Economics

Economics
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[KR1075] Keiser Report: ‘Criminal Organisation Deutsche Bank’

25-May-2017

We discuss Deutsche Bank: International criminal organisation; so says the judges presiding over the case of the collapse of the world’s oldest bank at the hands of some deadly derivatives. In the second half, Max interviews J.P. Sottile of Newsvandal.com about the robot economy and the future of employment.

Should I Invest My Fortune in Gold? Latest Research

25-May-2017

PRESENTATION HIGHLIGHTS

– Should I invest my fortune in gold?
– Lessons from gold and silver: Reviewing the research
– What precious metals can tell us about finance?
– What are precious metals and why should we care?
– What size of market and how evolved over time?
– Long and detailed history of gold and silver as money
– What does a tonne of gold look like?


– Research on precious metals including volatility and inflation
– Where produced and where demand from and how evolved and who studying precious metals
– Game of Thrones & Scrooge McDuck’s gold and the Hyperinflation of Smaug
– Gold and silver manipulation – “Was the fix a fix”?
– Gold a ‘permabubble’ or in correction?
– Gold costs $1,000/oz to mine so unlikely to fall below that level
– Drivers of retail coin and bar investment
– How does sentiment and mood affect precious metals?
– Why do central banks continue to buy and hold gold?
– Historical studies of precious metals
– How much to hold and when?
– Gold is proven safe haven – rises sharply when uncertainty and in economic crisis
Research says 10% a good allocation; 30% is high
– Silver similar – 1% to 5% and 10% allocation good in crisis
– One of Ireland’s great exporting services, small to medium size enterprise (SME) is here in the form of GoldCore and can help
– Do not spend too long staring at and obsessing about gold or might turn into Gollum
– Question and answer session


How the economics of gold and silver can help us understand the challenges facing financial economics and whether we should invest in gold and silver was explored in an inaugural lecture by Professor Brian Lucey, Professor of International Finance and Commodities in Trinity Business School.

In the lecture, entitled Golden Opportunities: What precious metals can tell us about finance, Professor Lucey examined the research space in the financial economics of precious metals.

Read full story here…

Access Award Winning Daily and Weekly Updates Here

Three Huge Opportunities in FinTech for Willing Techpreneurs

25-May-2017

Fintech is here to stay and traditional brick and mortal financial institutions are already rising up from their slumber to launch digital versions of their products and services. Analysts at KPMG noted that the global investment in fintech startups jumped to $24.7B spread across 1076 deals in 2016. Interestingly, you don’t have to be a core finance person to build a valuable fintech product.

If you can identify a problem that fintech can solve; your passion, commitment, and focus might be all you need (at the start) to build a fintech company. Entrepreneur once did a feature piece on Sam Ovens, a 26-year-old who built a $10 million consulting business from scratch. In his advice to inexperienced entrepreneurs, he noted that

“thanks to the huge availability of information these days, any entrepreneur can teach him or herself just about anything.” 

Interestingly, Sam’s first three businesses failed but his resilience and willingness to learn from his mistakes eventually led him on to success.  If you are willing to jump on the entrepreneurial rollercoaster, below are three interesting opportunities that you might want to pursue in fintech.

Simple and cheap accounting tools for small businesses

Providing accounting solutions for businesses is a big business. From the humble days of pen on paper, VisicCalc, Excel, QuickBooks among others; businesses can’t do without accounting tools. Many of the business accounting solutions are either too complex for the average business owner or too expensive for a fledging business. The free ones have are bloated with Ads and you might need to pay for customer service.

Small businesses, freelancers, and people who work from home need simplified and affordable accounting solutions. Being a small business owner is hard enough, adding the extra accounting and bookkeeping responsibilities can be a draining chore. If you can find a way to help people manage their business finances easily at an affordable cost, you’ll be surprised at how soon you can scale and grow your startup.

Smarter personal finance management tools

Fintech is already putting an end to the reign of financial advisors with the arrival of products and services to help people manage their finances. There are apps for budgeting, tracking expenses, making automated savings, paying bills. Robo advisors are even providing personalized wealth and investment management solutions.

However, there are still opportunities for smarter personal finance management tools. For instance, many people still don’t know how to separate their wants from their needs and they end up making impulsive purchases that hurt their finances. Many people are struggling under huge debt burdens and an automated debt consolidation tool could be a saving grace for them.

Smarter microfinancing solutions

The rise of peer to peer lending is already providing micro financing solutions to people who are ‘unserved’ or ‘underserved’ by traditional financial institutions. However, banks still control a large part of the financial services market and true digital banks could cause a huge paradigm shift. I am especially looking forward to alternative financing options that allow people to pay in installments when buying goods online and offline.

Analysts expect the lending and loans industry to be worth $1 trillion by 2025; hence, the growth opportunity for fintech disruptors is massive. A true digital bank that makes it easy for people to access business and consumer credits should enjoy a warm welcome.

Does the World End in Fire or Ice? Thoughts on Japan and the Inflation/Deflation Debate

24-May-2017

Do we implode in a deflationary death spiral (ice) or in an inflationary death spiral (fire)? Debating the question has been a popular parlor game for years, with Eric Janszen’s 1999 Ka-Poom Deflation/Inflation Theory often anchoring the discussion.

I invite everyone interested in the debate to read Janszen’s reasoning and prediction of a deflationary spiral that then triggers a monstrous inflationary response from central banks/states desperate to prop up their faltering status quo.

Alternatively, economies can skip the deflationary spiral and move directly to the collapse of their currency via hyper-inflation. This chart of the Venezuelan currency (Bolivar) illustrates the “skip deflation, go straight to hyper-inflation” pathway:

If we set aside the many financial rabbit holes of the inflation/deflation discussion, we find three dominant non-financial dynamics in play:demographics, technology and energy.

As populations age and retire, the resulting decline in incomes and spending are inherently deflationary: less money is earned, and less money is spent, reducing economic activity (gross domestic product).

The elderly also sell assets such as stocks, bonds and their primary house to fund their retirement, and if the elderly populace is a major cohort (due to low birth rates and increasing life spans, etc.), then this mass dumping of assets is also deflationary, as the increasing supply of sellers and the stagnating supply of buyers pushes prices lower.

Recession and stagnation are also deflationary. Shift 10 million workers from secure fulltime employment with full benefits to low-paid, insecure part-time jobs with few benefits, and you have a self-reinforcing deflationary spiral in action: a significant percentage of the workforce is now receiving far less income, which necessarily slashes their spending and just as importantly, their ability to borrow huge sums of money to buy vehicles, homes, overseas vacations, etc.

In consumer-dependent economies that are dependent on debt for much of the consumer spending, this decline in borrowing and spending power is extremely deflationary, as there is a lot less money available to chase the existing output of goods and services.

Japan is a case in point. A friend of ours who lived and worked in Japan for a decade (the 1990s) recently visited Japan again after 15 years working in Europe and the U.S., and he was surprised to find prices were the same or lower as when he was living in Japan.

This is the result of multiple sources of deflation operating in Japan.

A recent NHK TV program reported some young people in Japan are trickling back to rural villages and renting large traditional farm houses and the adjoining land for $200/month, a fraction of what they were paying for cramped studios in big cities. This is an example of deflation in action: people abandon costly housing, transportation, etc. and adopt lifestyles that generate far less income and far lower expenses–both are deflationary.

Given the structural rise of part-time employment, an aging populace and the deflationary impacts of technology and globalization, no wonder Japan is experiencing deflationary/stable prices.

Technology is relentlessly deflationary. Where consumers once spent small fortunes buying stereo equipment and music storage (LPs, cassettes, CDs, etc.), cameras, film, photo printing, etc., game consoles and equipment, small-screen TVs, and paying for telephony, now a single device–a smart phone–combines all these functions (with some obvious limitations) in one device.

Globalization and commoditization are also deflationary. Global wage arbitrage and automation lowers production costs, and the commoditization of labor and inputs (capital and materials) push prices lower.

Declining energy costs are also deflationary, as the cost of energy affects the pricing of almost every good and service.

We now discern the outlines of why money created out of thin air needn’t be as inflationary as expected. If economic activity declines by $1 trillion due to lower incomes, spending, etc., creating $1 trillion out of thin air and injecting it into the economy as monetary and fiscal stimulus is more or less simply replacing the $1 trillion of deflation.

The Bank of Japan has tripled its asset purchases (monetary stimulus and support of the stock and bond markets) with little apparent effect on conventional measures of inflation.

This print-to-offset deflationary declines may appear to be stable and sustainable, but the expansion of bonds (to fund fiscal stimulus) accrues interest, which even at low rates eventually starts burdening state spending.

All this new currency doesn’t necessarily lead to productive spending or investment; rather, it may increase mal-investment and systemic asymmetries that eventually destabilize the entire financial system.

Japan has managed to offset decades of deflationary dynamics, but at a cost that is hidden beneath the surface of apparent stability. Building bridges to nowhere and creating money from thin air to buy stocks and bonds only appears sustainable because the risks and imbalances are piling up out of sight. Eventually the “perfect balance” between deflation and inflation tips one way or the other, and a systemic crisis “nobody saw coming” unfolds.

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 and Silver Bullion Now Treated As Money In Arizona

24-May-2017

Gold and Silver Bullion Now Treated As Money In Arizona

by Ron Paul Liberty Report staff

Undermining the Federal Reserve received a major boost yesterday.

Arizona Governor Doug Ducey signed into law a bill that eliminates capital gains taxes on gold and silver, thus allowing Arizona residents to use precious metals as currency instead of Federal Reserve notes.

Currency competition against the monopolist Fed is starting to unfold. Let’s hope that other states follow in Arizona’s heroic footsteps. There’s no reason to wait for another severe financial crisis to act.

Read full story here…

Access Award Winning Daily and Weekly Updates Here

[KR1074] Keiser Report: ‘Long Live Trump!’

23-May-2017

We discuss how the new SALT conference is profiting from the distraction that is Cold War 2.0. While the Beltway media’s emotional and hysterical breakdown continues in the wake of Hillary Clinton’s humiliating political defeat to Donald Trump, the finance elite are winning bigly with deregulation and privatization under the cloak of #russiagate darkness. In the second half, Max continues his interview with Michael Pento of pentoport.com about debt and taxes in the age of Trump.

TINA’s Legacy: Free Money, Bread and Circuses and Collapse

23-May-2017

Every conventional “solution” to the systemic ills of our economy and society boils down to some version of free money: Universal Basic Income (UBI) schemes– free money for everyone, funded by borrowing from future taxpayers (robots, people, Martians, any fantasy will do); debt jubilees funded by central banks creating trillions out of thin air, a.k.a. free money, and so on.

Free money is compelling because, well, it’s free, and it solves all the problems created by burdensome debt and declining incomes for the bottom 95%. Just give every household $100,000 of free money that must be devoted to reducing interest, then give every household $20,000 annually for being among the living, and hey, a lot of problems go away.

But is creating money out of thin air really truly free? There are two appealing answers: yes and yes. If the Treasury literally prints money, it’s almost “free,” and if the Federal Reserve creates money and buys bonds paying near-zero yields, the money that is borrowed into existence is almost free because the interest due is so minimal.

The problem, of course, is that creating free money is not quite the same as creating new wealth. New wealth is a new gas/oil field that comes online, new cropland that produces a new source of food, new goods and services, etc.

In effect, every dollar of free money reduces the purchasing power of all existing units of currency unless the expansion of output (additional goods and services) matches or exceeds the added dollar.

This line of thinking is driven by two realities: governments have issued many promises to their citizens, employees, corporations, etc. These include pensions, medical care, backstops against losses, tax breaks, subsidies, and on and on in an endless profusion.

In order to fund these promises, governments must borrow immense sums of money that will never be paid back. The only way governments can afford to borrow immense sums that pile up oh-so quickly is if interest rates are kept near-zero for all eternity (or until the current generation of politicians retires, or the currency follows Venezuela’s currency to near-zero, whichever comes first).

As long as interest rates are kept near-zero, even $20 trillion in debt is manageable. Never mind if debt triples every few years–it’s affordable if interest rates are near-zero.

Everybody can borrow more at near-zero rates: governments, banks, consumers–it’s the cure-all to every debt burden. The problem is rates can never rise, lest the house of cards collapses.

$20 trillion at 5% interest requires an annual interest payment of $1 trillion–one-third of all federal revenue. $30 trillion at 10% interest would consume 100% of all federal tax revenues, leaving nothing for all the programs, obligations and promises of the central state.

Allow me to introduce TINA–there is no alternative to low rates forever and emitting of immense sums of new currency (not new wealth or productive output–just new currency) to fund various modern-day versions of bread and circuses for everyone.

TINA’s legacy is revealed in this chart of the Venezuelan Bolivar, which has plummeted from 10 to the US dollar to 5,800 to the USD in a few years of rampant money-emission. Free money is certainly compelling, at least to those desperate to cling to power, but sadly, newly emitted currency is never actually free.

At the height of its giveaways of free bread and endless distractions of public entertainment, Rome’s population is estimated to have been close to 1 million.

After the collapse of bread and circuses, the population of Rome eventually fell to roughly 25,000. But no worries–this time it’s different. We’ll get away with it because we buy our own debt, technology is deflationary, and so on. Simply put: the free bread and circuses will never end because we’re so powerful and nothing is outside our control.

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Manchester Attack Sees Asian Stocks Fall, Gold Firm

23-May-2017

The appalling attack in Manchester overnight in which over 22 people have been killed has led to a slight uptick in risk aversion in markets.

Investors are cautious after police said they were treating a bombing at a concert in the Manchester Arena as a “terrorist incident”.

Gold in GBP (24 hours)

Asian stocks  gave up gains after the attacks and European indices had a subdued start.

Gold rose in the aftermath of the attacks to three week highs prior to giving up some of the gains by mid morning trading.

Sterling fell marginally and gold in sterling terms rose as high as £973.55 prior to consolidating near £970. Sterling was down 0.2 percent against the dollar to $1.2978 after falling 0.3 percent on Monday.

If the blast is confirmed as a terrorist incident, it would be the deadliest attack in Britain by militants since four British Muslims killed 52 people in suicide bombings on London’s transport system in July 2005.


The attack has come just two-and-a-half weeks before an election that British Prime Minister Theresa May is expected to win easily.

Polls showing that the contest was tightening had added to sterling’s woes recently. A terrorist attack will likely benefit the Tory Party and Theresa May as they are perceived to be tougher on terrorism than the Labour Party.

Terrorist events have not impacted markets globally in recent months and years. However, the concern is that with consumers indebted and consumer sentiment vulnerable, a spate of terrorist attacks or worse a terrorist ‘spectacular’ akin to ‘September 11’ could badly impact already fragile economies and increasingly frothy financial markets.

Read full story here…

Access Award Winning Daily and Weekly Updates Here

Chinese Blockchain Company, ViewFin Inks Deal with Denmark’s OpenLedger

22-May-2017

“ViewFin is one of the leading blockchain companies in China, and we are confident that we will achieve more in our future cooperation. It is a great honor to work with a company which is so greatly respected and regarded in their home country. Together we will build something that is special and unique, and we will take the blockchain by storm.”

 

Danish Blockchain Company, OpenLedger ApS, has signed a Strategic Cooperation Framework Agreement with ViewFin, the market leader in Blockchain technology and the developer of Metaverse™, the first public Blockchain in China.

According to the partnership agreement, ViewFin will provide a full range of support to help OpenLedger with their business development in China, including cooperation of marketing, product and client platform. At the same time, OpenLedger will help ViewFin in the expansion of the European market with their resources. Furthermore, from today, Entropy (ETP), the Official Currency of Metaverse™, will be available on the OpenLedger Decentralized Exchange (DEX). OBITS, BitCNY, and BitShares (BTS) are planned to launch shortly on ViewFin’s exchange in a reciprocal agreement.

Eric Gu, the Founder and CEO of Viewfin, is a senior expert in Fintech and Digital Assets and a well-known opinion leader in the Chinese Blockchain ecosystem. Eric is also the main translator of China’s first published Blockchain book, “Blueprint for a New Economy”.

The OpenLedger Decentralized Conglomerate (DC) is the world’s first blockchain powered ecosystem which includes the OpenLedger DEX and OpenLedger’s Crowdfunding (ITO/ICO) Services. OpenLedger is now one of the most powerful cryptocurrency platforms, based on BitShares technology, hosting a number of blockchain based companies and their tokens on the ecosystem.

ViewFin is continuing its international expansion mandate by creating this important strategic partnership with OpenLedger ApS. “It is a great honor to be the official strategic partner of OpenLedger in the Chinese market. We expect this cooperation to allow us to reach the targets set in our global development strategy.” stated Eric Gu, CEO of ViewFin.

Ronny Boesing, CEO of OpenLedger ApS expressed his confidence in the cooperation, explaining, “ViewFin is one of the leading blockchain companies in China, and we are confident that we will achieve more in our future cooperation. It is a great honor to work with a company which is so greatly respected and regarded in their home country. Together we will build something that is special and unique, and we will take the blockchain by storm.”

Gold Has “Decisive Turn Around” – “Next Stop Is $1,300 Or Higher” – Rickards

22-May-2017

James Rickards via Daily Reckoning

But the most important development this week may be the one you never heard about on the news or the internet.

On May 10, gold launched a decisive turnaround from its most recent decline.

This kept intact the pattern I’ve been writing about for weeks of “higher highs, and higher lows” as every retreat finds a footing higher than the one before and each new high reaches new, higher ground.

Gold in USD (5 Years)

This pattern began on Dec. 15, 2016, at an interim low of $1,128/oz. Since then gold has hit new highs of:

  • $1,216/oz on Jan. 17
  • $1,256/oz on Feb. 24
  • $1,289/oz on April 18.

Each time gold retreated from those highs, it found a new bottom at a higher price than the time before. The recent low was $1,218/oz on May 10. In this new spike, gold has now rallied to $1,251 as of early Friday.

If this pattern holds, the next stop is $1,300 or higher.

A Fed rate hike on June 14 could be a catalyst for a move even higher, just as the last two rate hikes on Dec. 14, 2016, and March 15, 2017, were turning points for gold.

Read full story here…

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[KR1073] Keiser Report: Debt & Taxes in the Age of Trump

20-May-2017

We discuss the great narrowing of the S&P 500 and how Amazon destroyed the department store. In the second half, Max interviews Michael Pento of pentoport.com about debt and taxes in the age of Trump.

Gold and Silver Bullion Coins See Sales “Explosion” In UK On “Wave Of Political Turmoil”

19-May-2017

Gold and Silver Bullion Coins See Sales “Explosion” In UK On “Wave Of Political Turmoil”

by Jan Harvey of Reuters

In a warehouse a dozen miles to the northwest of Cardiff, the Royal Mint is running its machines through the night to keep up with demand for one of the big beneficiaries of the last year’s political turmoil – gold and silver bullion.

Gold Sovereigns

The 1,100-year-old Mint, based here since the 1960s, is producing 50 percent more gold bullion coins and bars than it was this time last year, director of bullion Chris Howard says, while its sales in January rose by a third.

With growth prospects for its core minting business limited by the advent of the cashless society, the Mint has focused heavily on growing its bullion arm in the last few years.

Its contribution to the overall business’s bottom line has gone from negligible levels in 2012 to more than a quarter in the last year.

“We used to send these out by the box,” head of bullion sales Nick Bowkett says, indicating stacks of silver coins packed for transit in the Mint’s bullion striking room. “Now we ship them out by the pallet.”

Next door, the Mint’s core business — producing commemorative coins and legal tender for 60 different countries — is churning out crates of coinage, including the new 12-sided British pound, due to launch in March.

But it’s the bullion arm that is really ramping up.

While in global terms the Mint is still small — its total gold sales of 237,000 ounces last year were dwarfed by the U.S. Mint’s 1.2 million ounces of gold Eagle and Buffalo coin sales, the Austrian Mint’s 534,000 ounces of gold Philharmonic coin sales, and the Perth Mint’s 520,000 ounces of gold sales — its bullion unit expanded both revenue and profit by two-thirds last year.

Read full story here…

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f China Can Fund infrastructure with Its Own Credit, So Can We

18-May-2017

May 15th-19th has been designated “National Infrastructure Week” by the US Chambers of Commerce, the American Society of Civil Engineers (ASCE), and over 150 affiliates. Their message: “It’s time to rebuild.” Ever since ASCE began issuing its “National Infrastructure Report Card” in 1998, the nation has gotten a dismal grade of D or D+. In the meantime, the estimated cost of fixing its infrastructure has gone up from $1.3 trillion to $4.6 trillion.

While American politicians debate endlessly over how to finance the needed fixes and which ones to implement, the Chinese have managed to fund massive infrastructure projects all across their country, including 12,000 miles of high-speed rail built just in the last decade. How have they done it, and why can’t we?

A key difference between China and the US is that the Chinese government owns the majority of its banks. About 40% of the funding for its giant railway project comes from bonds issued by the Ministry of Railway, 10-20% comes from provincial and local governments, and the remaining 40-50% is provided by loans from federally-owned banks and financial institutions. Like private banks, state-owned banks simply create money as credit on their books. (More on this below.) The difference is that they return their profits to the government, making the loans interest-free; and the loans can be rolled over indefinitely. In effect, the Chinese government decides what work it wants done, draws on its own national credit card, pays Chinese workers to do it, and repays the loans with the proceeds.

The US government could do that too, without raising taxes, slashing services, cutting pensions, or privatizing industries. How this could be done quickly and cheaply will be considered here, after a look at the funding proposals currently on the table and at why they are not satisfactory solutions to the nation’s growing infrastructure deficit.

The Endless Debate over Funding and the Relentless Push to Privatize

In a May 15, 2017, report on In the Public Interest, the debate taking shape heading into National Infrastructure Week was summarized like this:

The Trump administration, road privatization industry, and a broad mix of congressional leaders are keen on ramping up a large private financing component (under the marketing rubric of ‘public-private partnerships’), but have not yet reached full agreement on what the proportion should be between tax breaks and new public money—and where that money would come from. Over 500 projects are being pitched to the White House. . . .

Democrats have had a full plan on the table since January, advocating for new federal funding and a program of infrastructure renewal spread through a broad range of sectors and regions. And last week, a coalition of right wing, Koch-backed groups led by Freedom Partners . . . released a letter encouraging Congress “to prioritize fiscal responsibility” and focus instead on slashing public transportation, splitting up transportation policy into the individual states, and eliminating labor and environmental protections (i.e., gutting the permitting process). They attacked the idea of a national infrastructure bank and . . . targeted the most important proposal of the Trump administration . . . —to finance new infrastructure by tax reform to enable repatriation of overseas corporate revenues . . . .

In a November 2014 editorial titled “How Two Billionaires Are Destroying High Speed Rail in America,” author Julie Doubleday observed that the US push against public mass transit has been led by a think tank called the Reason Foundation, which is funded by the Koch brothers. Their $44 billion fortune comes largely from Koch Industries, an oil and gas conglomerate with a vested interest in mass transit’s competitors, those single-rider vehicles using the roads that are heavily subsidized by the federal government.

Clearly, not all Republicans are opposed to funding infrastructure, since Donald Trump’s $1 trillion infrastructure plan was a centerpiece of his presidential campaign, and his Republican base voted him into office. But “establishment Republicans” have traditionally opposed infrastructure spending. Why? According to a May 15, 2015 article in Daily Kos titled “Why Do Republicans Really Oppose Infrastructure Spending?”:

Republicans – at the behest of their mega-bank/private equity patrons – really, deeply want to privatize the nation’s infrastructure and turn such public resources into privately owned, profit centers. More than anything else, this privatization fetish explains Republicans’ efforts to gut and discredit public infrastructure . . . .

If the goal is to privatize and monetize public assets, the last thing Republicans are going to do is fund and maintain public confidence in such assets. Rather, when private equity wants to acquire something, the typical playbook is to first make sure that such assets are what is known as “distressed assets” (i.e., cheaper to buy).

A similar argument was advanced by Noam Chomsky in a 2011 lecture titled “The State-Corporate Complex: A Threat to Freedom and Survival”. He said:

[T]here is a standard technique of privatization, namely defund what you want to privatize. Like when Thatcher wanted to [privatize] the railroads, first thing to do is defund them, then they don’t work and people get angry and they want a change. You say okay, privatize them . . . .

What’s Wrong with Public-Private Partnerships?

Privatization (or “asset relocation” as it is sometimes euphemistically called) means selling public utilities to private equity investors, who them rent them back to the public, squeezing their profits from high user fees and tolls. Private equity investment now generates an average return of about 11.8 percent annually on a ten-year basis. That puts the cost to the public of financing $1 trillion in infrastructure projects over 10 years at around $1.18 trillion, more than doubling the cost. Moving assets off the government’s balance sheet by privatizing them looks attractive to politicians concerned with this year’s bottom line, but it’s a bad deal for the public. Decades from now, people will still be paying higher tolls for the sake of Wall Street profits on an asset that could have belonged to them all along.

One example is the Dulles Greenway, a toll road outside Washington, D.C., nicknamed the “Champagne Highway” due to its extraordinarily high rates and severe underutilization in a region crippled by chronic traffic problems. Local (mostly Republican) officials have tried in vain for years to either force the private owners to lower the toll rates or have the state take the road into public ownership. In 2014, the private operators of the Indiana Toll Road, one of the best-known public-private partnerships (PPPs), filed for bankruptcy after demand dropped, due at least in part to rising toll rates. Other high-profile PPP bankruptcies have occurred in San Diego, CA; Richmond, VA; and Texas.

Countering the dogma that “private companies can always do it better and cheaper,” studies have found that on average, private contractors charge more than twice as much as the government would have paid federal workers for the same job. A 2011 report by the Brookings Institution found that “in practice [PPPs] have been dogged by contract design problems, waste, and unrealistic expectations.” In their 2015 report “Why Public-Private Partnerships Don’t Work,” Public Services International stated that “[E]xperience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies.” They also divert public money away from the neediest infrastructure projects, which may not deliver sizable returns, in favor of those big-ticket items that will deliver hefty profits to investors.

A Better Way to Design an Infrastructure Bank

The Trump team has also reportedly discussed the possibility of an infrastructure bank, but that proposal faces similar hurdles. The details of the proposal are as yet unknown, but past conceptions of an infrastructure bank envision a quasi-bank (not a physical, deposit-taking institution) seeded by the federal government, possibly from taxes on the repatriation of offshore corporate profits. The bank would issue bonds, tax credits, and loan guarantees to state and local governments to leverage private sector investment. As with the private equity proposal, an infrastructure bank would rely on public-private partnerships and investors who would be disinclined to invest in projects that did not generate hefty returns. And those returns would again be paid by the public in the form of tolls, fees, higher rates, and payments from state and local governments.

There is another way to set up a publicly-owned bank. Today’s infrastructure banks are basically revolving funds. A dollar invested is a dollar lent, which must return to the bank (with interest) before it can be lent again. A chartered depository bank, on the other hand, can turn a one-dollar investment into ten dollars in loans. It can do this because depository banks actually create deposits when they make loans. This was acknowledged by economists both at the Bank of England (in a March 2014 paper entitled “Money Creation in the Modern Economy”) and at the Bundesbank (the German central bank) in an April 2017 report.

Contrary to conventional wisdom, money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The Bank of England report said that private banks create nearly 97 percent of the money supply today. Borrowing from banks (rather than the bond market) expands the circulating money supply. This is something the Federal Reserve tried but failed to do with its quantitative easing (QE) policies: stimulate the economy by expanding the bank lending that expands the money supply.

The stellar (and only) model of a publicly-owned depository bank in the United States is the Bank of North Dakota (BND). It holds all of its home state’s revenues as deposits by law, acting as a sort of “mini-Fed” for North Dakota. According to reports, the BND is more profitable even than Goldman Sachs, has a better credit rating than J.P. Morgan Chase, and has seen solid profit growth for almost 15 years. The BND continued to report record profits after two years of oil bust in the state, suggesting that it is highly profitable on its own merits because of its business model. The BND does not pay bonuses, fees, or commissions; has no high paid executives; does not speculate on risky derivatives; 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 distributes them as dividends to the state.

The federal government could set up a bank on a similar model. It has massive revenues, which it could leverage into credit for its own purposes. Since financing is typically about 50 percent of the cost of infrastructure, the government could cut infrastructure costs in half by borrowing from its own bank. Public-private partnerships are a good deal for investors but a bad deal for the public. The federal government can generate its own credit without private financial middlemen. That is how China does it, and we can too.

For more detail on this and other ways to solve the infrastructure problem without raising taxes, slashing services, or privatizing public assets, see Ellen Brown, “Rebuilding America’s Infrastructure,”a policy brief for the Next System Project, March 2017.

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The Supply Glut in Crude Oil is Not Ending Anytime Soon

18-May-2017

The supply glut that has crippled crude oil prices for much of the last two years is still very much in place and oil prices might not start going up anytime soon. Last week, global crude oil prices crashed into the $40’s range after hedge funds, investors, and other stakeholders started panicking about the prospects of oil.

Last Friday, the global Brent for June delivery declined a massive 2.30% to $51.77 per barrel and the West Texas Intermediate for June delivery declined by 2.52% to $49.43 per barrel. In the last one week, both the Brent crude and the West Texas Intermediate have declined by more than 7%. This piece seeks to identify the reasons behind the unending weakness in crude oil prices.

OPEC’s effort to end the supply glut might be futile

Last year, OPEC announced that it has worked out a deal between cartel members and some other oil-producing countries to end the supply glut in oil. In January, the cartel announced that it has recorded more than 80% compliance on the proposed cuts. However, recent market reports suggest that the production cut hasn’t done much to end the glut in crude oil supplies.

To start with, U.S. producers added new rigs for the 14th straight week according to a Baker Hughes report for the week ending April 22. In fact, U.S. rig count increased by about 40% in the first quarter compared to the same period in 2016. U.S. Shale oil production is also at its highest level since August 2015. U.S. oil producers are pumping out record volume of oil; hence, OPEC’s production cuts have not been able to do much to end the supply glut.

However, stakeholders within OPEC are leaning towards the possibility of extending the cuts into the second half of the year. A number of OPEC members are recommending an extension that will deepen cuts by 1.8 million barrels per day – we will know if OPEC will end or extend cuts when it meets on May 25.

Here’s what analysts think about the prospects of oil

Analysts have started weighing in on where they think the crude oil market is headed. As it is to be expected, there’s a mix of bullish and bearish sentiment on how the demand-supply imbalance in crude oil might pan out.

On the bearish side, last week’s sudden price dip is giving traders and investors the hibbie jibbies about the volatile nature of the markets. Andre Riley, in a recent market commentary at Saxon Trade observed that “the increase in U.S. gasoline supplies for the first time since February and a nine-week straight increase in U.S. crude production are encouraging oil shorts to place increased bearish bets on crude oil.”

Another analyst, Bjarne Schieldrop, chief commodities analyst at Nordic bank observes that oil prices will remain depressed going forward because OPEC is not likely to extend its supply cuts. He noted that OPEC is becoming increasingly vulnerable to “more stimulus of the U.S. shale oil sector.”

Interestingly, analysts at Goldman Sachs have observed the increased short side interest triggered panic selloff that weakened oil prices. Damien Courvalin and Jeffrey Currie in a Goldman Sachs report noted that “we view technicals rather than fundamentals as the driver of this move lower.”  The analysts also noted that there’s no fundamental basis for the sudden dip in oil prices because OPEC was already making progress in its bid to end the supply glut.

[KC001] KeiserCast – The Economics of Xenophobic Losers

18-May-2017

Max and I driving around in the car talking about the latest headlines. We’re going to start doing this as video soon, just working out the video half of the format. We’ll be doing these for the purpose that all our other material, unfortunately, broadcasts in the UK, along with the rest of the world. The UK, however, has heavily restrictive speech laws meaning we cannot say many things or cover many topics we will cover with this.

Listen to show here

More download options here

The Soft Underbelly of Scandinavian “High-Tax Happy-Capitalism”

18-May-2017

A media mini-industry touts Scandinavia’s “happiness” as the result of its high-tax, generous welfare state-capitalism. This mini-industry conveniently fails to report the soft underbelly of Scandinavia’s “High-Tax Happy-Capitalism”: The high-tax, generous welfare model is just as dependent on unsustainable credit bubbles as every other version of state-capitalism.

The glossy surface story goes like this: state-capitalism creates a happy, secure society if taxes are high enough to fund generous social welfare benefits for everyone. People are happy to pay the higher taxes because they value the generous benefits they receive.

The story has an implicit message: every state-capitalist society could become happy if only taxes were raised high enough to fund generous social welfare for all. There are many versions of this narrative, for example, the appealing (but financially impractical) “tax the robots” funded Universal Basic Income (UBI) that I have repeatedly debunked.

Put another way: state-managed capitalism works just great if high earners and companies pay high enough taxes to fund a rebalancing of wealth and income via social welfare transfers.

The reality is quite different from this glossy PR narrative. The Scandinavian economies have pursued the same unsustainable debt-bubble “fix” for their structural insolvency as other state-managed nations.

As the charts below reveal, the “happy” Scandinavian nations are now dependent on unprecedented debt/housing bubbles inflated by extreme monetary stimulus. The script is the same as in every other monetary “experiment” intended to create the illusion of solvency in an insolvent system: lower interest rates to zero (or below-zero if you’re really desperate), juice the financial system with liquidity/ easy credit, and base your measures of financial “health” on housing bubbles and other debt-based gimmicks. (Charts courtesy of the Acting Man blog)

Also left unmentioned is the Scandinavian reliance on export sectors for national income. This is of course the German model: make your money exporting to other nations that are over-borrowing to fund consumption.

So what happens when consumption in the importing nations crashes when debt bubbles pop? The economies of the export-dependent nations also implode. This is the inconvenient consequence of having an export-dependent economy.

Also left unsaid is the imperialist wealth amassed by the mini-empires of Denmark and Sweden. Denmark and Sweden had smaller but no less imperialist interests as the larger imperial powers, and ownership of foreign assets remains a hidden mainstay of their national incomes.

Put another way: if you want to be rich, start out rich.

Norway is a special case in two ways. Norway only won its full political independence from Denmark and then Sweden in 1905. Its current wealth is the direct result of a depleting resource: North Sea oil and gas. While Norway has amassed a large sovereign-wealth fund, it has already started to draw upon this fund.

The fund is of course largely invested in the usual debt-bubble-dependent “assets” that are doomed to implode along with the fiat currencies they prop up.

Does this explosion in Norway’s M2 money supply look healthy or sustainable to you? If so–what are you high on?

Does Sweden’s insane real estate bubble look healthy or sustainable to you? If so–what are you high on?

Does Denmark’s unprecedented levels of household debt look healthy or sustainable to you? If so–what are you high on?

Take away these unsustainable bubbles, and how “happy” will these economies (or their suddenly impoverished residents) be? Central planning based on central-bank inflated debt-asset bubbles works until it doesn’t. The day of reckoning draws ever nearer in every economy that’s created the illusion of solvency with debt/asset bubbles and export-dependent economies.

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[KR1072] Keiser Report: Welcome to White House aka Profit Source

18-May-2017

We discuss the big profits being made by companies whose corporate executives visit the White House. In the second half, Max interviews Chris Whalen, author of ‘Ford Men,’ to discuss Fannie & Freddie running out of money and the S&P Departments Store Index plunging.

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