation.

Here’s a look at the annual rate of inflation. The go-go years prior to the Global Financial Meltdown of 2008-09 and the years of “recovery” 2010 to 2014 look very similar: some modest volatility between 1.7% and 2.5% annually.

But something changed in 2015-2017. The wheels fell off and then inflation turned up. Maybe it was nothing, maybe not. Let’s turn to a chart of asset inflation for a different perspective.

Courtesy of Goldman Sachs, here is a chart comparing asset inflation with real-world inflation. Note how assets have soared while real-economy measures have barely edged higher–commodities actually fell in price.

Now let’s look at where the gains of the “recovery” were concentrated: in the hands of the few in the top .5%. This chart depicts the unprecedented concentration of income gains in the very apex of the wealth-power pyramid. Needless to say, very little trickled down to the bottom 90%, and even the top 9.5% received mere crumbs.

So what do these charts tell us about future inflation prospects? To the conventional punditry, they suggest more of the same: higher asset valuations, low real-world inflation and near-zero interest rates (courtesy of central bank purchases of bonds and other financial assets).

I beg to differ. To me, these charts suggest real-world inflation is about to take off in the next 5 years, surprising everyone who expected more of the same. My reasoning is simple:

The leadership of the Status Quo has a simple choice: continue with more of the same, enriching the top .5% at the expense of everyone else, and face a political firestorm of upheaval, instability and insurrection, or start funneling the trillions of dollars, yen, yuan and euros that have been channeled into the hands of the few into the hands of the many.

The policy of funneling fresh cash into the hands of households has a number of variations: negative tax rates (lower income households get a hefty tax rebate annually), Universal Basic Income (UBI–every adult gets a monthly cash stipend), QE for the people (the central bank buys special government bonds that eliminate all student loan debt), and so on.

Where virtually all central bank monetary stimulus over the past 8 years went into assets, QE for the people would go right into household bank accountswhere most of it will be spent in the real economy.

The incomes of the bottom 90% have gone nowhere for 8 long years. No wonder real world inflation has been capped outside of housing, healthcare and higher education. (Never mind these are the dominant expenses for the majority of households.)

So what happens when fresh trillions start flowing into the real world economy instead of into assets? If history is any guide, inflation picks up. Toss in some global shortages in key commodities and the fuel for inflation will be ready to ignite.

One part of the inflation will stay low indefinitely story is there’s an abundance of everything: grain, oil, natural gas, copper, bat guano–you name it, the world is awash in the stuff.

Few seem to ponder the possibility that this surplus of everything might be temporary, a brief run of extraordinary luck rather than a permanent abundance. Few seem to ponder what global shortages in key commodities might do to prices.

Whether you call soaring prices inflation or not, the result is the same: the purchasing power of currency declines. Every unit of currency buys less of whatever is no longer in surplus.

The funny thing about inflation is that it’s not a problem that can be solved by creating trillions more dollars, yuan, yen and euros out of thin air. Issuing mountains of new currency actually increases inflation.

Oops. Our only “fix” is to issue trillions more in new currency and credit. If that doesn’t fix the problem, the toolbox is empty. 

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.

Silver Carves Out A Bottom THEN MEETS MC HAMMER

4-Oct-2017

Since the silver market opened on Sunday night, there seems to have been a bottom carved out on the chart:

 

The action on the daily supports the rounded bottom:

However, the fingers are at the ready, and as the lesser of the two jobs reports just hit the tape, this is the reality we face:

Yes, it is disgusting. It’s not a song and a dance. Every opportunity is used to sell paper silver into the market. This week, the cartel has the upper hand with all markets in China closed all week long. However, let’s put it in perspective.

–> Click here to continue reading on Silver Doctors

Safe Haven Silver To Outperform Gold In Q4 And In 2018

4-Oct-2017

– Safe haven silver to outperform gold in Q4 and 2018
– “Expect silver to eventually outperform gold” say Metals Focus

– 2017 YTD, silver has underperformed gold, climbing by 5% versus 11%
– Silver undervalued versus gold and especially stocks, bonds and many property markets
– Will follow gold’s reactions to macroeconomic & geopolitical factors and should outperform gold
– Special report on India shows it accounts for just 16% of global silver demand
– Silver a “safe haven at times during which gold failed to be” according to academic research

Since the beginning of 2017 the silver price has disappointed many investors. With a 5% gain so far in 2017, it has failed to match gold’s 11% gains this year. Both precious metals have ultimately performed below expectations given the positive macroeconomic and geopolitical backdrop.

However, things are starting to look up for the industrial precious metal as industry observers believe it will outperform gold this quarter and into 2018.

In a recent Metals Focus report, the precious metals consultancy concluded that we do expect silver to eventually outperform gold.’ 

Whilst demand for silver coins in the US has been weak, there are some indicators that suggest this physical demand is beginning to pick up, alongside industrial demand. For example, there has been robust silver ETF demand and in September there was significant uptick in those taking immediate delivery on COMEX.

This year has also taken many market participants by surprise as silver demand has fallen in a number of areas. One of which is India.

The Metals Focus report for the Silver Institute believes that Indian demand in 2017 has not matched the decades’ unprecedented silver demand due to higher prices and a clampdown by Indian government on unbanked money in the drive to the cashless society.

However, incomes and the economy and both growing which leads the report to conclude that demand will come back to the country with a bang.

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.

[KR1131] Keiser Report: Who’s affected most by anti-Russian sanctions?

3-Oct-2017

In this episode of the Keiser Report from Phoenix, Arizona, Max and Stacy take a look at the underreported UN report on Russia sanctions and what the report might teach the individual about maintaining economic sovereignty. In the second half, Stacy interviews Erik Voorhees of ShapeShift.io about the latest crackdowns on Initial Coin Offerings in the cryptocurrency space. They also discuss whether or not bitcoin is a store of value or a payment system. Or both.

What If the Tax Donkeys Rebel?

3-Oct-2017

Since federal income taxes are in the spotlight, let’s ask a question that rarely (if ever) makes it into the public discussion: what if the tax donkeys who pay most of the tax rebel? There are several likely reasons why this question rarely arises.

1. Most commentators may not realize that the vast majority of income taxes are paid by the top 10%–and that roughly 60% are paid by the top 4% of households. (A nice example of the Pareto Distribution, i.e. the 80/20 rule, which can be extended to the 64/4 rule.)

As David Stockman noted in Trump’s 1,500-word Airball“Among the 148 million income tax filers, the bottom 53 million owed zero taxes in the most recent year (2014), and the bottom half (74 million) paid an aggregate total of just $45 billion. So let me be very clear. There was still $4 trillion left in the collective pockets of these 122 million taxpayers — even after the IRS had its way with them!

By contrast, the top 4% or 6.2 million filers paid $802 billion in Federal income taxes. That amounted to nearly 58% of total Federal income tax payments.”

2. Few commentators draw a distinction between earned income (wages and salaries)and unearned income (dividends, interest, and more broadly, rentier income streams from the ownership of productive assets.

Here are a few examples to clarify the difference. Let’s say a couple earn $300,000 a year–a nice chunk of change, to be sure, but since this is earned income, it’s exposed to higher tax rates: 33% and up.

The primary tax breaks available to wage earners are mortgage interest and tax-deferred retirement contributions (IRAs and 401Ks). But there’s only so much income that can be sheltered with these deductions. The household earning $300,000 may not own much in the way of wealth, and might even devote much of that income to servicing student loans, paying private school tuition, supporting elderly parents, etc.

If this household is typical, its primary wealth/assets are home equity and retirement funds. A house doesn’t generate income, and any income generated by retirement funds is unavailable until retirement age, unless the owners are willing to pay steep penalties.

Now compare the hard-working folks earning $300,000 with a couple who don’t work at all, but live off a rentier/investment income of $300,000 annually. Long-time readers know I often distinguish between assets that don’t generate income (the family home, etc.) and assets that produce income, i.e. productive assets such as family businesses, stocks, bonds, commercial real estate, etc.

If these wealthy folks are typical, much of their income is taxed as capital gains at 15%, not 35%, and they also avoid the Social Security/Medicare payroll taxes paid by wage earners and the self-employed.

If we separate out these sources of income and types of wealth, we can distinguish two separate classes of high-income taxpayers: those who earn a lot of money and pay a lot of taxes, but who don’t get much income from productive assets/wealth. Furthermore, any increases in the value of their primary assets (the family home and retirement funds) are not available in the same way as gains registered in stocks, bonds, and other income-yielding assets.

These high-earners are tax donkeys–they pay much of the nation’s income tax but have to work hard for that privilege. While they typically have considerably more wealth than lower income households, their wealth is either inaccessible or unproductive, i.e. doesn’t generate income.

The top 9.5% of households are tax donkeys to some degree, while the top .5% are typically rentiers who live very well off the income streams flowing from productive wealth (apartment buildings, ownership of businesses, stocks, bonds, etc.)

At some point, tax donkeys may decide that it’s no longer worth it to work so hard, and so they downsize, retire, sell the business, etc.–get out while the getting’s good. The average wage earner may reckon that those making the big bucks and paying the big taxes would never stop slaving away because their net income would drop–and who would voluntarily let their income decline?

I would hazard a guess that an increasing number of tax donkeys are considering dropping out as a means of increasing their happiness and satisfaction with life. When the often overworked tax donkeys start bailing out, there may be no substitute source of taxes.

Those who reckon some new tax donkey will quickly take the place of the retiring tax donkey overlook the fact that many are entrepreneurs and/or highly experienced professionals who can’t be replaced as easily as a typical salaried person.

Courtesy of my esteemed colleague Lance Roberts, here are some charts that illuminate the widening disparities of income and wealth that differentiate those who pay little income tax, the tax donkeys and those who pay lower rates of taxes on unearned income: (Fed Admits The Failure Of Prosperity For The Bottom 90%):

Family income:

Family financial assets:

Business equity:

 

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.

Plan For Coming Run On The Pound

3-Oct-2017

Run On The Pound ? Jeremy Corbyn Says Should Plan For

– Right to plan for ‘run on pound’ if Labour wins says Corbyn and Labour party 
– British pound already down 20% since Brexit, collapse already in play
– Run on the pound likely due to Labour’s ‘command economy’ approach
– Collapse in Sterling would undermine UK financial system
– Portfolios holding sterling and related assets would be significantly affected
– Pension funds and property the most likely to get hit by run on the pound
– Gold to benefit as sterling collapse picks up pace

Editor: Mark O’Byrne

Last week Labour Shadow Chancellor John McDonnell said the party was carrying out “war-game-type scenario-planning” for events such as “a run on the pound”.

A run on the pound would see the value of the currency plummet, increase inflation and increase the value of those age old stores of value – namely gold and silver.

McDonnell’s reasons for war-gaming were because of expectations that a ‘radical’ Labour government would face a range of challenges.

He said was seeking to “answer the question about what happens when, or if, they come for us”.

When asked what McDonnell meant by ‘they’, party leader Jeremy Corbyn said he was likely referring to outside forces who have previously punished Labour governments in such a way.

Of course the most famous run on the pound in living memory happened in 1992 but for Labour it was nearly 50 years ago that still haunts them.

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.

Russia Gold Rush Sees Record Reserves For Putin Era

2-Oct-2017

Russia Gold Rush Sees Record Reserves For Putin Era

by Yuliya Fedorinova of Bloomberg via Irish Indepedent

Vladimir Putin is doing his part to keep the upswing in gold alive.

Since the Russian president went on a geopolitical offensive in Ukraine in 2014, the haven asset had its first annual gain in four years in 2016 and is on track for another in 2017.

Click to enlarge. Russia added another 500,000 ounces of gold to it’s reserves in August. Source: Goldchartsrus.com

A beneficiary of economic and political perils from North Korea to Brexit, it’s among the top-performing commodities this year.

Meanwhile, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data.

In the second quarter alone, it accounted for 38pc of all gold purchased by central banks.

The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.

But what may matter most is that gold is as geopolitics-proof an investment as any in the age of sanctions and a deepening rift with the US.

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.

[KR1130] Keiser Report: Muted Inflation

30-Sep-2017

In this episode of the Keiser Report from Aspen, Colorado, Max and Stacy take a look at the trillion-dollar mystery of muted inflation. While central banks are stumped, the Keiser Report suggests that the insanely concentrated wealth and flushing euros down the toilet could have something to do with it. Max interviews cryptographer Charles Hoskinson, of IOHK.io, about dissing ICOs, banning bitcoin and the future of proof of stake over proof of work.

Pages